How Minimizing Your Paycheck Can Maximize Your Savings

As beautiful as Ben’s smile may be, whisk him away into savings and you’ll be happier than ever. The old man himself agrees with me: “A penny saved is a penny earned!”

You just got that big promotion, or that new job, or that solid yearly raise. “Score!” you exclaim. “Now I can buy all the junk I ever wanted!” But taking a step back, you realize that while a small amount of that money can be used to buy that fancy new video game or purse, most of it should probably be saved toward the bigger things in life. But it’s so tempting seeing those extra couple Benjamins hanging out in your checking account…

In this post, I’ll show you how to shrink your paycheck so you’re never tempted to spend money you should be saving. Make yourself feel poor so you can get rich!

Strategy 1: MAXIMIZE Your Retirement Contributions

Increase the contributions on your 401k to lower the amount that you’ll get each paycheck. This money is going toward a good cause (your retirement!) and your employer withdraws it from your paycheck before you even see it hit your account. I recommend maxxing out the 401k ($18,000 per year) if you can afford to, but I know some aren’t able to do so. Instead, you could increase your 401k contributions proportionate to any pay increase so that the extra money is never available to spend.

You can also set up auto-withdrawals for your IRA account. Most banks will allow you to establish an automatic transfer that will withdraw every payday, whisking those dollars away before you ever have a chance to get excited about them.

Strategy 2: minimize Your Debt

If you’re in the process of aggressively paying down debt, consider having your extra payments auto-withdrawn from your paycheck, so that you’re not tempted to spend that money instead of putting it toward your loan. Though it’ll feel like your paycheck is shrinking, your debt will be, too!

Even if you’re not carrying a balance on credit cards, consider having these auto-withdraw payments shortly after your paycheck deposits. This will keep you from ignoring the balances you’ve racked up, and keep your sense of how much liquid cash you have available keen.

Strategy 3: MAXIMIZE Your ESPP Contributions

I have already spoken once about the glories of your employer’s ESPP program, but here’s yet another advantage! Just like your 401k, your ESPP contribution gets pulled directly from your paycheck. This will keep you from even thinking about that money until, at the end of the program, you suddenly have a huge pile of savings to cash out!

Strategy 4: minimize Your Checking Account

Aside from big paychecks, having a big balance in your checking account is another factor that can drive some to be more spendy. Keep the balance in your checking from getting too big by either setting up transfers to savings manually, setting automatic transfers to savings after each paycheck, or trusting a tool like Digit to do it for you. Make sure you don’t overdraft, but try to keep your checking account pretty lean.

Do you use any strategies to shrink your paycheck? Do you save on an automatic schedule, or trust yourself to do it manually?


3 thoughts on “How Minimizing Your Paycheck Can Maximize Your Savings

  1. I wanted to comment with my own paycheck-minimization amounts: I contribute 21% of my after-tax paycheck to a Roth 401k, about 9% to my Roth IRA, and 10% to my employer ESPP (max allowed). So after all of that, the amount that gets direct deposited from my employer is only 60% of what I actually make! I then usually pay down all my credit cards (the amount of which varies depending on how spendy I’ve been). Some of whatever’s left is manually transferred to savings (usually as much as I feel I can move out of my checking account without being at risk for overdraft), and the rest I’m left to live on.


  2. My paychecks are really small right now (~$100/month) because I have my ESPP set to the max and my pre-tax 401(k) to the max to still get the max ESPP. I’ll finish up the pre-tax 401(k) with my first June paycheck and then switch over to working on my after-tax 401(k), which I’ll finish up with my first September paycheck. I’ve actually calculated that next year, despite getting basically no paycheck for the first 6 months (due to 401(k) contributions), I won’t dip into my savings at all since ESPP and other cash flow will cover my expenses. I have to do a Backdoor Roth IRA and I usually do that in early January these days, though I might wait until mid-February next year since I won’t have $5,500 in earned income until then.


    • Wow, that’s incredible! That’s really cool that you can spend the whole first half of the year just living off “extra” income sources like ESPP.


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