According to the Bureau of Labor Statistics, 43% of employers — the largest share by far — pay their workers every other week. Biweekly pay periods give you 26 annual paychecks — so that’s 26 chances to invest in yourself and secure your financial future every year.
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It doesn’t take much. In fact, you can change your life and build security by peeling off a relatively modest $20 from every check — provided that you do it consistently and put it to good use.
Here are the best ways to spend $20 from each paycheck.
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Save It
The simplest, safest and most secure way to turn a little into a lot is by taking a sliver of each paycheck and putting it in savings — particularly in today’s environment where investment-level yields over 5% are easy to come by.
“What’s so great about this is that you can set it up so that $20 gets automatically transferred from your paycheck into a high-yield savings account,” said finance expert Rhett Stubbendeck, founder and CEO of Leverage Planning. “It’s similar to magic, but with money, so it makes it even more magical. Imagine if you automate your savings and stash away $20 from every paycheck. After a year, you’ll have saved $520.”
And that sum doesn’t even include the interest you’ll earn along the way.
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Invest It in a Low-Cost Index Fund
Thanks to partial-share investing, $20 can buy you a slice of an index-tracking ETF with every paycheck no matter how much a full share costs.
“Picture this, you take that $20 and put it into some low-cost index funds,” said Stubbendeck. “These funds follow the performance of a specific market index, like the S&P 500. It’s like putting your money on a rollercoaster ride, but trust me, it’s in a good way. And if you invest that $20 in a low-cost index fund, your investment could grow over time. It’s like having a little money-making machine doing all the work for you while you chill.”
Save It for Retirement
An index fund is a sensible choice for many investors — but where you invest is as important as what you invest in. If your employer doesn’t offer a work-based retirement plan, consider investing your $20 in a tax-advantaged individual retirement account (IRA) to start building a nest egg while reducing your taxable income.
“Retirement savings grows over time, so even those small contributions will eventually add up,” said Ann Martin, director of operations for CreditDonkey. “Plus, making an extra $20 contribution every two weeks will help you get closer to your annual limit. This ensures you are making the most of your contribution options and helping yourself retire comfortably.”
Put It in a Roth IRA
Contributing to a flexible and versatile after-tax Roth IRA is another effective way to put $20 to good use — particularly if you’re already maxing out your IRA or meeting your employer match in a work-based pre-tax 401(k).
“Thanks to compounding interest, even small amounts can grow significantly over the years, especially if you start early,” said Mike Kojonen, founder and owner of Principal Preservation Services. “The tax-free withdrawals in retirement are an added bonus, providing you with a source of income that won’t increase your tax bill.”
Pay Down Debt
If you’re dealing with high-interest debt, gains from an index fund will never be enough to offset the finance charges, which means paying it down is a better way to spend your money.
“The interest you save by reducing credit card debt, for instance, can be seen as an immediate return on your investment,” said Kojonen. “It’s a guaranteed way to improve your financial health, freeing up more money in the future for savings and investments.”
Spread It Around
Renee McBride is a financial author at Net Pay Advance. Like Stubbendeck, she thinks you should prioritize saving — but she suggests putting your eggs into a few different baskets.
“Put $10 into your emergency fund or a high-yield savings account,” she said. “Building a financial safety net is crucial for unexpected expenses.”
She also thinks you should complement your deposit with an investment in knowledge.
“Spend $5 on a personal finance book or an online course,” said McBride. “Investing in financial literacy yields lifelong returns.”
Finally, McBride thinks it’s wise to treat yourself responsibly with what’s left over– after all, you’ve earned it.
“Use the remaining $5 to indulge in a small luxury or treat,” she said. “It’s important to enjoy life, but do so within your means. Remember, every dollar counts on the path to financial stability and growth.”
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This article originally appeared on GOBankingRates.com: The Best $20 You Can Spend Every Time You Get Your Paycheck