Pitbull raps about it, *NSYNC sings about it: Payday is a good day.

And I agree. Seeing the fruits of our labor has been part of the human experience for centuries. What’s changed over the centuries, however, is the predictability of those fruits.

Today, most of us aren’t waiting for a seasonal harvest. We know the exact day we are getting paid and the exact amount.

Why then, do we act so surprised and spend so freely when that paycheck hits? Discretionary spending jumps over 30% in the 2-4 days following payday – across all income levels. Spontaneously treating yourself isn’t inherently a bad thing.

But.

A significant number of us are living paycheck to paycheck, savings rates are at near record lows, and young people are incredibly stressed about money – maybe the payday splurge isn't the best strategy?

Let's talk through a better approach.

By controlling payday spending, we can put our money towards things we’ll appreciate now and in the future, like:

• Larger savings accounts
• Full emergency funds
• Less time under the weight of student loans
• The list goes on

Payday shouldn’t dictate our spending, our goals should. 

How do we go from splurging to smart spending?

A bit of budgeting and a LOT of automation.

How much do we splurge?

According to InMarket’s 2024 Payday Insights Study, spending spikes significantly the days after payday:

• Restaurants (26%)
• Electronics (47%)
• Home Décor (40%)
• Toys (40%)
• Bookstores (230%) ← the Goodreads crowd doesn’t play
• Cruises (55%)

I’d like to think each of these spikes are due to responsible spending from well-planned savings.

I’d likely be wrong.

When we see a larger balance in our accounts, many of us feel richer and spend impulsively. Enter, the familiar cycle of splurging and “not having enough” to save and pay off debt.

Behavioral studies, like Wendy De La Rosa and Stephanie Tully’s 2020 Stanford study, showed this play out. Participants received their paychecks either daily or monthly. Those who were paid daily, spent more. Even if their annualized pay was identical, seeing more money made them feel wealthier and spend more.

“See money, spend money” resides in many of us.

Okay we splurge, but is that a bad thing?

Not initially, but eventually, yes.

Life is full of unplanned expenses – both good and bad. Concert tickets, car maintenance, birthday/wedding gifts, doctor’s visit, etc.

If you splurge after payday – you all of a sudden “can’t afford” anything else (even if you technically had the income).

Worse than missing out on fun, what about losing paychecks completely? If you were laid off tomorrow, how long could you go without pay while searching for a new job?

The paycheck lifecycle prevents us from taking advantage of life’s fun unplanned expenses and puts us at risk of hard times.

Of course, you always have the fallback option with credit cards. But that slope is slippery: Interest payments quickly eat away at your future income and create a downward spiral that’s hard to escape.

“But Chris, what do we change? Stanford professors proved we are hard wired to "See Money, Spend Money!”

You’re right. And while another read of Atomic Habits may help you control your impulses, until then, let’s let technology do the hard parts for us 😊

Automate Automate Automate

The hardest part of personal finance is the willpower to continually choose to make good financial decisions. What if we could automate the hard part away?

Technology gives us the power to save, payoff debt, and pay bills without having to think about it. Are you going to choose each month to move money into an investment or savings account? Are you going to choose to spend less even when you see a huge number in your checking account?

Instead of hoping for the best, let’s automate the hard parts: Saving and paying off debt.

• Before your paycheck even hits your bank account, your employer can put money in a 401(k) and/or a Health Savings Account (HSA).
• Once the paycheck hits your bank account, you can automatically
  • Pay rent
  • Pay the full balance of your credit card
  • Pay a portion of your student loans
  • Fund an emergency fund in a high yield savings account
  • Invest a set monthly amount into a brokerage account

Now, without having to lift a finger, you’ve saved for retirement, worked to be debt free, and have money set aside for both emergencies and ad-hoc fun (vacations, gifts, house fund, etc.).

If you splurge on what’s left, it’s a responsible splurge: Payday’s grip may still be there, but you’ve weakened the damage it can do.

This initial automation setup takes time. It will likely take a few hours as you navigate your banks, investment accounts, and credit cards. But don't let it scare you. Reach out to customer service, ask ChatGPT, but do the hard work. The time you spend up front will reward you for the rest of your life. 

The Payoff

Above a certain income, payday shouldn't matter. Payday hype affects people of all ages. It leads to overspending and missed savings opportunities. 

The good news is: We can control it. We can automate away from our impulse spending and confidently spend what's left. Getting this right early is crucial for young people. 

Automate your savings and debt payments, reduce your stress, and build a more secure financial future – your future self will thank you.