At the end of 2025, American households were collectively sitting on $18.8 trillion in aggregate debt, according to the Federal Reserve Bank of New York (1).

Meanwhile, 87% of U.S. adults surveyed by Talker Research said the lack of affordability for basic essentials has hit “crisis” levels in America, and nearly half (46%) of these respondents expect the crisis to get worse in 2026 (2).

Simply put, many families are struggling to make ends meet and are borrowing at a staggering pace to plug the gap.

In this environment, what you do with your paycheck once the money hits your account is very important. If much of your income immediately disappears because of non-essential purchases, you’re likely setting yourself up for financial troubles.

To avoid this issue, here are five steps that, if executed in order, can help you spend your money more wisely once it’s in your account.

Carrying expensive debt is like having the power of compounding work against you. This is why paying off debt — especially if it’s the high-interest variety — should be the first thing you do when a paycheck comes in.

At the end of 2025, American households had a record-high $5.17 trillion in non-housing debt, including $1.67 trillion in auto loans and $1.28 trillion in credit card debt, according to the Federal Reserve Bank of New York (1). Credit card interest rates can range from 20% to 25%, according to SoFi, which highlights just how big this financial drain can be on your finances (3).

Paying off your most expensive or largest balances first could help you make steady progress on tackling your debt.

After tackling your debt, the next priority should be creating a safety net for your personal finances.

In a recent survey from U.S. News, roughly 43% of American respondents said they don’t have enough savings to cover a $1,000 emergency (4). If you’re part of this group, setting some cash aside from every paycheck to create an emergency fund should be near the top of your priority list.

Your rent, mortgage payment, utility bills and groceries are unavoidable expenditures, which means it’s wise to allocate a decent portion of your paycheck to these essentials.

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However, spending on these items could make or break your entire budget, so it’s important to get it right. One way to do so is to follow the 50/30/20 budgeting rule, which allocates 50% of your income to needs (like the essential living expenses mentioned above), 30% to wants (discretionary spending), and 20% to savings and debt.

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If you find that you’re spending too much of your income on essentials, you may have to readjust your budget. By keeping your spending on essentials within the 50% threshold, you could set yourself up well for any financial goals that you may have set for 2026, which could include tackling debt or boosting your retirement savings.

According to data from the Federal Reserve Bank of St. Louis, the average personal savings rate — which is the percentage or personal income that one saves rather than spends — is just 3.6% in America (5).

If you can manage to set aside more than this average, you’d be doing better than most. In fact, using an investment or banking app to automatically invest 5% of every paycheck into your 401(k), for instance, is a great way to do so.

By automating your monthly investment, you can prioritize your retirement savings without having to think about it, which means you’ll never forget to set aside some money for your investments. This “set it and forget it” strategy can make investing for your future a lot easier.

If you’ve followed this rigorous spending sequence, you should be left with some excess cash that you can now spend guilt-free.

With all the non-negotiables out of the way, as well as monthly debt and savings targets met, this is money that you can freely spend without worrying about financial goals.

By structuring your spending this way, you can be confident in knowing that the non-negotiables are handled before the fun spending begins, so every indulgence is one you can truly afford.

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We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Federal Reserve Bank of New York (1); Talker Research (2); SoFi (3); U.S. News (4); Federal Reserve Bank of St. Louis (5).

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.