Nothing is more dangerous than a paycheck burning a hole in your wallet. Conventional wisdom suggests that you shouldn't blow a paycheck as soon as you get it, but what many people don't realize is that a few casual swipes, a few dinners out, and unnecessary monthly bills can keep you living paycheck to paycheck. That problem afflicts 38 million Americans daily, according to research from the Brookings Institution.

With careful planning, smart priorities, and some willpower, your paycheck can produce greater funds. Here are the five best and five worst things to do with your paycheck.

Best things to do with your paycheck

1. Paying back your debt

Most people do not sock away money to pay back their debts immediately after payday. This is understandable: Between rent or mortgage payments, childcare, groceries, health care and other living expenses, it's hard to redistribute funds to cover debt that has been sitting patiently for years. That's even true for higher income families. Some of them live paycheck to paycheck. However, interest on debt grows like mold, and the only way to exterminate it is by paying back what's owed. At the end of the day, the year, or the decade, you will thank yourself for taking care of debt early.

2.Start funding your retirement

While retirement planning may not seem glamorous, or even fun, it's important. A study by the nonpartisan U.S. government accountability office reveals that almost half of Americans 55 years of age and older have no retirement funds. Since 401k's are only offered at larger companies, and younger people aren't likely to investigate how to open an IRA, let alone contribute to one, it's becoming harder to imagine a future where everyone has a nest egg that can cover 80 to 90% of pre-tax, pre-retirement salary. That's the amount that would allow people to continue their lifestyles after retiring. However, it's never too early to start planning, and it's probably not too late. Generally speaking, you should be investing 5% to 10% of each paycheck towards your retirement account (more, if you're only catching up). If you can only do 1%, do 1%. Then next year, save 2%, and continue to ratchet up the amount.


3.Buying insurance

Another expense that people don't often think about until it's too late is insurance. It's also, in some cases, employer subsidized, which means it doesn't have to be a huge expense. As the type of insurance one should get varies by profession, marital status, and income, it's important for individuals to do their research. Generally speaking, health insurance needs to be at the top of your list. Disability insurance should be on everyone's list, but on top of that, life insurance, homeowner's insurance, and long-term care insurance should be considered. It might seem like just another un-fun thing to pay for, but not getting it could end up costing you and/or your partner much more in the long run.

4.Saving

There's a reason why a third of Americans making $75,000 annually or more live paycheck to paycheck, and it isn't because they're not being paid enough. In a survey by SunTrust 68% of respondents cited expenses from dining out as the main reason for lack of savings. Entertainment and clothing were also culprits of limited savings. This can be easily avoided by establishing a simple budget, or automatically depositing money from each paycheck into a savings account upon receipt.

5.Giving money to charity

If you have money left over from all the above expenses, savings, monthly bills and general lifestyle expenses, then congratulations on being a high-functioning adult. Your life is clearly in order; you have a great job, and the system has been working in your favor. Are you a contributor to a worthy cause that really moves you? Many organizations and NGOs rely almost entirely on donations. Find one that aligns with your interests, and exercise some of that karmic energy.

Worst things to do with your paycheck

1.Buying a new car unnecessarily

When it comes to smart budgeting and driving, assume that you'll be spending at least 15% of your income on a car. But it's important to weigh carefully whether you need a car and how much you should pay. There are added, ongoing expenses for repairs and maintenance, and new cars depreciate as soon as you drive them from a dealership. 

2.Increasing your nonessential spending habits

Scaling one's lifestyle to an increasing income is a natural progression. Manicures turn from occasional treats to weekly necessities. A travel mug of coffee from home becomes a latte from Starbucks. Your colleagues start inviting you out to nicer restaurants. And eventually, you stop asking yourself, "Can I afford it?" and start asking "Why not?" Before you continue this slow, inconspicuous descent, you might want to tally up your expenses from last month's paycheck. Where are you unwittingly spending money that can be curbed? How much money would you save if you just went out for dinner once a week; had two less manicures a month; bought an espresso machine and took the time in the morning to use it?

3.Celebrating on paycheck day

This applies more to fresh grads who land their first job. It's okay to celebrate bonuses and promotions. These are big deals, and you should have a fancy dinner with your friends, another with your family. You may also want to celebrate by buying a new work-appropriate outfit or two. However, you should not, celebrate your monthly paycheck. Celebrating something that happens every two weeks or a month with a fancy dinner and presents for yourself quickly turns into a lifestyle that you will not be able to afford. 

4.Eating out

The nearly seven in 10 people who say that they overspend on dining out underscore how restaurant culture has diversified and grown at an exponential rate. You can find a great restaurant in most cities every day of the week. Many of these restaurants aren't cheap. However, you can still form better spending habits and curb food expenses. Limit dinners out to the weekends. You may also want to pick up a few recipes for healthy, nutritious lunches you can bring to work. A weekly subscription to a CSA farm will inspire you to make more creative meals, turning a chore into a hobby.


5.Only saving whatever's left

If you approach your salary with the attitude of, "I'll save whatever's left over," after living expenses, dinners out, 401k contributions, monthly bills, and spur-of-the-moment purchases, then you'll end up with nothing for your savings. However, by taking a proactive stance towards saving money, and setting aside a portion of your paycheck towards your savings account immediately upon deposit, you'll be less likely to touch it.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.