Stop Living Paycheck to Paycheck!
Here are some scary facts in the United States of America. Depending on the survey, 50% to 74% of all employees are living paycheck to paycheck. 1 in 4 families making more than $150,000 per year are also living paycheck to paycheck. In addition to that, 3 out of 10 adults have NO emergency savings at all! I know you’re not in this situation, but if you know somebody who is, this short article might have a few ideas that can help.
Why Do People Live Paycheck to Paycheck?
It’s actually very easy to do. When I was single, I lived in an apartment with 2 friends of mine and we paid $750.00 per month for rent. I had a car payment, I needed to eat and wanted some fun money. I could move by throwing all of my worldly possessions in the back of my Honda Civic. Then I re met a girl. That’s right! There was a girl I had met my sophomore year in college when I was 19 and she was 18 years old. We were now 30 and 31 years old and had always liked each other but for one reason or another had not actually been a couple.
She told me she wanted to have babies and stay home to raise them and if I were cool with that, we could continue our relationship. I said that sounded good and away we go. Get married. Buy our first house. Have one kid. Have another kid. House is too small. We need something bigger. Have another kid. Get a bigger house. Kids get bigger and start doing every activity known to man. Etc. Etc. Etc.
Lots of people have their own version of this story. I have heard it called lifestyle creep and keeping up with the Joneses, whoever they are. Or you finished college and went to graduate school and now you have a bunch of student loans and you’re still driving the Honda Civic. You can’t start working at the law firm and still drive the 8 year old car. You need something newer, better and more expensive, so off you go to the car dealership.
Today, with housing prices going crazy, I’m seeing people really stretch to buy the newer, bigger house. When they do that, they often just think about the house payment and fail to consider the cost of utilities, maintenance and property taxes. Then, you can’t have your new house and still use old furniture! See how easy it is to do? Then you add in kids, cost of education, groceries, cell phones, internet, insurance, travel, clothing and pretty soon you have too much month at the end of the money. What can you do?
Or as Bruno Mars says, “Stop, wait a minute. Grab your cup, put some liquor in it”. Ok, not exactly, but you do need to stop and see what’s going on and what is important in your life. Now, I work with a budgeting coach named Nick True. Here’s a link to his website: https://mappedoutmoney.com/.
When I first talked to Nick, one of the first things he talked about was spending your money on things that are important to you and your family. A lot of people spend money on things that, if they stopped and thought about it, really are not that important to them. For the vast, vast majority of people, they have a finite amount of money each month and you have to decide where you want that money to go. There is a guy who coaches financial advisors named Bill Bachrach. He has a tool called the Advisor Roadmap. The first question it asks is, “What’s important to you”? Then you ask, why is that important? Then when you get that answer, you again ask, why is that important until you get down to the real reason something is important.
Once you have figured out what is important in your life, it’s time to get to work. I’m reading a book called, “Your Money or Your Life” by Vicki Robin. In most books like this, they always talk about tracking your spending and this one is no exception. However, she does have a suggestion that I had not seen before. Her first step is to figure out all of the money you have made in your life. She suggests that you look at old tax returns, Social Security statements, bank statements, old paystubs, etc. and figure out how much money you have earned during your entire life. Then she wants you to do a balance sheet, which is your assets minus your liabilities and see what you have left.
I haven’t done the first step yet. I’m having some hesitancy because of the difficulty in figuring out exactly how much money I have made over the past 43 years and it might be too depressing to actually see the number. She says there is no judgement involved but I would have a hard time not judging myself, so I haven’t done this step yet.
The second step is creating an accurate balance sheet of your current assets and liabilities. This gives you a snapshot of where you are right now. I think this is a very good idea and pretty easy to accomplish.
Here’s where the rubber hits the road. You need to figure out where the money you are making now is being spent. I use the budgeting program, YNAB (You Need A Budget), but you can do whatever method works for you. In this step you have to figure out where every cent is going. Again, this isn’t judgement day, it’s just a revelation. You can keep a paper journal and write down every dollar you spend for 30 days or use a program like Mint or YNAB. Whatever it is, you need to see exactly where and how much money you are spending. Then you need to ask yourself if your spending is in alignment with your values. Are you spending money on stuff and experiences that are important to you and your family?
This is usually the part where you hear things like don’t drink the Starbucks coffee or don’t eat out at restaurants or don’t drive the fancy car. This is where, thanks to Nick True’s question, I disagree. Once you see where you are spending your money and what you are spending it on, you can decide if your spending is in alignment with your values. If you see you’re paying a bunch of money on a fancy car and you decide the new car smell and approving looks from coworkers isn’t worth the cost of the payment, insurance and premium gas, then that’s a great reason to get rid of it. Everything is up for negotiation at this point.
The major areas where people spend money are housing, cars and food. If you live really far from your job and you have a long commute that you hate, maybe it’s time to sell the house and move closer to the office. Maybe you don’t really need to drive to the office and you can work from home a few days per week. The point of this exercise is to see where the money is going and decide if your spending aligns with what is important in your life.
On the other hand, maybe going to Starbucks and having someone make you a piping hot Americano with two shots gives you the break you need from your hectic life, then buy the dang coffee. You get the point!
Let’s Stop Here
This is getting pretty involved, so we’ll take a break. I’ll do the second part of this next week. So what do we have so far? There are a lot of people who live paycheck to paycheck and I personally think there are quite a few people who make great incomes living this way as well. If you want to get off this merry go round, there are some steps you can take.
First, figure out what is important in your life. Next, see where your money is being spent every month. You have to track your spending so you have a very accurate picture of where your money is going. After that you need to decide if you are spending money on things that are in alignment with your values. If you have enough money to do it all, power to you, but most people need to make decisions about where their hard earned money goes each month and spending it in areas that you and your family value makes a lot of sense!
That should do it for this part of the subject. If you want to talk to me, click the Get In Touch button at the top of my website and schedule a time to talk. As always, thanks for reading. KB