Living paycheck to paycheck sucks.
I know, because I lived it. For much of my 20s, I did a terrible job managing my finances (even though I was working in personal finance), and living paycheck to paycheck was one byproduct.
Because I did it, I know the stress and anxiety it can cause. I’ve experienced having more month than money, and wondering how I was going to pay bills and make ends meet. And there are a lot of Americans going through that now.
In fact, 58% of us are living paycheck to paycheck. And high-income earners are also falling into this negative cycle; 30% of people earning over $250,000 in fact.
There are a lot of reasons why this happens. Some reasons are beyond our control, and some are self-inflicted. What I know for sure is that it’s not sustainable, and it’s essential to break out of the cycle as quickly as possible. Which is probably why you’re reading this.
As a financial advisor, I’ve been helping people become financially successful for 20+ years. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running. Combine that with my personal experiences of being broke, and becoming financially successful, and I’m confident I can help you get where you want to go.
Here’s what we’ll cover:
- The starting point
- Getting your financial house in order
- Preparing yourself for changes
- Creating a bright future
- Sharpening your perspective
- Putting yourself first
Let’s get started.
The starting point
Because money is time sensitive, I think it’s really important to approach this with earnestness. Set an intention to break free of the paycheck to paycheck cycle as soon as you can. Also, understand that it may take you a little while, so you may need to be patient as well.
The starting point is getting a deeper understanding of your cash flow. When I was stuck in this cycle, I wasn’t paying attention to my finances at all. Back then, the only way I’d know if I had any money was when I checked my balance at an ATM.
How well do you know your cash flow? How often are you logging into accounts and monitoring your transactions? This can be an opportunity for you to identify recurring transactions you’ve forgotten about, or are no longer serving you. More often than not, going through a year’s worth of transactions will result in you finding things you can cut out.
If you find something you’re paying for, and you’re not sure you should get rid of it entirely, stop paying for it. You can always go back later and add it back in.
Getting your financial house in order
No conversation about getting your financial house in order would be complete without talking about the “b word.” Budgeting has never been my favorite personal finance topic, but I recognize it’s one of the most important.
A budget is a plan for your money. It helps you know your fixed and variable expenses, and it helps you know if you’re on track to meet your financial goals. It can also tell you if you can afford to do something like go on vacation or make an investment.
If you’re not in the habit of keeping a budget, it may take you time to get comfortable with it. I can definitively tell you that every financially successful person and organization I work with keeps a budget. It’s an essential part of your personal financial situation.
If you’d like to dig deeper, here’s a blog post and course you can check out:
Preparing yourself for changes
After reviewing your cash flow and your budget, you may or may not have found ways to cut expenses. If you didn’t find any expenses to cut out, you have a choice to make: You can choose to make more money, or you can choose to live on less. But the way you’re currently operating isn’t sustainable, and something needs to change.
If you can increase your revenue, or find new sources, great. If not, you’ll need to make some tough decisions.
Before I go any further, know that I’ve never taken a vow of poverty and I don’t expect you to either. I’m also not going to tell you that your coffee habit is what’s preventing you from becoming a millionaire. More often than not, the three things that blow up our budgets are housing, vehicles and food away from home. In other words, the things that make life great. It’s very human to overspend in these areas.
I encourage you to look at any potential changes as temporary. Are there opportunities for you to take a step backwards, which will allow you to take many steps forwards? Right now, you’re spinning your wheels and not making any financial progress. What if you downsized certain areas of your life which would allow you to get out of debt, and start consistently saving money?
Once you established those positive habits, you could add the things you cut out back in (if you chose to)?
If you did that, what would happen?
I remember when I had this conversation with myself. I was worried about what other people would think about me.
During this time, I was fortunate to be working with a coach who asked me to go through these questions. I’d like for you to answer them as well:
- What change do you want to make?
- What do you think might happen if you made the change?
- What is the worst thing that could happen to you if you made the change?
- How likely is that to happen?
- What is the worst that has happened to others in this situation? How often did it happen? How did they deal with it?
- What is likely to happen based on your experience and the experience of others? How would you respond?
- If the worst did happen, then what would you do?
- Based on this discussion, what do you need to do to put this worry behind you?
When I remembered that none of those people were going to pay my bills or save money for my future, I made the choices I needed to make . I traded in my car and moved out of my apartment. In fact, I moved to a different state.
My now wife and I changed our food away from home behaviors completely. We lived as Spartanly as we could for a couple of years.
While it wasn’t easy, it was worth it.
Creating a bright future
You have a bright future ahead of you.
I want you to think about any changes as running away from the stress and anxiety of money problems. Think about running towards the life that you truly want. A life with financial peace of mind.
In order to know what that bright future is, you need to think about how you want it to look. That’s where goal setting comes in. I invite you to take our Goals course, it’s free and will walk you through how to properly think about and set goals.
Sharpening your perspective
How you look at something makes all the difference. I’m 100% convinced that’s true. Our values are the lenses through which we see the world, and inform how we allocate our most important resources of time, attention, and money.
I was raised with traditional values, but never really thought about mine until I was in my 30s. Once I did, and I got really clear on what I stood for (and stood against), every aspect of my life improved.
As you’re considering making tough decisions, I encourage you to get clear on yours. They will help you to sharpen your perspective on everything we’ve been talking about. To help you in your process, you can access our Values course for free as well.
Putting yourself first
The golden rule of personal finance is “pay yourself first.” When you’re living paycheck to paycheck, you’re literally doing the opposite. You’re paying everyone else first and waiting to pay yourself later; but later never comes.
To become financially successful, you must get to the point where 20% of everything you make goes towards your financial objectives, not somebody else’s. Now, it may take you years to get to the point where 20% is realistic. But you can start with 1% immediately.
“Will 1% even make a difference?” Yes. You’ll be forming a new habit.
You pay yourself first by enrolling in your company’s 401(k), opening an IRA or taxable brokerage account, or simply transfer money at the beginning of every month to a savings account.
Start doing this immediately.
I’m confident you have a sense of urgency, but I want to remind you that money has time value. The longer you wait to start pursuing your most important financial goals and objectives, the harder they are to reach. The best time to plant a tree was 30 years ago. The next best time is today.
You’re someone who is capable of being financially successful. Get started on your path to financial peace of mind.
You can also access our Get Out of Debt course for free.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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