How to escape paycheck-to-paycheck living
Posted
Aug 22 2008, 05:18 AM
by
Ryan MacClanathan
Rating:
This post comes from Trent Hamm at partner blog The Simple Dollar.
Out of all of the
blessings that have come into my life over
the last two and a half years or so (a new home, my daughter, financial
recovery, a new career, a lot of wonderful readers), the one that has truly
helped me to sleep better at night is the move away from living paycheck to
paycheck.
Paycheck-to-paycheck living
happens when you are regularly waiting for your next paycheck before you make
basic financial moves,
like paying bills or buying food or doing something fun. It's incredibly
dangerous for a number of reasons:
If you lose your job,
your life requires you to find a replacement job immediately.
Thus, you're completely dependent on your current job. You can't sustain even a
few days without that regular paycheck coming in. Quite often, your bosses know
this and take advantage of it because they know you can't function without that
job -- this, in the end, makes your job completely miserable and makes it
dominate your life.
You can't plan ahead
for disasters. Whenever something bad happens, like a
car breaking down or a child needing emergency dental work, your only choice is
to bust out the plastic and then sweat it over the next several months as you
fight to pay down the balance. If you're relying on each subsequent check to
even manage your day-to-day life, you can't plan ahead for these unfortunate
situations. Instead, the best you can hope for is some good "luck" in
that they won't occur too often.
You can't plan ahead
for bigger things, either. Dreaming of a big family
vacation? How about a new car or a new house? If you're living paycheck to
paycheck, these dreams are simply unreachable in the foreseeable future. You
might really want these things for your family, but they're unattainable with
your current financial structure.
So what's the
solution? The solution is obviously to back slowly away from living paycheck to
paycheck, but it's not always easy.
10 tactics
Recognize that there's a problem -- and that you're
not alone in dealing with it. I was in these very
shoes once upon a time, waiting for that next paycheck to come in so I could
cover the required bills and then spend some more. I racked up five figures in
credit card debt and it got so bad I spent a very long
night holding my infant son and wondering how I would ever fix things.
Living paycheck to
paycheck is a problem of your own creation. But you're not alone in creating
that problem, and if you put your nose to the grindstone, you can get out of it
and start moving toward financial prosperity. Use the Internet -- or your own
social network -- to find out about the experiences of others who turned their
ship around and share your thoughts and difficulties anonymously. You'll find
it much easier to work through this tough process.
Look for regular expenses you can trim away.
The first big step is to trim your monthly expenses. Reduce that cable bill and
that cell phone bill. Get rid of unused memberships, like gym memberships or
country club memberships. Look for ways to tone
down your home energy use. Start a car pool or start using public
transportation. Start cooking at home more and eating out less. All of these
things will ease the monthly pressure on your wallet.
Don't shop for entertainment's sake.
When you're hanging out with friends, it can be tempting to go shopping for
clothes or hit the electronics store. Don't. Find anything else to do. Shopping for fun in a social
environment is costly even if you don't buy anything, because you're surrounded
by temptation and the mental imprintings of stuff that you want but don't
really need. It's an excuse to talk to your friends about stuff you want and potentially
talk yourself into purchases. Just stay away.
Cap your nonessential spending each month.
We all spend some money on things we don't really need. Instead of just
spending as opportunities arise, put a cap on that spending each month. Allow
you and your spouse a cash allowance each month and agree that your
discretionary spending comes from this cash and this cash alone. Make the
amount lower than what you normally spend, but not enough lower that you're
tempted to cheat. Then, when you're used to the amount, consider lowering it a
bit more until you find a sweet spot of savings and fun.
Don't use your ATM receipt or check ledger as "permission"
to spend. If you've ever looked at an ATM
receipt or at your checkbook ledger to find out if you can afford something,
the answer is that you can't. Don't even bother to look. You can't afford it.
Looking at that receipt and then going ahead with the purchase is nothing more
than an agreement that you want to continue living paycheck to paycheck. If you're
tempted to peek or to use your balance as justification that an unnecessary
purchase is OK, you're perpetuating living paycheck to paycheck. You're
choosing to be chained to your desk, at the mercy of your boss.
As you gain some breathing room, move toward paying
bills right when they come in. One thing that many
people living paycheck to paycheck waste money on is late fees. You're a couple
days late on a bill because you were waiting around for your paycheck, so you're
dinged for an extra five bucks. It used to happen to me all the time -- and it was a
serious money leak. The best solution for handling this as you move toward
financial stability is to start paying your bills as soon as they come in --
that way, you avoid the late fees by a mile. Later on, as you get more
comfortable, you can develop your own bill-paying routine -- I pay mine monthly.
Don't carry more than one credit card with you.
Leave the rest at home. The only reason you should be carrying a credit card in
your pocket is to cover emergencies or for specific purchases. Carrying more
than one credit card in your wallet is not only an identity theft concern, it's
also temptation to spend more than you should.
I have three credit
cards. Two of them are for specific purchases only, so I leave them at home.
The other is my general use card, and it's the one that resides in my wallet.
Because I recognize that I need to keep a healthy free balance on it for
emergencies, it makes the temptation of the plastic much lower.
Work together with your spouse and/or with your
family. Walking a new financial path isn't
easy. It's like a diet -- it's a new set of routines and it can be difficult to
get used to a new walk. The best way to make it easier is to ask for help, and
the best place to ask is your spouse. Work cooperatively with your spouse to
cut spending and get in a better financial routine.
If you're single, try
to find a
"money buddy," as suggested by the excellent book "Money Drunk, Money Sober."
Basically, this is a person that you can work in tandem with to overcome your
financial challenges and spending issues.
Downgrade. One major step
you can take in getting away from paycheck-to-paycheck living is to downgrade.
Do you really need that gas-guzzling car when an efficient one would do? Do you
really need that big of a house? Consider moving to a smaller or more efficient
version of these things. It'll lower your monthly bills, eliminate some debt,
and quite likely directly put some cash in your pocket.
This is a major step
for many people and it's often one that gets inside the comfort zone. "I'll
NEVER do that," you'll think to yourself. Instead of just automatically
rejecting the idea, think about it more seriously for a little bit. Think of
how much easier life would be without a car payment or with a smaller house
payment. You might find you don't need the things you think you need.
Learn some basic skills so that you can deal with
some emergencies yourself. Get a book or two land
learn how to do basic maintenance and repairs yourself so you're not turning to
an expensive repairman every time something little goes wrong. You can often do
basic maintenance like oil changes and air sealing your home yourself without
nearly as much effort as you might think. This cuts way down on expenses and
doesn't leave you at the mercy of "emergencies" quite as much as
before.
Good luck.
Breaking free from the paycheck-to-paycheck cycle is one of the most mentally
relieving things I've ever done. I hope you'll do it, too.
Other articles of
interest at The Simple Dollar:
How
to Get Off the Paycheck-to-Paycheck Treadmill in Just 6 Months
The
Net Worth Mentality: The Road Less Traveled
Facing
a Difficult Personal-Finance Decision (Or Other Major Life Decision)? Try These 7 Techniques
