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Helping you get out of the paycheck-to-paycheck mentality

Living Paycheck to paycheck is a burden many Americans face. Around 78% of all Americans feel like they are living paycheck to paycheck. This means that by the time you have your expenses due, you have nothing left over, and you're stuck anxiously waiting for the next paycheck to do… the same thing all over again. In this article, we will lay out some strategies to help break this cycle for you and help you start living your best life.

  1. Track your spending, aka budgeting

  2. Set up an emergency fund

  3. Set up auto contributions

  4. Remember your why

1. Track your Spending (Budgeting)

People often feel that what they make is the allotment for what they can spend. While this is true, the way it should be spent is essential.

Housing, food, utilities, and transportation are the most essential items in your budget, Dave Ramsey calls these “the 4 walls.” If you cannot cover the costs of these items, it may be time to find additional or alternative sources of income. You must think, ‘If everyone could make more money, they would.’ That’s my point - sign up for Lyft, babysit, dog sit, etc. People find money in many kinds of work; you must make time to do it.

Outside of that, you may find in your budget that you purchase $20 worth of Starbucks every week, which is around $100/m. That is just an example. There may be $300 in shopping for unneeded clothing, etc. Or, a monthly gym membership can easily cost anywhere from $10 - $100. The list goes on. The point is that there are always places in our lives where we can consciously try to cut down on the expense. Budgeting allows you to take that by the horns and outline where and how to spend your monthly income.

2. Set up an Emergency Fund

Setting up an emergency fund will be difficult at first. One of the best ways to do this is following Dave Ramsey’s Baby Steps. If you feel you are living paycheck to paycheck, you may have some debt, be living outside your means, or have never started saving for yourself.

Saving for yourself is an imperative part of financial health and wellness. Monitoring your bank account and other spending statements requires discipline and daily courage. Fun fact: One of the most significant ways people manage their physical health is by weighing themselves on a scale at the same time every morning. Use this same methodology to keep yourself in check and in the know of what your bank account looks like monthly.

Sometimes, facing the music is much healthier than burying your head in the sand. Creating an emergency fund acts as a buffer to unforeseen emergencies. Sometimes, a car will break down and cost $1,500 to drive again. If your paycheck every two weeks is around $1,500, or even less, this can shatter your financial health. You will take on consumer debt, or you could miss non-negotiable payments.

3. Set up Auto-Contributions

Once you have the buffer of an emergency fund, start allocating some to additional savings/investments (assuming you are debt-free except for the home!) If you successfully created an emergency fund, you had the discipline to set aside money each week to build it up.

The same thing applies to auto contributions. “Pay yourself first” is a very common expression.

The strategy can be seen in this scenario:

- Let’s say you make $40,000 before taxes - which is around $1,250 twice a month.

- You receive this on the 15th and the 1st of every month

- Your rent or mortgage is $800 on the 1st of the month

- On average, spend $1,600 per month using your debit card

- Things like food, utilities, fuel, entertainment, etc. all go on this

- This means you spend $2,400 monthly, with a wiggle room of about $100.

This can feel like you’re living paycheck to paycheck; however, with an emergency fund in place, you’ve tackled budgeting, and now you can continue on the right track.

The wiggle room, or the $100 extra monthly, should be contributed to an investment account to plan for retirement. Since we’re starting small, I suggest investing $25 weekly. The goal would be to save 15% of your income, but if you are not there yet, start small. As I related saving to health and fitness earlier, saving a little until you can save a lot is like lifting 5 pounds until you can lift a lot more. This creates disciplined investing and paying yourself first.

4. Remember your "Why"

The stress of tackling money problems head-on creates analysis paralysis, which causes more stress regarding money. This can build tense relationships with a loved one or bring unnecessary stress into our everyday lives.

Falling asleep every night, knowing that your money is not a concern, will only be a good thing. When you have an emergency fund, emergencies become inconvenient because you have the money there for such a time. Eventually, you will be so good at budgeting that you might be able to adjust the budget to cover the expense and not even need to touch the emergency fund!

Regardless, your why is to not live paycheck to paycheck and build your net worth. Maybe along the way, you get a raise or 2 or 3! This allows you to spend a little more and save a little more. That is never a bad thing.

The power of speaking with your advisor

As mentioned, everyone has different goals and timelines with their money, so it is essential to speak to a Financial Advisor or Financial Coach about your specific needs and goals. Please contact one of the Financial Advisors or Coaches at Whitaker-Myers Wealth Managers; we would be happy to help!

Breaking the cycle of Paycheck to Paycheck in 4 Steps

September 14, 2023

Drew Hodgson

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