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Turnkey Real Estate Investing

5 min read

Escape the Paycheck to Paycheck Life for Good

Wed, Apr 24, 2019

livingpaychecktopaycheck-moneymangement-financialfutureWhile we may think of living paycheck to paycheck is only a problem that lower-income Americans wrestle with, the truth is, the vast majority of us struggle to save. Studies show that some 78 percent of Americans struggle to make it to payday and that this is a problem that plagues every income bracket.

Forbes goes on to reveal that 1 in 10 Americans making $100,000 or more are living paycheck to paycheck: that is, not putting anything significant in savings each month. 1 in 4 workers set aside nothing for savings each month and 3 in 4 are in debt.

Some 28 percent of Americans that make between $50,000 and $100,000 each year live paycheck to paycheck and 70 percent of those people are in debt. So it's not a low-income problem. It's simply a problem that we don't want to talk about.

If we ever hope to achieve financial freedom, we have to put an end to the paycheck to paycheck lifestyle. Rather than be controlled by your finances and spending, it's time to take charge and control back. When we prioritize savings and financial wellness, we're better empowered to pour our money into things that matter in the long-term: investments, planning for the future, and security for our families.

Even if you don't find yourself struggling in this way, we can all stand to be more mindful of our financial health, or learn to be more empathetic of those struggling to save.

Why Do People Feel Like They Can't Save?

They're Saddled With Debt

When we look at the statistics surrounding Americans and debt, we see overwhelmingly that we have a debt problem. Consumer debt has been approaching $14 trillion for some time now, combining auto, home, student loan, and credit card debts. Mortgage debt accounts for the biggest portion of this overall debt at a share of $9.14-trillion, though credit cards arguably cause the most daily damage.

Accounting for $829-billion of our debt, the average American carries a balance of over $8,000 on their credit cards. One of the red flags of living paycheck to paycheck is not paying off your credit balance each month, which a surprisingly high number of Americans fail to do. They are content to make their payments on time but fail to make that payment in full.

Related Article: 10 Ironclad Budgeting Tips for Mindful Real Estate Investors

What this is a sign of is that they are living beyond their means. While in the short term, this may not seem like a problem, relying on credit drains one's ability to save and invest.

They Don't Have a Good Grasp of Money Management

Oftentimes, living paycheck to paycheck stems from poor money management. It can be a failing in several areas or in one, but regardless, this inability to manage one's money well can hinder your financial future. Usually, this happens when one doesn't budget or keep track of overhead costs. People who live paycheck to paycheck don't have an awareness of how much they spend in a month or how much it costs for them to live.

As a result, they don't prioritize saving for emergencies (having several month's worth of income tucked away) or budgeting their months out. They just spend erratically and hope it lasts.

This lack of planning and awareness of one's finances, not planning ahead or paying oneself first leads to having no savings and to a sense of scarcity.

They Mistake Luxury for Necessity

One of the reasons we wind up living paycheck to paycheck is because we mistake luxuries for necessity. We live beyond our means with the belief that we need things that we don't. This is evident in that people all across the income spectrum struggle financially. As we earn more, we often spend more, whether or not we should.

Do you need a $5 cup of coffee every day? Do you need cable, the fastest wifi available, a new car, or the biggest house you can afford? Do you need to go on that overseas trip when a domestic vacation is far less costly?

We can put a lot of money into savings when we compromise rather than splurge. However, we often want the bigger and better upgrades in a culture that constantly tells us we deserve the bigger and better treats right now, rather than preserving financial peace-of-mind and setting up success for ourselves in the long-term.

How to Get a Leg Up on Your Finances

Budget and Track Everything

First things first: if you don't have a budget, start with a budget. The best thing you can do is begin paying yourself first as a part of your budgeting plan. If you don't have a budget in place, start with one: this will help you understand how much money you see each month and where it all goes. It might surprise you just how much you spend and how much you may be spending unnecessarily.

Once you settle your budget, you have to have follow-through. That means tracking your expenses through the month and adjusting when necessary. While this may seem like a rudimentary financial skill, most of us don't budget or track expenses with diligence, and this leads to our inability to save.

Make Sacrifices

Second, make the necessary sacrifices. If you are determined to truly take control of your finances, you have to be willing to sacrifice and compromise. That means holding off on big vacations, cutting back on dining out, and seeing what extra expenses can be cut out of your budget. Delayed gratification is critical to financial security. When you make these sacrifices, you trade material things for peace of mind...and it is well worth it.

Designate Clear Goals

Making the switch from living paycheck to paycheck to focusing on savings and security is tough, but you can help the transition by setting very specific goals for yourself. A vague goal of “save more money” is too undefined and aimless. A small goal to start with is simple “save 10 percent of every paycheck.”

This is small, but it is a start if you have found yourself struggling to save. Give yourself goals of paying down debt. Make your goal to save a certain amount of money by a certain date. When you have these clear and defined goals, you can be better disciplined to meet them.

Pivot for Your Changing Circumstances

Lastly, we have to recognize that our lives and circumstances change. We may not always make the same amount of money that we do now or have the same expenses. Our budgets will demand re-evaluation as time goes by, and recognizing this is critical. Recognize the dangers in “earn more, spend more,” and temper your spending. Pivot: don't allow yourself to grow complacent in your budgeting and tracking, or you may slip into the old patterns of allowing yourself to spend unchecked.

When you practice due diligence in your money management habits, you will find the peace of mind to focus on what really matters.

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Chris Clothier
Written by Chris Clothier

Entrepreneur, writer, speaker, ultra-endurance athlete, husband & father of five beautiful children. Chris puts these natural talents on display every day. As a partner at REI Nation, Chris addresses small and large audiences of real estate investors and business professionals nationwide several times each year. Chris is also an active writer, weekly publishing real estate, leadership, and endurance training articles.