How long will I be living paycheck to paycheck?
Many of us are familiar with the term “paycheck to paycheck” as a negative condition about how we earn and manage our money. As defined or understood, this means that our basic needs are about all we can afford with our total household income. We have little to nothing left over after housing, food, childcare, etc. are paid. According to a study by the Bank of America Institute, some 25% of U.S. households fall into this category. But is this financial condition a permanent way of life? It doesn’t have to be so let’s take a look at some strategies to help get beyond the “paycheck to paycheck” dilemma. https://institute.bankofamerica.com/economic-insights/paycheck-to-paycheck-lower-income-households.html.
The thing about earning just enough to meet your needs is that the things you’d like to do so you can enjoy life, are hard to come by. A weekend getaway to your cousins wedding, a replacement cell phone or an activity for the kids are often put on hold or other needs are sacrificed. Factors like stagnant wages, the high cost of everything, unexpected and sometimes life altering events can put a strain on our finances. That said, you earn what you earn and the best short term approach is to compare what you have coming in (income) with what you have going out (expenses). The first thing I advise any client to think about is cash flow because knowing what you spend vs what you are earning is critical to determine if there are items you can eliminate or reduce. The goal is to have something left over once all your bills are paid and needs are met.
Let’s take a look at some real life things you can consider when thinking about moving out of the paycheck to paycheck merry go round:
Get clear about your current situation:
List your fixed expenses (rent, utilities, car note, insurance).
List your flexible expenses (food, entertainment, shopping).
Compare income to spending to see where your money is being stretched too thin. Ex: I have $3800 in take-home income and $4200 in monthly expenses. I am underwater by $400!
Even a simple spreadsheet or a budgeting app can help you visualize where leaks are happening. Use apps that are free, usually with your bank. If you are unbanked, try……
Build a starter emergency fund:
Start small. The whole point about living paycheck to paycheck is you don’t have any money left over to “save”.
Think about an expense that you were unable to meet recently. Maybe it was a hamburger at your kids favorite fast food place. Say it would have cost you $8 for the meal. That’s your goal. Save whatever you can till you get to $8. The goal is not the $8 it’s the ability to see what’s possible when you focus on a task. Once you have the $8, continue to build till you get to the next item you decide to “save” for.
Think long and hard about what your “needs” are vs your “wants”:
Listing your expenses will give you an idea of what you purchase which typically tells you what you value. As an example, if you see that you consistently purchase a special dog treat, it likely says you love your pet and want the best for them. As a financial counselor, I would ask you “Have you shopped for a better price or looked at an alternative low cost option?”. The point is, what you consider a need is really something that you want (a specific brand of dog treats), that may have an acceptable substitute. We don’t eliminate the treat (that is linked to what you value - your pet), we provide space for alternatives that save you money.
If you or someone you know, needs help managing their finances and they feel the “paycheck to paycheck” pinch, reach out to me at Genwealth Counseling for a no cost 20 minute consult.
www.genwealthc.com. info@genwealthc.com