Three out of four of Americans have $1000 or less in savings and half those people have zero. Americans are living paycheck to paycheck, using credit card debt to get through the month and stringing along their bills just hoping to make it to their next check. The whole thing is a house of cards that could come crashing down at any moment.
About 18 years ago, I was one of these people. I was single, living in a one bedroom apartment, filling my gas tank with spare change just hoping to make it home from work one more day because tomorrow was pay day. I remember going to the ATM just after midnight hoping my check had been deposited. It was miserable.
Today, my finances look very different then they did the day I decided I was no longer going to live poor despite working 50 hours a week. It took time and sacrifice, but if you are willing to spend the next 5 minutes reading an article that will change your life for the next 50 years, here is the blueprint for how I stopped living paycheck to paycheck.
Stop living paycheck to paycheck
| Seven steps to success | |
| 1 | Accept that you messed up |
| 2 | Get an honest account of all your debt and income |
| 3 | Create a budget |
| 4 | Downsize and Minimize |
| 5 | Automate your monthly payments and savings |
| 6 | Don’t slip up when your will is tested |
| 7 | Build to a better future |
Accept that you messed up
The first step in fixing any problem is admitting there is a problem. If you continue to live your life simply telling yourself poor me or this is impossible or its just the way it is, you will never get ahead.
You need to stop the excuses, look in the mirror and tell yourself the truth.: You messed up! You went and got yourself into a situation where you are living paycheck to paycheck. Maybe you are in credit card debt, maybe you went out an bought an expensive car, house, boat, whatever. Maybe you just went out and committed yourself to a bunch of financial obligations that you can cancel tomorrow.
Whatever poison you chose, it is time to admit that it was not your best judgement and its time to make some changes.
Get an honest account of all of your debt, monthly expenses and income.
Once you admit that you dine goofed, you need to dig deep and determine exactly how bad. How far in debt are you? How much money have you committed to your monthly expenses. And how much money do you actually make each month?
Take your time and write it all down, it will help with the next step.
Make a budget
Budgets are easy if you stick to one simple rule.
Spend less than you earn.
That is it. That’s all it takes to write a budget. Most people do it backwards which is why we live paycheck to paycheck. I realized this in my journey when I started to take control of my financial situation.
I went out and committed myself to a bunch of monthly payments, rent, car, cable, etc. without ever considering that the sum of these commitments might be more than I earn. Before I knew it, I was waiting for that next check to catch up on bills. Of course I never did catch up because I couldn’t. It was impossible because I was literally spending more than I earned.
When you make a budget you need to start with your income as the top line. Then start writing down how much you can afford to spend on each of your necessities such as shelter, food and clothing. Then if there is anything left over you can decide how much of the surplus you want to save or commit to luxuries. You may need a car to get around but if you have a car payment of $500 a month because you felt you needed a brand new car fully loaded, guess what, that is a luxury you can’t afford and you might be an idiot just like I was.
Downsize and Minimize
The first thing I did when I got serious about fixing my finances was cancel cable. Lets face it, tv sucks anyway and I already owned a decent collection of dvds I could watch. Besides, with all the hours I was already either working or out of the house I barely watched tv anyway.
If you are upside down, you really need to ask yourself why you are spending $200 a month on cable tv. I guess today the equivalent might be all the subscription services available. Netflix, hulu, Disney+, apple TV, WWE Network, HBO, Showtime,… I could go on forever. How many do you own?
This same philosophy applies to every other expense. I got rid of my expensive car payment and went out a bought a $200 13 year old car. A year later when that car died, I spent $400 on a car. No car payment, cheap insurance. I saved a small fortune. Oh and I sold my motorcycle. That one hurt a little, but it was necessary.
If you are serious about this, you will need to downsize. Again, you screwed up. It s time to fix it. When you write down all of your expenses, you need to scrutinize the list and make some tough decisions. Some things will not make the cut. Twenty years from now, when you have a nice fat bank account I doubt you will look back with regret that you missed season 5 of some dumb shit reality show where the bride and groom never met before and got married via a random lottery.
If you are still struggling to understand how you could possible downsize your own life, check out some suggestions in my article 10 insanely easy ways to cut spending.
Automate your monthly payments and savings
I can’t begin to tell you how much money I wasted on late fees. Some because I just didn’t have the money to pay, others because I just didn’t pay the bill on time.
In this day and age everything is automated. Netflix is smart enough to automate your monthly payment so you don’t even realize you are paying it every month. Back in the day, I would have to write out checks, put them in an envelop, pay for the stamp and go mail them. Nowadays every service has figured out how to auto bill you.
You need to take advantage and set up your monthly payments on autobill so you never waste money on late fees. You also need to do this with your savings.
It is so tempting to dip in to ans spend the money you have left over after paying your bills. Don’t allow yourself to do it. Pay yourself first through automated deposits. Think of it like taxes. If the government decided to take another 10% off the top what would you do? You would pay it and learn to live on the rest. So why not just pay yourself 10% first and pretend the money was never yours to begin with.
One way I automate my savings is by using the app Acorns. It is simple to use and easy to set up. It connects to your accounts and round up purchases to the nearest dollar and then drops those funds in to your investment account. Sign up today using my affiliate link here and we will both receive 5 bucks.
Don’t slip up when your will is tested
There will be times when your will is tested and you are tempted to fall back in to your old habits. You must be strong and avoid this at all costs. When the time comes and you feel the urge to go out on the town and party it up, or the new IPhone has to be yours even though the one you have is perfectly fine; take a deep breath and know that the temptation will soon pass.
I’m not saying you shouldn’t live your life or maybe reward yourself from time to time but it is very easy to slip back into your old ways and you must avoid the temptation.
There were plenty of times after I cancelled cable that I felt I was missing out. But the feeling soon faded and I remembered what better use I was making of my money.
Be strong. Don’t let temptation get the best of you.
Build a better future
Dave Ramsey’s favorite saying is, “Live like no one else now so you can live like no one else later” I love this quote.
I started this article with some scary statistics about the majority of Americans living paycheck to paycheck now. Imagine making a few sacrifices now so you can live your best life later. It would be ideal to be able to live your best life every day, but sometimes that just isn’t possible.
Maybe in fairy tales but in the real world, the majority of us are making just enough money to get by plus maybe a little extra. We owe it to ourselves to do whatever it takes to make that little bit extra go as far as possible.
Earl