Managing Your Money: How to Stop Living Paycheck to Paycheck

Managing Money is a Skill

Managing money effectively is an acquired skill. It is a skill that eluded me for much of my younger years. Until about 8 years ago, I was a horrible manager of my money. I was living paycheck to paycheck. I knew what I was earning in salary, but had no idea the amount of money I was spending. The accumulated debt my wife and I incurred became overwhelming. Our careless approach to money nearly threw us into bankruptcy. Thankfully, we came to our senses and realized we couldn’t continue living in denial of our financial failures. We decided to change.

How is Your Financial Health?

Gaining control of your money and finances isn’t rocket science. There is no mysterious formula or strategy involved. It simply requires determination, common sense, and discipline. 2017 could be your year to change your life regarding your finances. Do you find you’re running out of money before you run out of month? If faced with an emergency costing you $1000.00, would it be financially devastating to you? Do you know what you spend dining out each month? How much do you spend on groceries each month? Are you preparing yourself for retirement? These are questions you should ask yourself. If you are uncertain as to the answer to any of these questions, you are not managing your money well.

Over the next few moments, I will share a few steps you can take to gain better control of your money. In 2017, you owe it to yourself to learn to manage your money effectively. Doing so will eliminate an enormous amount of stress from your life and give you a great feeling of control. Without further ado, here are things for you to consider.  

Create a Budget

Creating and sticking to a budget is a must if you want to conquer your financial difficulties. Without a budget, you can’t identify areas of excessive spending. Having no budget keeps you from knowing exactly where your money went. I love how financial expert Dave Ramsey defines a budget. Dave Ramsey says, “A budget tells your money where to go instead of wondering where your money went.” You will never succeed financially without a budget! Let me repeat that. You will NEVER succeed financially without a budget. Defined limits on every area of your spending must be established and you must assign a purpose to every dollar you earn. You know your bring home pay down to the penny. Do you know how you spent every dollar of your pay? If not, you should. A budget is an absolute must.

Establish an Emergency Fund

Let’s face it. Life happens. Cars break down, appliances wear out, and unexpected expenses occur. Think of the unplanned expenses you faced during the past year. How did you pay for them? Did you use a credit card? If so, that is part of your problem. You can’t use credit to fund emergencies and succeed with money. In doing so, you’re spending money you don’t have. You will eventually have to pay the credit card bill. If you didn’t have the cash on hand at the time of the emergency, what makes you think you’ll suddenly have it to pay the credit card bill? You need a cash emergency fund. Save a minimum of $1000.00 in a liquid account such as a savings account as quickly as you can. Eventually you should build this savings account up to an amount equal to 3-6 months of your living expenses. If you had 10,000 dollars in a savings account, do you think it would be a crisis if your water heater stopped working? It wouldn’t be a crisis. You would withdraw the necessary money from your emergency fund and buy a new water heater. Emergencies and unexpected expenses happen. The budget you create should have a category for regular deposits into an emergency fund.  

Stop Trying to Keep up With the Jones’

You have heard the expression “Keeping up with the Jones’”.  Everyone has tried that from time to time. Your neighbor gets a new car and you notice. You tell yourself you should get a new car too! Your close friend has their home remodeled. You suddenly decide it’s time for a remodel at your home. The possible scenarios are endless. Trying to compete with friends and neighbors like this will keep you broke and frustrated. Stop and think for a moment. Do you think your neighbors and friends bought those cars and did those remodels without incurring debt? The answer is probably no. Behind those shiny new cars and new kitchen remodels could be years of payments and interest. Learn to appreciate what you have now. While doing that, create a plan that will allow you to make the purchases you want without using credit.

Change Your Attitude About Money

We have all dreamed about winning the lottery. People often yearn for a pay raise or job that pays more. Many often say, “If I won the lottery, my money problems would be over.” Or, they say, “If I could get a better paying job, I could live much easier.”  

Do you realize how many lottery winners are broke within a few years of winning? Why is that? The reason this happens is they never acquired the discipline it takes to manage money effectively. Unless you learn to budget your money and discipline yourself in your spending, no amount of income will make you successful. Winning the lottery would be great and getting a huge pay raise is awesome. You should work hard and strive for pay raises. But, you must realize more money won’t fix your problems with money. You will have more money, but without discipline, you will simply spend more. There are many high wage earners that are living paycheck to paycheck. You must choose to live beneath your means, not beyond your means.

Develop a Cash Only Mentality

One of the best ways to avoid financial struggles is to adopt a “cash only” mentality. Begin to live by the principle that anything you can’t pay cash for, you can’t afford. This lifestyle abandons the use of credit. When you budget, build into your budget a savings for large purchases. You are eventually going to need a newer car. Save money in order to pay cash for the car. Create a category in your budget for vacations. It is a great feeling to take a nice vacation and pay for it entirely in cash. This kind of vacation doesn’t leave you with credit card bills the next month.

If you’re over fifty like I am, your parents probably had very few if any credit cards. Your grandparents definitely had no credit cards. The first credit card, Diners Club, was not introduced until 1950. Our ancestors didn’t rely on credit. They didn’t say. “I’ll get it now and worry about paying for it later.” If they wanted to purchase something they didn’t have the money for, they saved their money until they did. Wow! What a great idea! Cash is king!  

Start Thinking About Your Retirement

None of us are getting any younger. Eventually you will retire from working and you will need money. If you think you will have enough from Social Security alone to live comfortably, you’re kidding yourself. According to The Social Security Administration, the average social security benefit for retired workers in 2016 was $1,309.42. That’s not even $16,000 a year! That will not be enough.

If you aren’t already, start contributing to your 401k or 403b program your employer provides. If your employer offers a company match, contribute up to the company match. If your employer doesn’t offer a 401k or a 403b, that’s ok. You can go to an investment advisor and open a Roth IRA. The 401k, the 403b, and the Roth IRA will help you to grow a nest egg to supplement social security when you retire. Regardless of age, it’s never too late to start investing.  

Winning with Money is Possible!

In summary, you can overcome your money problems. If you start applying some of these suggestions and develop discipline with your money, you will make it. It isn’t easy, there is no quick fix, and it requires work. Make 2017 the year you begin getting out of debt. When you pay off those credit cards, cut them up and never go back! Create a budget, start saving money, and pay cash for everything. These suggestions are just scratching the surface on the subject of money management. There are many more bits of advice I can offer you. If you have questions regarding any of this, I would be glad to help you. You can contact me via the contact form on my website. I’m not a financial advisor or a money expert. I’m just a guy who learned many money lessons the hard way. Financial problems will keep you discouraged and depressed. Life is too short for that. 

Thanks for reading!

Until next time,

Mark

   

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