What is Living Paycheck to Paycheck?
According to Investopedia, it is "an expression used to describe an individual who would be unable to meet financial obligations if unemployed because his or her salary is predominantly devoted to expenses. Persons subsisting paycheck to paycheck have limited or no savings and are at greater financial risk if suddenly unemployed than individuals who have amassed a cushion of savings."
Does this describe you? Don't be hard on yourself if it does. Due to the economic downturn and closing of many businesses this year, the majority of people in the U.S are living this way. Many think it describes the middle class or someone who works just to barely make ends meet, but this is no longer true.
Many who make a significant salary per year are also living P2P.
Why is this a Money Mistake? Because living P2P means all of your income is going to expenses and there is nothing left. Your expenses are so high that there is nothing left over!.
Nothing left for...
a new water heater/appliance
fixing the car
flying to another state due to a death
an extended hospital stay/illness
improving your situation (bigger home, newer car, vacation)
COVID is the best example! If you or your family have not been directly affected in 2020 you likely know a family who has been laid off, closed their business, lost their house to foreclosure, is working 3-4 part-time jobs, or sharing room/homes with other families.
I know it will take some time to get 'back to normal', to be able to stay employed, buy a house again, have both parents bringing in money, not home-schooling.
But I challenge you today!!
Vow to never live paycheck to paycheck again!!!
How do you start?
Track your money, both income and expenses. Write it down or use a spreadsheet and calculate how much you are able to spend per month (what is your income coming in?) and then create a budget.
The first thing on the budget is putting away a portion of every paycheck, income, inheritance to a savings account.
Then, list all of your expenses each month starting with mortgage, car payment, insurance, electricity/water, etc. These are things you need to live.
From the total income for the month subtract
- 10% savings
- total of must have expenses you listed
Calculate the total.
This is what you have to work with for the rest of your needs/wants: groceries, cable/internet, phones, clothes/shoes, donations, gifts, travel, subscriptions, beauty products/hair appointments, etc.
Now I know what you're thinking, THIS IS CRAZY!!! I can never live off of this small amount each month!! But if you want to break the cycle of living paycheck to paycheck, this is how you start. This is good budgeting. This is NOT spending more than you make each month. This is how I recommend you budget.
Now, if you calculate the total and it is less than zero (due to the 10% savings being deducted) you will have to make adjustments. Try decreasing the savings to 2% to start, or you could create another way to earn income and put all of that to savings.
Either way, just start!!! It is the only way to get on the path to wealth building, debt elimination and get of the paycheck to paycheck train!!
Download the Money Tracker here.
Send me an email or DM to discuss other ideas to help you out.
Are you a professional woman who is making good money, rocking it in your career, parenting and life but just haven't been able to get your money in order?
Maybe you don't have time and it’s just slipping through the cracks - you’re not budgeting, saving, or worse, letting someone else manage it for you (cuz you don't know how?!)
I am a Money Coach & I help women get confident, make good decisions and create a monthly strategy around money so they can have the peace of mind knowing they’re taken care of and the security to get to where they want to go in life.
Click here for more information or to book a Money Confidence Breakthrough Session with me!