Big news in the Scherer family. We just had a new furnace installed. While I would have rather spent that money on a vacation or outdoor gear, this unexpected expense was anticlimactic. It wasn’t always this way though. There was a time when something like this would have caused a lot of stress for our household. But over the years we’ve managed to save and set aside cash to cover unexpected expenses. Having lived both ways, I can tell you without hesitation that we’d never go back to living paycheck to paycheck.
THE AMERICAN DREAM
I’m going to get straight to the point here. As a culture, we’re terrible with money. There are many reasons but one of the biggest issues is that the subject is taboo in many circles and families. If we aren’t willing to discuss something, how can we learn about it? If we can’t learn about it, how will we know how to manage it? If we don’t know how to manage our resources, how can we improve these statistics?
- 76% of Americans are living paycheck to paycheck.
- 43% of American families spend more than they make each year.
- 75% of Americans don’t have enough saved to cover six months worth of expenses.
- 41% of Americans have less than $500 in a savings account.
- 27% have no savings at all.
Living paycheck to paycheck isn’t just an issue for households struggling with poverty. We all know people who are high earners and in the same situation. When faced with an unexpected expense, these high earners are forced to borrow money, further perpetuating the paycheck to paycheck cycle.
I remember what it was like to worry about whether an expense check would come in before the credit card bill was due. I recall monitoring our direct deposits to make sure we didn’t get stuck paying overdraft fees. I regret the fights about each other’s spending because we failed to have a budget and game plan.
Somehow I always managed to time our payments and move things around until the next bonus check came in. We got lucky and escaped the cycle with very few scars. I know that you can do the same if you start
BREAKING THE CYCLE
The solution to breaking the cycle is simple. It’s not necessarily pleasant, but it’s simple. A
Here’s the secret to ending the cycle of living paycheck to paycheck once and for all—start a rainy day fund. Set aside enough money that you can address unexpected expenses without having to borrow.
Where will you find the money for your rainy day fund?
Here’s where it might get uncomfortable. You must cut your spending. No more fancy dinners, retail therapy, or expensive yoga classes … at least for now. It won’t be easy. You’ll probably want to quit. Your friends might make fun of you. But I promise it will be worth it. And if you stick with it, you’ll make new friends who are on the same journey and you’ll enjoy your newfound prosperity together.
This is what I learned on my journey to financial freedom. There is nothing I could buy that could make me feel the way living debt free feels. Financial peace is worth more than any material possession.
THE POWER OF INTENSE FOCUS
Let’s start by setting a goal that’s attainable for nearly everyone. I challenge you to set aside $500 over the next couple of months. For those of you who already have an emergency fund, consider joining the challenge anyway. Maybe you could save an extra $500 to donate to your favorite cause, give generously over the holidays, or start funding a new investment account.
There are a few ways to go about this. You could go slow and steady, depositing $50 each pay period, which would add up to $500 over the next 19 weeks or so. Or you could get intense and go on a spending freeze, saving $500 or more in one month. But for many people, something in the middle will help create new habits that stick. Consider how you’re wired and which method might work best for you.
Here’s an example of how the middle option might work. Do you know how much you spend dining out each month? If not, you might want to check out this post.
The average household in the United States spends over $3000 per year eating out. That works out to be $250 per month. If you cut this one thing, you could hit your $500 goal in just two months.
There are two benefits to this strategy. First, you’ll achieve your goal quickly and will be more likely to adopt these new habits long term. Next, by picking one thing to cut, you’ll feel less deprived and avoid falling into frugality fatigue.
Perhaps you don’t eat out often. Find a significant expense you can cut for a short period of time to make massive progress. Here’s a list of more than 100 ideas.
Would you be willing to sacrifice one thing for two months to change your financial future?
As I mentioned, the key to making better choices is education. Educate yourself on how you can take your family’s finances from surviving to thriving. I have lots of free resources in my Financial Freedom section. Additionally, you’ll find a big list of books on my Resources page. I highly recommend The Total Money Makeover, Rich Dad Poor Dad, The Millionaire Next Door, and Thou Shall Prosper.
Or work with me one on one to create a personalized strategy to start living the life you deserve.
You deserve a better quality of life. A life with less stress, more joy, and total abundance. All it takes is making the decision that your future will be different and then taking the first step to
What are you willing to cut in order to escape the cycle of living paycheck to paycheck? Share in the comments below or join my free private Facebook community.
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Editor’s Note: This post was originally published in November of 2015. It has been completely revamped for accuracy, comprehensiveness, and readability. Please enjoy and feel free to share this newly revised content.