We’ve become obsessed with hacks, shorter work weeks, convenience and comfort. And while those are all good and desirable things, we’ve forgotten about the price tag. All things have a price tag.
If we save money, we can eventually stop working. If we exercise, we can have dessert. If we practice, we get good. The price tags are the saving, exercising and practicing. If you don’t pay the price, you don’t get the good stuff.
Americans were struggling financially pre-pandemic, pre-supply chain issues, and pre-inflation.
We’ll be struggling post all of those things as well unless we’re willing to start paying the price.
Living paycheck-to-paycheck means you’re spending every last dollar you earn. Today, 64% of Americans are doing that.
More surprisingly, 55.4% of Millennials earning over $250,000 a year are living paycheck-to-paycheck. Earning more than $250k a year puts you in the top 5% of earners in the US.
Sure, they live in nice homes, drive nice cars, and earn an exceptional living. But they’re broke. Living paycheck-to-paycheck is a nice way of saying someone is broke.
It may be hard for the other 95% of Americans earning less than $250k a year to imagine this scenario, but it’s a lot easier to do than you think; as you earn more money, you simply increase your lifestyle. That’s all.
And I know this all too well. I earned a lot of money in my 20s and lived paycheck-to-paycheck. I was broke.
Today, I’m not and I’m going to share with you what it takes to change course. To break the cycle of being broke. Whether you’re making $40,000 or $400,0000.
Here’s what we’ll cover:
- Your options
- A sacrifice is required
- FAFH
- Your vehicle
- Your housing
- Everything else
- Overcoming resistance
Before I go any further, there are two additional things you must do. You must get your cash flow under control, and maintain a budget.
Check out our Get a Budget course.
Finally, I want you to know you can do this. You’re someone who can become financially successful. Breaking free from the cycle of living paycheck-to-paycheck may not be easy, but it will be worth it.
Let’s get started.
Your options
You feel stuck. More often than not, you’ve got more month than money. I’ve been there. What can you do?
Essentially, you’ve got two options. You can earn more money, or you can live on less. When I was told this years ago, it was like a splash of cold water to the face. Could it really be that simple? While the answer is “yes,” it doesn’t mean it will be easy.
You’ve built a life and created patterns and habits. You have beliefs and feelings about money, possessions and lifestyle. Changing these will be difficult.
As you continue reading, you’ll probably come to the conclusion that a combination is what will get you where you want to go. Earning more money, and living on less.
A sacrifice is required
Going back to the reality that everything has a price, breaking free of this cycle will require sacrifices. I don’t think there’s any way around it, so there’s no reason to sugarcoat it. If that causes you to stop reading, so be it.
I believe this to be a first principle of life, and most certainly of personal finance. There are no free lunches, and there’s no cheat code to financial success. Don’t believe me, check out the long-term financial success for lottery winners.
Here’s the good news; I’m not telling you that you’re going to need to take a vow of poverty. I’m not telling you that you’ll need to subsist on ramen and pb&j for the rest of your life. I am telling you that you’ll probably need to make temporary adjustments. It may be necessary for you to take a step or two backwards.
If you’ve got the courage to do that, I think it will allow you to springboard forward to a life far better than the one you’ve got today.
And I chose courage intentionally. Taking steps backwards will require you to be courageous. And you can do it.
Time to get into it.
FAFH
Around 2019, Americans began consuming more than 50% of their food away from home (FAFH). This means eating food from a source other than the grocery store.
Eating out is one of the easiest and most common ways to blow up a budget. I also appreciate it’s one of the most fun things we humans do, which is why we do it so often. Looking back on my 20s, this was an area that hurt me financially.
That being said, I urge you to go through your cash flow and budget to determine what your percentage is. Odds are, this is an area where you can begin making some immediate savings.
Your vehicle
We (Americans) spend way too much on our vehicles. I most certainly fell into this trap as well.
As you work to figure out if you’re spending “too much” on your vehicle, putting your 50/20/30 budget together can help you figure that out. Should you determine you’re spending too much, I’ve got good news. Car dealerships are always looking for cars, so there’s probably an opportunity to trade yours in and downsize.
Again, this isn’t forever, just for a little while.
Your housing
Your house is probably the most expensive thing you’ll ever buy, and the price of houses has never been higher. Far too many of us are house-poor.
Going back to the 50/20/30 budget guide, creating yours will help you determine if you’re outside of the parameters of how to successfully manage your finances.
Probably more challenging than your car, downsizing on your living situation won’t be easy. But we’re not talking about doing easy things. We’re talking about doing hard things. We’re talking about making a short-term sacrifice in order to set yourself and your family up for long-term financial success.
What to do if you find yourself in a highly expensive housing market? Move.
That’s right, moving may be your best option.
Everything else
While FAFH, vehicles and housing are the three biggest ways we blow up our budgets, there are certainly a lot more. In today’s subscription economy, many companies want you to pay recurring charges for services. It’s easy to accumulate hundreds if not thousands of dollars in $15, $50 and $100 increments.
Go through your spending and look for your recurring expenses. Odds are, you’ll find some that you didn’t even realize you’re still paying. Make cuts wherever you can.
Overcoming resistance
“I have spent most of my life worrying about things that have never happened.” – Mark Twain
So, I’ve just told you to stop eating out, get rid of the car you love, and to move to a new city. Great.
What happens if you decide to take action and to go through with these changes?
Resistance will happen. You can already feel it.
Anytime we make a decision to change, there are forces which will work to keep us where we are. Our bodies will try and keep us in bed instead of waking up early to exercise. Our brains will play tricks on us. Our family and friends will question our decisions. In order to successfully make changes, and to overcome resistance, I invite you work through these 8 questions:
- What change do you want to make?
- What do you think might happen if you made the change?
- What is the worst thing that could happen to you if you made the change?
- How likely is that to happen?
- What is the worst that has happened to others in this situation? How often did it happen? How did they deal with it?
- What is likely to happen based on your experience and the experience of others? How would you respond?
- If the worst did happen, then what would you do?
- Based on this discussion, what do you need to do to put this worry behind you?
In working through those questions, you probably discovered the things you’re worried about aren’t truly worth worrying about. But that’s up to you to decide.
Closing
Who am I to ask you to do these things? I’m someone who did them. I’m someone who stopped eating out almost entirely for several years. I’m someone who relocated cities. I’m someone who downsized vehicles.
More importantly, I’m just like you.
Most importantly, you’re someone who is capable of creating the life you want. You’re someone who can be financially successful. The first step is making the decision to do it.
We’ve got three free courses as well: Our Goals Course, Values Course, and our Get Out of Debt course.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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