I’ll admit, at one point early on in my career, I had a paycheck to paycheck mentality. Yes, Ms. “I saved $85,000 in 12 months”, didn’t always have the best handle or outlook on finances. While I was always a good saver, I couldn’t for the life of me figure out what happened to all of my money by the end of the month.
I know some of it went to paying my mortgage because I wasn’t in default and still had my apartment. I know I paid for food because I didn’t die of hunger.
It literally felt like someone was sneaking into my bank account and taking my money. I had no idea where the majority of my income was going.
I wasn’t in the driver’s seat of my finances and I wasn’t in the passenger seat either, I was a backseat driver not paying attention but occasionally looking up to complain about the route.
I wasn’t being proactive and everything I did was reactive. If a big expense came up, it would set me back because I didn’t give any forethought on money management.
You can either live paycheck to paycheck and/or have the paycheck to paycheck mentality. By default, if you actually live paycheck to paycheck, then you have the mentality too. It’s usually the way we think that determines our actions.
It’s relatively easy to determine if someone is actually living paycheck to paycheck because by definition, that person literally has to depend on the income from their next check in order to pay bills.
Are you actually living paycheck to paycheck? Not sure? Answer the following questions truthfully:
- Do you have to wait until payday to pay a bill or purchase an item?
- Do you find yourself running out of money between paychecks?
- Would a $300 unexpected bill set you back financially?
- Do you buy things with your credit card because you don’t have the cash in your account to pay for it?
- Do you have an ongoing credit card balance each month, that you can’t pay off?
- Would you feel anxious about sustaining your lifestyle for a month if you lost your job and had no income?
If you answer yes to any of the above questions, you are living paycheck to paycheck.
Now on the other hand, a paycheck to paycheck mentality has nothing to do with how much you make or spend, rather it is how you generally handle and think about your finances.
Having a paycheck to paycheck mentality means you are being reactive and not proactive with your finances. Instead of planning ahead for the possible expenses coming up, you just deal with the expenses when they happen.
The first step on your journey to financial freedom is to stop living and thinking from a paycheck to paycheck standpoint. Here’s how:
1. Stop spending on credit & put your credit cards away
If you can’t pay for it in full right at that moment, then you can’t afford it. Don’t buy it. Stop telling yourself you will pay it off later. Credit cards are not your friend, so let’s stop engaging with them and politely show them to the door. “Bye Credit-ia”
2. Track your spending
Go through 2 of your previous month’s credit card and bank statements and just write out your spending. This is particularly important if you don’t have a budget, in fact, this is the first step to actually creating a budget. You need to see on paper where your money is going.
3. Create a budget
If you are living paycheck to paycheck, you need a budget. You need a plan for your money, there is no way around it. I know this may be the last thing you want to hear and if you are budget adverse you may not like the constraints of a budget. But, if you are in fact living paycheck to paycheck, you need some constraints, you need a guide for your money. Click here to find out how to start a budget.
4. Write down all the known costs you have coming up within the next 2 months
If you know that you need to take your car in for service next month, write down how much that service will cost. If there is a birthday of someone special coming up, and you know you will be buying a gift, write it down. This way, you’ll have a clear idea of all of your upcoming expenses and you can start saving towards them.
When the time comes to pay that expense, you won’t be grasping at straws or surprised about the cost. Unless it is a absolute mandatory expense, if you can’t pay for it in full, either put it on a back burner or choose a cheaper alternative option.
For example, in the case of a friend’s birthday, if you usually spend $100 on going out to dinner, unless you have that money already put aside, choose to do something else, like have your friend over for a home cooked meal and drinks.
5. Save up a $1,000 starter emergency fund
It’s important to have a $1,000 starter emergency fund established so that you can cover any out of the box expenses not covered in your budget. The ultimate goal will be to build your emergency fund up to cover 3- 6 months of your expenses to protect you from a loss of income.
I never realized I had the paycheck to paycheck mentality. I considered myself to be making a decent amount of money and I was still saving a lot. I wasn’t planning for the costs ahead of me. Instead, I was just thinking about what I needed to spend and pay for in that moment, the very definition of a paycheck to paycheck mentality.
But, imagine if I would’ve had a better handle on where my money was going, I could’ve saved even more.
If you are really serious about making strides towards financial freedom, then changing not only your actions but your way of thinking is the most important step.
If you are living or thinking from paycheck to paycheck, how do you plan on changing your habits? Leave a comment below and lets discuss.