Toto, we’re not in Kansas anymore!

Getting to financial stability these days is nothing like it was 50 years ago. Recently I was reading an article concerned with the rising levels of debt in all age groups ¹. It noted how the times have changed when it comes to employment and benefits, cost of living, debt to income ratios, right down to how we no longer sit down and balance the checkbook (which used to force people to acknowledge their spending and account balances).

It’s no wonder then that 80% of Americans have received some form of financial assistance in their lives, or might still depend on it. Piling up debt seems the only way to get by.

For many years the mantra was $1 million for retirement and you should be fine. Now no matter what age you are, financial experts are urging us to increase our retirement planning goals even higher. Contrast this with another statistic you might be hearing a lot lately: two-thirds of Americans could not handle a $1,000 dollar emergency ².

How then can we build up our savings for financial security?

If you’re reading this article, congratulations! You’ve already started doing the best thing you can do, which is improve your personal finance acumen. On the outside it may sound like we all have the same problems, however, once we scratch the surface it’s easy to see how “personal” our circumstances are. Cookie cutter finance advice might work for a few, but it leaves the rest of us stuck and struggling to get ahead. Our best chance forward starts with financial literacy and then creating better money habits with that knowledge.

Stop the debt cycle by living within your means and start a rainy day emergency fund. Now we have talked about this in previous articles and it has come up, “how can I do this when I am barely making ends meet?” The simple answer is, the zero-based budget. I’ve tried other budgeting methods and they always fail when that emergency arrives.

What makes the zero-based budget so effective is it’s completely based on your income, not what you think you can afford. Just the exercise alone of sitting down and looking at the money coming in, and the money going out will change you, I guarantee it. But you have to be completely honest about it. If you spend money regularly at the Juice bar or coffee shop, and don’t note that expenditure when creating your zero-based budget, then it’s not going to work.

In short, you must allocate every dollar earned to something. How about that emergency fund we we’re talking about 🙂 If you’re situation is like mine, I quickly found out that my spending (I made a nice envelope budget) was just a little bit more than my income. So I asked myself, “we never go below a few dollars in the bank, and avoid using credit cards how could this be working, i.e. not showing as debt?”

Looking a little closer there it was! We’ve been postponing certain bills that should have been paid promptly. I was playing something like a shell game, maybe the kids orthodontist didn’t get paid this time, or shortened up the electric to pay the balance “next time”. This looked like a working scheme, but my net-worth just wasn’t getting any better and I always had the stress of owing money. After facing up to this, I went back over my budget and adjusted monthly spending on the easy stuff like eating out, kids birthdays etc., until I was a few cents back in the green. Now to stick to it!

I decided to make sure I’m putting away a little bit every week in a rainy day fund. Once I knew how much I could comfortably set aside, the rest was easy. I set up an automatic transfer from my checking to savings of just $25 dollars a week. It feels good knowing every 7 days, another $25 dollars is going in.

Every once in a while something comes up that I haven’t budgeted for, like an auto repair or co-pay on a medical bill. It might not sound like much, but knowing I can cover it without having to pull out the credit card AND still not have to worry about the budgeted expenditures is huge. Unplanned costs arrive as they do, but as of this writing, I have a little more than $1,200 on hand! I am now one of the 1/3 of Americans who could handle a one thousand dollar emergency.

So let’s recap and go over these steps for stress free finances again. First you have to escape the wheel of death or as some like to say, “STOP THE BLEEDING!” Look for free tips and resources from real people who are making progress (hello 👋). Then copy or bend the tips and methods to suite your situation! Throw out the ones that won’t work for you, for example I am NOT going to move back in with mom so I can pay my student loans 😉 But hey, if that works for you, go for it!

Second, take a moment to get a real picture of your monthly expenses. A monthly income and spending report in Banktivity can help you with that in a flash.

Third, make a zero-based budget. Determine what you spend monthly on “must-haves”: rent, mortgage, car payment, insurance etc. and what you can trim or cut back on. Be sure building an emergency fund is a part of the budget plan. That’s it! With patience and perseverance you’ll be in a new statistical bracket in no time.

Did you find this helpful, or have another tip that worked for you? Please share it with the Banktivity community in the comments section below! We love hearing from you.

 

1, 2: https://money.usnews.com/money/personal-finance/saving-budget/articles/2017-05-16/8-scary-financial-statistics-and-how-to-avoid-becoming-one

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3 comments on “Three steps I took to break the paycheck to paycheck cycle

  • Thanks for the advice, the truth is most peeople buying your software are probably making a resolution to manage their finances better. Writing these motivational articles is complimentary to the product you provide

  • Everything you suggested is not only “good” advice, it is essential to a long term plan. In fact, most people should have a 3-6 month of normal expenses saved for an emergency fund in case of larger emergencies such as job loss.
    In addition to the weekly/bi-weekly/monthly savings for an emergency fund, most people have enough “stuff” they could sell online or through a garage sale to raise the $1000 quickly. If need be, a second job for a temporary short time period (deliver pizzas, McDonalds, bag groceries, etc.) can help. This can be a humbling experience, but, as my father used to say “Any port in a storm.”

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