A few months ago, I wrote about goal setting and what I was doing to train for my 17-day bicycle tour at the end of April. When this blog goes live, I will be making my way across California, Arizona, New Mexico, and Texas. I’ve had to set many goals to get to this point where I have the strength and ability to bike for 17 days so I know firsthand that goal setting can be difficult, but it can also be life-changing. Today I want to discuss a financial goal for many people… How to stop living paycheck to paycheck?
Even if this doesn’t describe your current financial situation, it likely describes someone you know and love who is dealing with this issue. Research indicates that many Americans are living paycheck to paycheck and it’s nearly impossible for them to save or invest.
The pandemic changed circumstances for many. People across the country have been impacted by sudden job loss, low wages, unpredictable income, or even the rising costs of daycare. Even high earners can get caught up in the cycle of living without any savings. According to CareerBuilder.com, one in 10 workers making $100,000 or more say they live paycheck to paycheck. So how do you jump off this seemingly endless treadmill and establish a good financial foundation?
Track Your Spending
You must know where your money is being spent if you are wanting to get a full picture of your money. I recommend tracking your spending for at least 30 days to understand what you are spending your money on. You don’t have to make any changes during this time. Just track and observe.
Once you understand the categories your expenses fall under like housing, food, insurance, transportation, bills, entertainment, etc., you will have a better idea of where you could start cutting back and where you could spare some money to start your savings. You can easily spend $20+ a night on takeout, but at the end of the month when you see your habit actually costs you over $600 then you might consider making dinner at home and having your takeout dinner be a special treat rather than a daily occurrence. Make savings a priority – even if you need to start extremely small. Just start and be consistent.
Avoid the Hedonic Treadmill
Have you ever dreamed of having a new car or house, or getting a promotion at work? You may have found yourself thinking that life would be so much better if you could just have that dream vacation… If you ever attained one of these things, you might have found that your “happiness boost” didn’t last as long as you imagined and you started dreaming about the next best thing.
The hedonic treadmill is a theory that people will repeatedly return to their baseline level of happiness, regardless of what happens to them. If you have this mindset with your money, then you will never break the cycle of lifestyle inflation.
Establish Your Emergency Fund
In January, we wrote a piece about expecting the unexpected and the importance of having an emergency fund. Without a savings plan in place, a life setback could have a lasting impact on your future goals and financial well-being. If you don’t have this fund in place and an emergency happens, you might experience an even bigger financial bind.
Write down what you want to accomplish and then be patient. What you write down is the reason you are doing what you are doing. It is your “Why”. Getting out of debt or breaking a habit cycle won’t happen overnight. I encourage you to think of all the money you are saving as you are paying yourself because it will add up over time. Remember your “Why”.