Let me start by saying that I expect the most common response to most of what I’m about to say to be, “Well, that’s probably a good idea in concept, but it’s just not realistic.” Ok, fine. Let’s just say it’s not realistic at the outset, but let’s use it as an exercise in making you think just a little differently about your money. Because a good idea in concept might lead to a good idea in practice. It may not be the same idea, but it may still be a good idea. Part One of this will deal with the saving portion of what I’m discussing, and Part Two will deal somewhat with spending wisely.
Living Paycheck to Paycheck – The basic concept of living paycheck to paycheck seems to be, “I can pay all my bills, have a little spending money, but by the time I get paid again I have little to nothing left.” My extended belief of living paycheck to paycheck is that if you ever find yourself without anything left then you’ve been living paycheck to paycheck all along and just didn’t realize it. It has nothing to do with the size of your paycheck. There are people who hover around the poverty line who remain self-sufficient their whole lives. There are people who make six figures or more who find themselves bankrupt. Living paycheck to paycheck does not always relate directly to the size of your paycheck. It’s been said that it’s not what you earn, but what you save. The problem is that most of us when we have money, we see the way we can spend it, and so it gets spent.
Pay for Your Next Year in Advance – This one especially probably doesn’t apply to most of us, because we’re already in financial trouble of some kind. But if you’re a teenager, still living with your parents, your parents aren’t assholes, and you can be patient; listen up. The rest of you listen up too. I’ll get to you. How nice would life be if you knew you were paid up for the next year? When I say that I don’t mean paying your bills that far in advance, but rather that you have it in savings. Believe me, it would be nice existence if you moved out on your own for the first time knowing that anything short of really fucking up, you’ll be fine. The idea here is to have two totals that you run your life by. The first is if you weren’t working for a year and had to live off your savings. The second is if you had no savings and you were living off your paycheck. The figure that is lower is what your living expenses should be for the next year. If you’re on your own already, my suggestion is that you start building toward that as quick as you can. I read once about a guy who saved half of everything he earned and became wealthy. The closer you can get to that, the sooner you’ll have a year worth of expenses saved.
Those Pesky Extra Paychecks – As I said at the start, most of you are probably already looking at that last one and saying, “Good idea in concept…” It’s just something to think about. Here’s something else to think about. Most of us get paid every week or every two weeks. That means that when we do our budget, we figure either two or four paychecks, even if it’s just in our head. Then around twice if we get paid every two weeks, or four times if once a week, we get this extra check because of how the pay period falls. Usually that extra paycheck is used to catch up. What if you always just saved those extra checks with no other thought to it? You should already be making it on your regular monthly budget. Just save it.
Tips – The biggest mistake I’ve always made with tip jobs is that I have this cash in one hand and a cold pizza in the other and I’m like, “Well, I have money. What can I do with it.?” This isn’t as bad as it sounds. Sometimes it’s that I need to set it aside to pay the electric bill in a couple of days, but even then it’s still a mistake. Most pizza delivery jobs I’ve had pay once a week. The truth is that I should have always done two things, and two things only, with my money after work. The first was to fill my gas tank. The second was to not touch any of the rest of it until I get my paycheck. Why? Well, because unless you’re living off what you make off your check and using your tips for whatever, you should budget your tip money the same way you budget the rest of your money. Just pretend that you get your tips on the same check. Oh, and save the extra tip paychecks just as in the last section.
Create Extra Paychecks – Each time you get paid, look in your checking account and note how much you have in there. Make it a goal to have more than that in there the next paycheck, but not by getting behind on your bills. The purpose of this exercise is to do as much as you can with the money you have to pay your bills and other expenses, but steadily increase the extra money in your checking account. Then when the amount in your checking account is more than your average paycheck, when you get your current paycheck, just save the new one. Try to do this once every four months.
Tax Returns – First of all, let’s get something straight. The money you get back on a tax return was technically your money all along. In this way, it is better if you don’t get a return, but are instead ready to pay the IRS what you owe them at tax time. I won’t go any further than that in explanation, because that’s not the purpose of this section. When you do get a tax return, provided it’s not garnished for something, here is what you should do rather than spending it. You should divide the total by twelve, and only use that much from it a month for the next year. $4,800 that would be wasted now becomes $200 extra breathing room each month. Just saying.
Make an Extra House Payment – If you’ve ever bought a house you probably know about many different ways to pay off your house sooner. One of them is once a year to make an extra house payment. I think they suggest using those pesky extra checks we were talking about earlier, but I’m going to say no to that. Just at some point in the year, in addition to everything else I’ve talked about, just pop down an extra payment on your house, and do your best to maintain after that without touching your savings. I’ll tell you a secret…
Ignore Non-Essentials – And I don’t mean that like the Klingon did in “The Trouble with Tribbles.” What I mean is that I see people make the following mistake often. They buy what is essentially a luxury item, or worse what is absolutely a luxury item, or items, before they pay for basic food needs, basic shelter needs, basic clothing needs, basic health needs, and basic transportation needs. Most of what I’m talking about doing is just cutting off your ability to impulse buy. I’m not saying to never do anything nice for yourself. I could drink water from the tap rather than buy soda. I get that. I understand that there is a point where depriving anything nice is obsessive and I don’t mean that at all. In fact, I’ll tell you how to go about doing nice stuff for yourself in a minute. What I’m saying is that it’s interesting how much you’ll enjoy the books, movies, video games, and so forth that you already own when you tell yourself just long enough to get those extra paychecks saved, and so forth, and then you’ll get something new. Let’s talk about the luxury stuff.
Two Incomes… Um, Yeah – The biggest mistake we have made as a nation is becoming dependant on two incomes. I don’t believe that anyone, male or female, should be denied a chance to achieve some career goals, but if you’re in a relationship and you and your partner are both working full time, and spending full time as well, you’re missing a great opportunity. Sorry. Like I said, I want you to think of things differently here. Think of what I said earlier about saving half of what you earn. What easier way to do that than to live off the most livable wage and save the other. Further, why pay a week worth of one paycheck to pay for child care, when and if you have or adopt children, when you can both work part time, live off the equivalent of a full time income, and be home when your children get home from school? Think about it. If the idea of having one parent stay home is so that the children have a parent present, then why not both of you stay home? If you’re used to living on one income from the very beginning, you can easily both cut back to working part time and both be at home with the children. If you’re single, don’t work two jobs to try to keep up. Work and live off of one job.
Ok, that’s it for today. Check back on Sunday when I’ll deal with some bits about spending money.