Living Paycheck to Paycheck is Not Living At All

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Living Paycheck to Paycheck is Not Living At All

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Are The Elite Private Colleges Worth The Price Of Admission?

April 10, 2014

Are you one of the many young professionals making good money but have little or nothing to show for it?  It’s ok to fess up because you are not alone.  A matter of fact, based on a study by Reuters 68% of Americans live paycheck to paycheck http://www.reuters.com/article/2012/09/19/us-usa-survey-paycheck-idUSBRE88I1BE20120919.  Yes, you’re reading correctly: over two thirds of people surveyed find it hard to make ends meet each pay period.  So how does this happen? First, let’s start with some simple math.

  • Salary (total compensation) = $80,000
  • Annual After Tax Take Home Earnings (amount left after  taxes and health care costs are withheld, assuming a 25% tax bracket and $5,000 for healthcare  = $55,000
  • Paycheck (amount paid bi weekly) = ~$2,100/paycheck or ~$4,200 each month

Now that we understand some basic numbers we can begin to realize where your true take home pay begins.  And just like any CFO of a large corporation, it’s equally important to focus on what cash is going out as much as what is coming in. Based on my experience working with clients in their 30s, 40s and 50s it’s imperative to create a “pay yourself” first mentality.  What does this mean?  When you receive each paycheck, create a mechanism to “pay yourself” at least 10% if not 20% of each paycheck.  Forced savings into IRAs, savings accounts, and other investment vehicles (not the hot-rod kind) are important because people often adjust their lifestyle to accommodate less take-home earnings.

You may be thinking, “So how did I survive when my first job only paid me $30,000?” The answer is that we were forced to live a basic lifestyle and cut out unnecessary purchases we couldn’t afford.  As you begin to make more money your mentality changes; and spending habits loosen with each increased paycheck, bonus, and raise.  To avoid this common trap try these smart financial tips.

  • Setup a “pay yourself FIRST” strategy – setup an automatic draft each pay period into an outside savings account.  So much of saving and planning is physiological so begin to tell yourself how much you want to see as a threshold-3x your monthly expenses is a good starting point.  Try and pick a savings account away from your main bank so you won’t be tempted to withdraw funds.  If you aren’t familiar with some of the online banks check out one of these which might offer you a better option to what you currently have. These sites are simple and It only takes a few minutes to open a new account.https://personalsavings.americanexpress.com/savings-product.html?extlink=ps-us-PersonalSavings-PS000SA
    http://www.ally.com/bank/online-savings-account/?INTCMPID=HP_NAV_SVG
    https://gecapitalbank.com/savings-products/online-savings.html?cmpid=ps-gecb-21041-133408-2512&k_id=472_2512I’d pick your transfer day a few days after you get paid like the 5th and 20th of each month to allow some cushion to pay your bills. A good rule of thumb is to place 10% of each paycheck into savings or if you want to be less aggressive start with 5%.  After you’ve built up six months of your normal expenses in way of cash reserves, then you should begin to look at shifting your future savings into your investment accounts.   The more money you don’t see on a daily basis, the less you’ll be tempted to spend.  The simple term “out of sight out of mind” holds true with this strategy, so be patient and allow at least 3 months before looking for results.  You may not even notice it’s gone each month.
  • Setup a monthly spending plan – first, monitor each area of your monthly expenditures to identify where your money is going.  To do this start by reviewing your most recent online bank statements, credit card purchases, and ATM transactions.  Once you have gathered this data from a high level, then establish a spending plan to track results.  If done correctly this tip creates an accountability measure from month to month to make sure you are spending within your agreed upon guidelines. Decide what is fair for your spending plan in regards to groceries, rent, gas and entertainment, and hold yourself accountable to those determined amounts.  There should be a savings component inside of your spending plan to assure you are cash flow positive at the end of each month.  If you aren’t sure where to start I’d look at utilizing a site like www.mint.com so you begin seeing where your money is going.  If that’s not enough to hold you accountable then you might want to hire a financial professional to help you setup a personalized spending plan.
  • Minimize unnecessary and impulse expenditures – this tip really doesn’t need much explanation in my mind.  If you find yourself having buyer’s remorse after you buy clothes or items you don’t necessarily need, try to think twice about that purchase and learn from it.  As adults we realize what expenses are required for us to live, but many times we forget that we don’t need items beyond the basic living essentials.  We’ve all been there when we buy on impulse and totally regret it later when we realize we truly didn’t need that item.  Have an appreciation for a dollar and realize how hard you work for you money.  Why spend it in a matter of minutes on guilty impulse buys when you end up having nothing to show for it?  For example, if you have car troubles take a look at fixing your car first before making an impulse decision to buy a new or used car.  Push the envelope and look for cost efficient solutions to your problems and needs.  Don’t let your decision be swayed simply because you feel you deserve a new car, or have wanted a new car to keep up with your friends and family.  At the end of the day items such as cars and personal items are not going to make us happier or provide for an earlier retirement.
  • Start Small – try saving a few dollars by packing your lunch a few days a week, reducing dining out experiences, or having one less drink at happy hour.  Packing your lunch can add up to immediate monthly savings of $200/month if you assume spending $10/day on lunch.  Try to reduce your dining out dinner treat just one less time a month and save $75-$100 on that nice restaurant.  When a cocktail or beer costs $7-10 is it really worth it to have 2-3 at a happy hour with friends or colleagues?  Provide yourself a drink limit to save a few bucks and also make our roads a little safer on your way home.  These might seem like small items but when you add up the annual and lifetime savings, it’s clearly evident that this tip can help you achieve your financial freedom much sooner.

Lastly, technology has come a long way.  Social media enables us to share every experience, stay in touch with friends, and virtually witness their many life events- including what they are buying.  Don’t let the pressure of trying to keep up get to you.  We often see friends and family buying new cars and other “stuff” that would look great in our closets or garages.  Think about whether it will look as good on your personal balance sheet.  If you don’t want to wake up one day to find yourself working just to pay your bills, force yourself to save today!

Written by:
Brandon Hayes
Private CFO™ and Vice President oXYGen Financial, Inc.

Request a FREE consultation: www.oxygenfinancial.net

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About the author

a man wearing a suit and tie

Brandon Hayes

Vice President, Private CFO®

In 2011 Brandon opted to forego a long-term career in corporate America to join oXYGen Financial because he was impressed by the vision of creating a premier independent financial services firm, which strives to provide unbiased advice to the X & Y Generations.

A native of Westlake, Ohio, Brandon currently lives in Atlanta with his wife Aly, daughter Maryn, and their black lab Pepper. He's the youngest of three children and played soccer through college at Elon University. He's an avid runner and enjoys cheering for Cleveland sports teams despite some pretty rough years.

Credentials/Certifications:
CERTIFIED FINANCIAL PLANNER™ and MBA from Georgia State University in Entrepreneurship. Brandon holds his Series 7 (General Securities Representative), 63, Series 65 (Investment Advisors Law) and Georgia Life, Health and Variable Insurance licenses.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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