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By JJ Montanaro, CERTIFIED FINANCIAL PLANNER™
Living paycheck to paycheck is stressful.
The concept brings to mind a tightrope walker wobbling on the high wire. Unfortunately, it’s a reality for many Americans. An American Payroll Association study revealed that more than two-thirds of Americans are walking that tightrope. If this is you, we can help.
Whether you’re making $30,000 or $300,000, it’s easy to fall into the trap of living paycheck to paycheck. And the scary thing is you may not even realize it.
Here are seven signs that you’re teetering on a financial tightrope and how to get back on solid ground:
1. You’ve got no cushion. Forget having that ideal three to six months’ worth of expenses in a savings account. You don’t even have a few hundred dollars to spare for an emergency. That means, if you suddenly needed new tires for your car, you’d have to charge it to a credit card because your cash stash is zero.
The way out: Set up an allotment or have extra money in your bank accounts automatically put toward savings through the USAA Savings Booster. Even $500 or $1,000 can be enough to get out of most scrapes. A tax refund can help fatten your savings. Or, the proceeds from the sale of gadgets, furniture or other stuff that’s been gathering dust can provide a quick boost to your safety net.
2. There’s more month than money. If you find yourself glancing at the calendar daily, trying to will the next payday to get here sooner, you might have a budgeting problem.
The way out: Look for ways to cut back to stretch your dollars. Focus on one or two specific areas — eating out, for example — and make headway there first. Do you have a bunch of subscriptions for videos, music or gaming? A gym membership? Dues for alumni associations or clubs? You may need to temporarily halt some or all of them until you have things moving in the right direction. Also, look for money-making opportunities that can extend the reach of your finances. Part-time work, sharing-economy opportunities like driving, shopping or delivering groceries for others all come to mind. Got some extra space? It might just work as a short-term rental. Be creative.
3. You’re living too much in the moment. If all of your income (and then some) is dedicated to surviving — or maybe even putting on the appearance of thriving — in the here and now, you could be in some trouble.
The way out: Give yourself some inspiration and motivation to save. Put your goals front and center — literally — in your daily routine. Screensavers, photos and even sticky notes to remind you of what you’re saving for can help spur you to action.
4. The hamster wheel is turning fast. If the idea of a solid night’s sleep is a distant memory held off by constant ca-ching of your internal cash register reconciling expenses, income and money challenges, it’s probably a high-wire sign.
The way out: Committing to an action plan and making progress toward it may improve your sleep pattern and yield some big zzzs. Signing up for your employer’s retirement plan, setting up automatic transfers to a savings account, or starting an automatic investment plan are all examples of how you can pay yourself first to eliminate the need for a conscious decision to set aside some money.
5. Tempers are flaring. If you and your significant other avoid money conversations because they erupt into arguments, you may be stretched too thin. Without open communication about spending, you can forget having shared long-term financial goals, getting on the same page or celebrating your joint financial achievements.
The way out: Change the way you talk money with your partner. Don’t wait until there’s a crisis to discuss finances and spending. Morning huddles, evening financial recaps and off-site money conferences (OK, they’re really money date nights) can help you paddle in the same direction and calm the waters for your relationship.
6. You’re keeping secrets. Money is a team game, and part of being a team is engaging in full and fair disclosure. If you’re hiding bills or other financial details from your partner, it’s likely because you’re walking the wire. If everything were OK, you wouldn’t hide it, right?
The way out: Establish some ground rules to avoid conflict and promote harmony. It might mean you and your partner agree that a periodic pedicure or going to the movies once in a while is just fine but that any purchase over $100 should be a joint decision. I’ve worked with couples where a small slice of each person’s paycheck went into a separate “fun money” account, where no spousal approvals are required.
7. You’re leaving money on the table. If your day-to-day cash shortages lead you to turn your back on an employer’s offer of matching contributions to your retirement, you’re clearly pulling a high-wire balancing act.
The way out: Just do it. Find that 5% of your paycheck, or whatever the required percentage is, to get the full match from your employer. If that’s impossible for you right now, at least contribute something so you can get started. A 24-year-old earning $36,000 who misses out on just a single year of a 5% match is giving up $50,000 at age 67. And that’s only calculating the employer’s match. Add the employee’s 5% contribution, and it’s a six-figure difference.
In each of these cases, the way down from the high wire requires a commitment to change and the dedication to move forward.
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