Is Living Paycheck to Paycheck Keeping You From Getting Rich?
Living from check to check is a dangerous cycle that can keep you from building wealth. It may have been the only option for you in the past, but that doesn’t mean it will work for you forever. All it takes is one missed paycheck or one unexpected emergency expense and your savings could be wiped out – that’s if you have any emergency funds at all. But there are ways you can get rich even while you are living paycheck to pay-check. All you need is to develop some personal finance intelligence, habits, and skills.
How can you save money and build wealth if you live on the paycheck cycle?
It’s impossible to get rich without first acknowledging the cause of your predicament. If you are living the paycheck cycle, meaning your paycheck is depleted before the next check comes, chances are that you believe you don’t make enough money /income, and/or everything is too expensive. However, the reason most people deplete their paycheck before the next is because most people are very bad at managing their money, saving and investing, but they are very good at spending. This is the reason why even americans with higher income struggle with bills, according to an article by the npr.org. The problem is not the lack of income, but the lack of savings habits and understanding of the financial and investment markets. If you first acknowledge this, then you will be ready to get rich even if you are living from paycheck to paycheck.
The 3 Principles to Get Rich!
To get rich we need to work first on ourselves, and then on the personal finance principles of wealth building. Nobody can become rich without working on themselves first. The truth is that most people are un-controlled spenders, some are discipline enough to save money, but only a few are financially literate enough to become investors and build wealth. But today you can start getting rich even while you are waiting for the next paycheck by following these 3 principles;
- Save your mindset
- Live below your means
- Develop savings habits
Principle #1: Save Your Mindset
Mental well-being is a major factor in the financial success of individuals. Naturally, if someone is not mentally fit, they may be prone to making poor decisions with their money which can lead to long term consequences that are neither sustainable nor desirable. This section discusses some of the factors that contribute to a person’s mental well-being and offers some tip on saving your mindset, as well as saving your finances.
The best way to maintain a positive mindset about money is to monitor your thoughts and actions around it, identify the negative thoughts and attitudes, and change them into positive ones.
Change Your Thoughts, Change Your Belief, Change Your Finances
Many of our thoughts are influenced by outside sources, and in the process of adopting them we make it ours thru developing them into beliefs. Take a look at how many institutions; from the government, banks, and even religious leaders, and financial gurus influence our thoughts about money. You can read more on that topic in here.
From the many beliefs that we develop, it’s the belief that you don’t make enough money and everything gets expensive that keeps you from saving.
Let’s break that belief right now.
Have you ever heard someone say “when I make more money” I will save more money. However, when they make more money – not only they don’t save more money but they do what? yes, you re right, they spend more. So was it the problem not having enough income? of course not, it was the lack of savings habit and the belief they could not save due to their income not being enough. At the same time you have seen people making less income, saving more money. They are not better, they are just better savers because they’ve develop saving habits. They were not limited by the belief that they don’t make enough income and that everything is expensive.
As a matter of fact, everything expensive is only expensive to those who cannot afford it. Most likely those who can’t afford something is not due to their income, but due to the bad spending habits; overspending, and spending in things you don’t need.
Principle #2: Live below your means not under your needs.
We could tell you to Cut costs by using cash-back offers, coupons, discounts, and shopping online; but that’s what the gurus out there want you to believe. The fact is that any offer or coupon with discount, does not save you money, it actually makes you spend that money. If you find a new product with 50% discount, it might be enticing to buy it because it saves you 50%, but does it really? No it doesn’t, it actually makes you spend the 50% you were not even planning to spend.
Also, buying cheap things develops your mind to think in terms of scarcity, and not in prosperity. Is better that you invest in a quality product that you really need, than save percentages of things you don’t need at all. Live below what you can afford, meaning don’t overspend, but also don’t limit yourself. If you need a suit for work, and you can afford it, buy a really good one, instead of buying cheap 3 for 1 offers.
Determine Your Financial Situation and Build a Budget to take control of your money
To live below your means instead, you must evaluate your current financial situation, and create a budget for the essential expenses.
Follow these steps to create a budget that keep you under your means but on your needs.
- Step 1: Create a Budget Plan
Create a list of your Essential expenses and how much funds you should allocate into the different categories such as rent, food, utilities, etc.. This way you can easily identify if you are spending too much on certain items or not.
- Step 2: Analyze each expense closely
Analyze all the expenses and mark them as
- Need Expenses are those that you need to live and survive: Food, Shelter, Some Utilities.
- Want are expenses that you want but could live without them.
- Causal expenses are expenses that you cause: Credit Card, Debt, Loans, Pet expenses, Amazon shopping, etc
- Consequent Expenses are the result of other expenses. They may be required due to other decisions you have made. For example: Car insurance is consequent to the car you bought, your phone bill are a consequence as to the phone you bought and the company you chose.*
- Step 3: Decide to Cut down on the expenses. You can decide to eliminate all wants, Eliminate all Causal expenses, and replace Consequent expenses with more economic but useful alternatives; for ex: switch car insurance carrier, switch your phone company, etc.
As you see, wanting material things, desiring quality products, and wishing a higher quality lifestyle is not bad at all. The problem lies on your financial skills and habits – or the lack of them. Wanting a brand new car is not the problem, but do you have the financial resources, the money management skill, and habits to pay that car off? If you don’t then it will be wiser that you don’t go shopping for a new car, even if there is a $1,000 Cash Bonus!.
Principle #3: Develop Savings Habits
The need for discipline and consistency is essential if you want to save money. Saving habits are built over time, there’s no quick fix. This is the reason why half of americans say they have saved less than $500 as emergency funds according to an article from marketwatch.com. Most people do not have the habit to saving money and can’t even create an emergency savings plan. However, with these tips you’ll have a chance to develop a saving habit that will allow you to reach your financial goals sooner than later.
The key to developing a habit is to identify the trigger and consciously activating it at will, regularly, and consistently. For example, when it comes to saving the trigger will be: Accessing your accounts to see your deposits and then manually transferring money from your checking account to a savings or investment account.
How to save money when I’m struggling with managing it?
Follow these steps to build your saving habits.
- Define multiple goals and objectives you want to save for, and identify the one with stronger urgency, relevance, and purpose.
- Determine the reason to achieve that goal, if it’s not powerful enough; discarded and return to step 1, until you can determine the most empowering goals.
- Open a high yield savings account, money market, or investment (depending on your investment knowledge and risk tolerance).
- Schedule 10 minutes in your calendar each week or month (Preferably weekly to accelerate the building of the habit) to access your accounts and manually transfer a fix or percentage of your income towards your savings.
How much savings should I transfer to my savings or investment accounts?
The obvious answer is you should transfer as much money as possible. The more money that goes into your saving and investment accounts, the better off you’ll be when it comes time for withdrawing it. However, for the purpose of building a savings habits; you should start with the most comfortable amount.
How long should I save money for?
Again, the obvious answer is you should save money until you reach your goals, but as you start with a minimum comfortable savings you should do it for 90 Days, and regularly increase your savings amount until you reach your financial goal.
The foundations take longer to build, than the building itself.
The cycle of living from paycheck to paycheck can keep you out of wealth. Howe you will be developing the foundations to build wealth in the future, if you change your beliefs, live below your means while maintaining a budget, and develop a saving habit even with little monthly savings. The same way the foundations of a building takes more time to build than the floors, if you build a solid financial foundation wealth can quickly be constructed after. If you have to wait until your next paycheck, you might as well build your financial foundation in the process. This is how you Get Rich while living paycheck to paycheck.