Friday, October 25, 2013

Living Paycheck to Paycheck in Retirement Part one

In a recent study conducted by the American Payroll Association, 68% of the 30,600 people surveyed said they would have difficulty if their pay check was a week late. In other words, more than two-thirds of Americans are living paycheck to paycheck
 It is tough when this happens but I’ve been there, and I know one of the ways to get out of this situation is to track daily spending; I know this can be difficult. I advise you to do it, but if you don’t, for whatever reason, don’t let that stop you from fixing your finances. If you are going to track your income and expenses then use online tools such as to help you or use software such as Quicken or other online budget tools.
My recommendation is that, whether or not you track your spending (and you should), at least do the following:
Adjust your attitude
For some, living paycheck to paycheck can be a lifestyle choice To help myself change your attitude toward money,  make a list of goals and rewards and creating a vision of what you can  have in the future made it easier to make better financial choices.
Start cutting
Sometimes it can be painless to cut back -- especially if you've been spending money on unnecessary things. Even a small income can go a long way if you make minor changes, such as eating in rather than dining out 
Look at discretionary spending. If you can’t find $100-200 to save per paycheck, then you need to cut some things from your spending. This is where tracking your spending comes in handy, but even if you don’t, you know some of the extras you spend on — cigarettes, coffee, snacks, candy, desserts, eating out, magazines, shopping for clothes or gadgets or toys or shoes, books, going out … these are just a few of the examples. I’m not saying you need to cut everything out, but if you can cut a few of them, or maybe just one at a time, that can add up. Then, take the money you didn’t spend on those discretionary items, and put that amount into savings each payday. Increase this over time.
Start saving now! The next most important step you can take, in the beginning, is to start a small savings account if you haven’t already. Begin depositing into it regularly, at least $100 per paycheck 
Pay off Debt.
One of the most popular ways to pay off your debt is the Debt Snowball method. You can use the Snowball Calculator to figure out which debts should be paid off first:
List out your debts and arrange them in order from smallest balance at the top to largest at the bottom. Then focus on the debt at the top, putting as much as you can into it, even if it’s just $40-50 extra (more would be better). When that amount is paid off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the $50 extra for a total of $120) and add that to the minimum payment of the next largest debt. Continue this process, with your extra amount snowballing as you go along, until you pay off all your debts. This could take several years, but it’s a very rewarding process, and very necessary.
Generally speaking you should attempt to pay off the debts with the highest interest rate first. This Snowball Calculator allows you to enter up to 20 different debts with their associated APRs, and the total amount you want to spend per month servicing your debts, and it'll work out the order in which you should pay them together with the monthly payments.
Make a budget.
I recommend using a simple spreadsheet. List all your regular expenses (rent, car, utilities, internet, etc.) and their amounts, and then your variable expenses (groceries, gas, eating out, etc.), and then your irregular expenses (things like car maintenance or medical that might not come up every month, but break them into estimated monthly expenses — if you spend $600 a year on car maintenance, budget a $50 monthly expense). Now match that up against your income. The expenses should be less.
Automate your bills. As much as possible, try to get your bills to be paid through automatic deduction. For those that can’t, use your bank’s online check system to make regular automatic payments. This way, all of your regular expenses in your budget are taken care of. Make sure that your savings is done the same way – automatic deduction.
Save for your irregular expenses. Some call it a Freedom Account, but the key to ensuring that you have smooth finances and that you stick to your budget is to take into account all your irregular expenses, such as insurance, car maintenance or repairs, gifts (think Christmas!), medical and other such things. List them out, estimate your annual spending, and begin saving for them each month. Again, if you spend $600 on car repairs, budget $50 a month for that expense, and put that amount in savings. You could set up different accounts for each expense in an online bank such as ING or Emigrant, or put it all in one account and use Money or Quicken or a spreadsheet to keep track of each. 
Then, and here’s the key, when these expenses come up, use that money for those expenses! That way, you can use your regular budget for the stuff it’s meant for, not for these “unexpected” expenses.
Use the envelope system for your variable expenses such as food and gas. This is optional, but it’s a good tip. I’ve been using it myself, and it works like a charm. Let’s say you set aside three amounts in your budget each payday — one for gas, one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three separate envelopes. That way, you can easily track how much you have left for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in these categories. If you regularly run out too fast, you may need to rethink your budget.

Start thinking about your goals, and planning for them. When do you want to retire? How often do you want to travel? When do you want to buy that dream house? Do you want to save for your kids’ college education? Think about what you want in life, and start planning to save for them, especially once you’ve done all the above.

1 comment:

  1. Watch every day for a week or two, and you're bound to remark a substantial change in the way you
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