5 Steps to Avoid Living Paycheck-to-Paycheck

A couple weeks ago, I threw out a couple money statistics. The most notable was from an article on Bloomberg.com stating one in three Americans earning at least $250,000 annually live paycheck-to-paycheck. That’s CRNAs, physicians, physician’s assistants, nurse practitioners, pharmacists and c-suite executives alike making that kind of money.

I was thinking I never provided my unsolicited advice to those readers who find themselves in this very situation. This unfortunate, possibly embarrassing situation. Stressful for certain. Maybe ignorant of a different way. And a missed opportunity to do something impactful with your phenomenal income.

All high-income earners have the option to be wealthy, a luxury not everyone can afford. I say option because financial success doesn’t just happen. You can’t out earn stupidity.

Society cannot simply write checks to end homelessness or poverty. I wish it was that easy. Lottery winners and professional athletes are examples of regular people given a financial windfall. As consistently as the cows come home, they blow it. Money lit ablaze in spectacular fashion. Surely bankruptcy follows the windfall within a matter of years. Sad.

Spend the money before another payment beckons for fulfillment. It is better to enjoy the money than to partially cover the monthly bills. Late bills are late bills. Bottom line. I don’t fault anyone for their money choices. The decision appears to be the best at the time. The Financial Cocktail is about losing that ignorance and seeing the possibilities.

This digression to extreme examples of poorly managed finances is the segway into my first intervention for progressing past the “paycheck-to-paycheck lifestyle.”

Decide to Change

We have witnessed a lack of willpower countless times in every facet of life. That morbidly obese patient that continues to gain weight. That in-law that somehow makes a terrible financial decision at every opportunity. Even going out of their way to make poor decisions. That high school athlete that complains about riding the bench despite never putting in the work.

Money is a lot like high school sports. Stick with me here… A select few have a God-given gift allowing success without any additional effort. Looking at you…trust fund babies. And 6’9” high school basketball players. Must be nice to start life worth $25,000,000.

At the high school level, even a 5’4” white kid who can’t jump can make the starting roster with some effort. Good ball handling and a respectable shooting percentage from behind the arc will earn a starting spot. This represents the $50,000 per year income level that become multimillionaires in retirement.

If a teacher consistently puts a few bucks into investments and lives within their means, they will be just fine. A little bit of cash plus a 401(k) that had 35 years to compound. Maybe a pension. House and cars paid off by age 55-60. Financially independent in their 50s.

That’s earning a starting spot on the roster.

CRNAs are somewhere in between the silver spoon folks and the average income club. Upper middle-class income. Not necessarily status, but income for sure. CRNAs need to consciously decide that living paycheck-to-paycheck is not the best plan.

CRNAs are that 6’4” kid with average athleticism. Already a great high school baller prospect. Minimal effort will earn a starting spot even at competitive programs. Minimal effort to retire a millionaire at 65.

Take success for granted and find yourself next to washed up lottery winners. It’s never too late to fail with money. Put forth the slightest effort to surpass most. Join the D-1 college ranks. The ranks of the eight-figure club.

It takes more than genetics OR hard work to end up here. It requires both. Great effort in a great profession leaves a legacy. This creates generational wealth.

A line from the rapper G-Easy, “I just wanna stay broker forever, yeah, that’s that s*** no one ever said.” Vulgar and truthful. Decide to change. Decide to succeed.

Track your Spending

You decided reckless spending isn’t for you. Swell. What next? Find out where your dollars are going.

It’s fairly intuitive. If your dollars scurry away after the paycheck hits your bank account, you need to know where to find them. I’m not an advocate for strict line-item budgeting, but sometimes it’s necessary.

The first month, I’m not even recommending a budget. Just accumulate receipts from every purchase. This is tough with credit cards and online shopping.

Receipt collecting was something I grew up with since my parents owned a small business. I still have envelopes stuffed with receipts from undergrad. Pretty much everything that was purchased organized chronologically by month. Not by day, I have better things to do than go that far.

This was a learned skill for Mrs. TheFinancialCocktail. It took a while, but now she is a receipt magnet. We usually have online debit or credit card statements for anything we miss. It was a lot more important when I was an exclusive cash payer.

Anyway, write down your mortgage payment, loan payments, vehicle payments. Track your spending for insurance, utilities, and subscriptions. Track your grocery bill. Track your entertainment and dining out. Everything.

You might notice your housing costs are reasonable, but that $3,000 on dining out per month is a real killer. Or those small $50 subscriptions add up when you have 25 of them. No changes, just tracking.

Make a Budget

Ahh, that nails on a chalkboard word again. BUDGET. The essence of doom and despair. A word that Friedrich Nietzsche himself could have written manuscripts about.

Enough drama, make a budget. Even a bad budget will do at first. Just give it a go. I have a few posts about budgeting and how to get started. The “Money 101” tab has some resources as well.  I’ll give a brief overview here.

Budget Overview

Let’s assume living paycheck-to-paycheck means a great deal of debt and payments eat your income. Start by deciding where you want to make financial progress. Paying off high-interest debt is a great start.

Decide where you want to be financially and what time frame you want to work within. Calculate how much you need to pay off or invest each month to reach the objective within the given timeframe. Then make it happen.

I want to pay off my $100,000 student loan debt in 2 years.

Earn $10,000 net monthly

Pay off $100,000 in 24 months

100,000 / 24 = $4,166 per month towards the debt

Yes, interest comes into play, but you get the idea. Pay $4,200 per month towards the debt. Live off $5,800.  Spend it on whatever, but the $4,200 towards debt gets paid first.

Feels bad to see half your income disappear each month. Feels like a 100kg weight being lifted off your chest when the two years are up. Again, correct me if I’m wrong.

Eliminate Bad Debt

The whole “good debt vs bad debt” discussion is kind of ridiculous if you ask me. You didn’t ask, but it’s my blog. Debt on asset type purchases is generally considered good. Take debt to pay for a degree with excellent returns such as CRNA school. Reasonable.

Business owners often times take out debt to expand. This is a calculated risk. As averse to debt as I am, I acknowledge most ultra-high net worth individuals used debt at the right time to exponentially grow their wealth. There is a lot of timing and good fortune involved.

Take out debt for almost anything else and it’s usually not great. Debt is leverage -- win big and lose big. Money has been cheap to borrow for almost a decade, so we are used to paying 2% interest. Not happening any longer.

Debt is now expensive to hold. If you find yourself with a crushing amount of debt take a step back. Student debt – stuck with it. Houses, cars, boats, campers, and toys – you can decide to change.

Those two new SUVs carry $80,000 worth of debt. Sell ‘em. Buy two $3,000 Toyota Camrys. Lose the ego with the debt. Make the move to deflate the lifestyle.

In one move, you can sell the SUVs for $70,000 taking a slight loss. Spend $6,000 for two cars that drive you to work just the same. That $80k in debt just turned into $16,000 with two paid for cars.

I respect someone for handling their business much more than for what they drive. Correct me if I’m wrong, but most financially successful people would agree.

Same with the house. If your house payment eats up half of your net income, you need to move. Maybe rent for a while. Move to a different part of town. Move to a more affordable area of the country. Don’t allow payments to hinder your financial success.

Lifestyle Deflation

Get out of the $800,000 house and find something more affordable. If you downsize the house and lose the vehicle payments, you can bust out the student loan debt or credit card debt in no time. Then when you are debt free, start investing and consider controllably inflating your lifestyle.

Admitting that the new construction house and two new SUVs just out of school was not a good idea is difficult. Nearly impossible. New job, new status. Need to show everyone I’m a big shot now.

And once your lifestyle inflates, it’s tough to go back.

Look at the previous 4 steps. If you are living paycheck-to-paycheck and despise it, you need to decide to change. It’s not easy.

 The only way to successfully progress is by tracking your spending, making a budget, and paying off high-interest debt.

This leads to necessary lifestyle deflation when you see the financial impact of lifestyle inflation. The house eats up half of your take home pay. The vehicle payments are $1,000 each. The new boat cost $70,000. And not to mention the new camper for another $100,000. And they all have payments at 5% interest or more.

Don’t try to keep up with anyone in material possessions. Run your own race.

Besides, when people see your shiny things, they don’t envy YOU. No one is impressed by YOU. They imagine themselves having those items and driving that fancy car. They don’t care about you. Harsh reality, I know.

I want you all to enjoy the finest things in life. And that only comes when you aren’t drowning in payments. Everything is sweeter when there aren’t money strings attached.