Paycheck-to-paycheck is no way to live. Constantly feeling like your money is spent before you even get it, unable to save for big purchases or emergencies can be frustrating and demoralizing. BankRate.com has a good article today about breaking the paycheck-to-paycheck cycle. There are eight great tips, including goal setting and paying bills on time, but I think there's one glaring omission... managing/reducing recurring monthly expenses. I think one of the best things you can do to break the paycheck-to-paycheck cycle is to stop committing your future paychecks to recurring monthly expenditures. This can mean anything from paying cash for large purchases like furniture, appliances, and cars (if you can), skipping cable (or at least the premium channels), shopping for cheaper auto insurance, paying off credit card debt, and taking advantage of all the discounts available on telephone, cell phone, cable, and high-speed services. It can be as easy as calling your current cable/phone/high-speed providers and asking for a discount or lower price, you might be pleasantly surprised. I called my DSL provider about six months ago and asked if they had any promotions running. The customer service rep checked her computer and said she could move me permanently from the $34.99/month rate to the $29.99/month rate. Combine this with the $5 discount I get on my satellite TV, the 10% discount on our cell phones through my employer ($6), and the $40/month savings on auto insurance from switching companies, and we've reduced our monthly expenditures by $56 with a few phone calls. With a bit more effort, I was able to get PMI removed from the mortgage, saving an additional $56/month. We don't get premium channels, or extras on our cell phones, for the same reason. We've also decided that rather than paying monthly on a loan to build a new garage, we will save for a year and pay cash. It's much more gratifying to save every month than to know our checks are spent before we even get them.
Here's my challenge to you... rather than adopt the "it's only $x per month" mentality, think about keeping a bit more of your hard-earned money and breaking the paycheck-to-paycheck cycle. You might be pleasantly suprised at how much money you can save with very little changes to you lifestyle.
9 comments:
Cutting down expenses is a great way to save, but at the cost of minior pleasures you enjoy!!
cvrk - Yes and no. We cut out over $100 per month in expenses without giving up anything (see the post). That can add up! Some people may be able to find even more savings in their monthly budget, ours was already pretty lean to begin with. Combine that with a cut-back or two, and you can have good start at a savings plan.
That's a good article. Thanks for bringing it to my attention!
Exiting the P-to-P cycle can be extremely difficult -- no question about it. But I've seen too many people accomplish it, and seen too many of the benefits of doing it. The effort expended in getting to that point has been worth it each and every time.
I think the most important part of the article was goal setting. Without goals we are just rudderless ships going to wherever the angry seas take us. If you can visualize the results of the sacrifices and extra work that you are doing, it will keep you motivated to get off of the P to P cycle.
How were you able to get rid of the PMI? My wife and I just moved into a house, and the PMI is killer. The only way I know of to get it removed is to pay the mortgage down so we have >= 20% equity in the house.
I have two posts about PMI that I wrote quite a while ago...
PMI and How to Avoid It
Last PMI Payment
On PMI, all you really have to do is take out a piggy-back mortgage for at least 20% of value.
The "think beyond monthly payments" is great advice, especially in the type retail world that's out there today, where they really try to sell on the "low, low monthly payment!" - my wife & I just bought a new car, and it was almost pulling teeth to get the guy to tell us what the total cost was, instead of "$X per month" (this was on warranty, not the car - the sticker's tough to miss, but they'll try that, too).
What about getting another appraisal done on your house value? Usually you have to wait about one year, but still- the values are based on comparable sales so if homes in your neighborhood are selling high, look into it. You may have to pay for the appraisal anywhere from $50-350.
What is misleading about all of this is this: while you might be paying for next month's expenses, you are still in affect living paycheck-to-paycheck. My advice to you all would be to forget about this P-to-P dream you have. You will *always* live P-to-P. The difference is that you can live *comfortably* paycheck to paycheck.
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