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Live Paycheck to Paycheck and Retire Rich

April 2, 2017

Many people assume that if a person drives a nice, foreign car that they must be wealthy. Or that if a person lives in a monstrosity of a house that they must be a celebrity or CEO. In today’s day and age it really does seem as though appearance is everything. That is why many people will do everything in their power to just appear as though they have the money to back up their lavish lifestyle. From maxing out multiple credit cards to taking out personal loans, people will dig themselves into a deep hole just to feel as though they’re keeping up with others. When my sister was living in Hollywood she’d tell me stories of how people she knew had car payments that were higher than their rent. What they would do is just rent a single bedroom out in a house with a bunch of friends and then spend most of their income on their car and going out. It sounds like quite a bit of fun to just live for today with no regards for tomorrow. Unfortunately at some point the music stops. 

 

The truth is that preparing for your financial future will be difficult, especially at first. You have to be okay with not impressing anyone. You’re doing yourself a huge favor if you hold off on getting that new (hopefully used) car for another year or so. And it’s always difficult to stay in every now and then when others are out at happy hour. Saving doesn’t have to limit you from doing things that you want, but it will most likely alter your lifestyle some. They say you should save just enough until it starts to hurt, meaning that once you start noticing that you don’t have the money to spend as you once did, you’re then saving enough. I say take it one step further. Most people shell out cash here and there for very frivolous items. By really stepping up your savings you’ll have to pick and choose what you purchase. If nothing else it’s a great exercise in the short term to see what you really feel is important to you.  Personally, I’ve cut down on the afternoon coffees, weeknight meals out, and spur of the moment trips to the mall just for something to do.

 

I’ve been able to do this by saving until it really hurts. In fact, I’m saving so much that I’m living paycheck to paycheck. Not quite in the traditional sense, but I am living paycheck to paycheck once automatic savings are taken out of my bi-weekly paychecks. My current employer allows me to setup direct deposit with as many as four separate accounts (in addition to contributing to a 401k plan). And I use all four. Why would anyone ever need four separate direct deposits for one paycheck? I do it for different savings’ buckets and so that I don’t see all of my paycheck in the account I use for spending. One deposit is into a checking account which is used to pay the bills. Deposit two goes directly into a high yield online savings account, which by the way earns basically nothing but is still considered “high yield.” The third direct deposit is for my Roth IRA. And the 4th deposit is into a separate checking account that I have opened to collect a $300 bonus from and this account is also what I use for entertainment expenses. If this account runs dry I don’t allow myself to spend money from other buckets until the next paycheck comes. A little discipline goes a long way, especially when it comes to saving.

 

If you’re able to setup direct deposit through work I encourage you to look at breaking down your paycheck into certain buckets. Try to keep one bucket for just the essential expenses, housing, car payment, cell phone, and utilities. Have a separate account that is used for savings. If you’re not able to save much each paycheck just start with something small, even if it’s only $5 or $10. It will get you into the habit of slowly decreasing your spending and it will begin to accumulate over time. If nothing else do this at least for an emergency fund in case something breaks down. If you’re able to do this and still think you can do a little more consider opening a Roth IRA retirement account. This account is used with after-tax dollars and you’re also able to withdraw any contributions that you’ve contributed.

 

By living paycheck to paycheck in a non-traditional sense you may be able to increase your net worth quickly over time and you’ll have the added benefit of not increasing your lifestyle. This will be key several years down the road as you most likely will be making a little bit more money. The way I have separated my personal accounts I really don’t see savings in my checking accounts used to pay the bills, but I know that when I look at the other accounts they’re all going in the right direction. Oftentimes when it comes to budgeting and our savings’ goals we are our own worst enemy. By limiting the money that we see and are able to draw from we’ll be much more likely to save.

 

 

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