Sometimes the problems we face are the problems we,
ourselves, cause. Living paycheck to paycheck is one of those problems that is
often self-inflicted. Although it is not always self-inflicted, when it is, making
better choices and exhibiting more self-control will go a long way in
correcting the problem. One question I get asked by those who find that they
have too much month left at the end of the money is this.
How can we stop living paycheck to paycheck?
Living paycheck to paycheck is a symptom of a stressed
financial plan and it is a self-perpetuating cycle. I wouldn’t go as far as to
say that it is a failed financial plan, because there can be many different
reasons why a person or couple experiences this. It can be caused by an
external event, meaning that there was a crisis that resulted in an increased
financial commitment. Or it can be self-inflicted, meaning that your financial
behaviors have caused the problem. In either case, there are two basic actions
you can take. You can treat the symptom or cure the disease.
Treating the symptom can be
used as a stop-gap measure which slows the financial bleeding. However, stop-gap
measures rarely help heal the wound. In many cases, stop-gap measures result in
prolonging the struggle because new events just deepen the original cut.
Stop-gap measures focus on increasing income, but fail to address the
underlying problems that caused the financial bleed. Taking on additional work
hours can increase incomes, but the stress caused by the extra hours can
manifest itself in other areas of your life causing more strain. So stop-gap
measures, though effective in the short-term, rarely cure the disease. They
treat the symptom of a shortfall, but fail to cure it.
To cure the disease, you have
to look at the drivers behind the financial crisis that are causing you to live
paycheck to paycheck. Determining the root cause will help you identify the
process that led to the symptom. Living paycheck to paycheck is usually the
result of a lack of financial resources. A lack of financial resources can be
caused by external factors such as a job loss or an increase in consumer prices
and taxes. However, these causes can also be self-inflicted such as poor spending
behaviors, high risk decisions, and a lack of discipline concerning fiscal
management.
The way to reverse this
problem is to start with addressing the root cause. In many cases there are
several causes that snowball. Individually, your behaviors, decisions, and
discipline might not be a problem. However, collectively they are devastating
and increase the level of stress in your finances and relationships. As I
discuss in my book, Simple Wealth Building Strategies, prioritizing your income is
the best place to start. Don’t allot any resources to the necessities until you
have fully funded the obligations. Don’t commit any resources to the
commitments until all of your necessities have been funded. It is a cascade
effect. If you have money left over after funding your obligations, it flows
over to your necessities. If you have money left over after funding your
necessities, it flows over to your commitments. If you have money left over after
funding your commitments, it flows over to your “everything else.”
After you have properly
allocated your financial resources, focus on eliminating debt. That means stop
using credit as a way of artificially inflating your income to purchase
products, services, and experiences that you do not have the money to purchase.
Paying down debt is like going sledding. It was a fast and fun ride getting to
the bottom of the hill, but if you are to ever going to enjoy the view from the
top, you have to haul the sled back up the hill. Once you get there, desire the
view more than the ride. It is easier to get into debt then it is to get out,
so this process will take some time.
Getting a handle on your
behaviors, decisions, and discipline means thinking differently; differently
than you have been thinking, but more so, differently than those around you.
These two actions will do more to cure the disease of living paycheck to
paycheck than anything else you can do. These are physical adjustments. From
here on out it is all about behavioral adjustments and you can learn more by
picking up Simple Wealth Building Strategies.
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