Are you or your partner one of the 78% of Americans that live paycheck to paycheck?
We are too.
While there are dozens of financial gurus out there claiming to know exactly what you need to do to bulk up you savings account and retire early, there’s really only one good way to do it: your way. It’s a good idea to collect as much information as possible on personal finance (why didn’t they teach us this in school)? Then you can figure out what works for you. The WORST thing you can do is nothing. My partner and I have learned this the hard way.
We were so excited for our family to grow 7 years ago. But learning I was pregnant (surprise!) was a huge wakeup call on our frivolous lifestyle. I’m not going to tell you that the system isn’t rigged against the middle and lower class. It is. But I am going to tell you that while we fight the power we also have to get really smart with what we’ve got coming in.
When it comes to taking control of your finances, the most important things you can do are:
- Get clear on your money stories
- Track your spending with a budget
- Make a solid budget plan
- Take it one step at a time
- Reward yourself
Get Clear On Your Money Stories
This one is often overlooked by the money gurus who go straight into budget making and selling everything you own. Look, debt is a big deal. It’s not something that you want, but we’ve learned after 7 years of trying EVERYTHING under the sun that unless you can get clear on your money stories, it really doesn’t matter what kind of budgeting strategy you use.
What Have You Been Unconsciously Taught About Money?
By money stories I mean the relationship we have to money. This is often developed through our experiences or directly taught to us by someone. For example, when I was growing up, my parents fought a lot about money. My mom was a spender and my Dad was a penny pincher. Unconsciously I learned that talking about money ends relationships and steals love away. Something more direct might be a religious leader or a mentor telling you that money is the root of all evil. Almost every ad on television was telling us that if we spent money on this or that then we’d be happy! All stories.
Create New Stories
Getting clear on these stories isn’t always easy, but once you do you can begin to ask if these stories are true for you. Does spending on things really give you happiness? Was it really money that broke up mom and dad? Is money really evil or just a means to an end? The stories are worth exploring. Forbes did a fantastic article on overcoming money struggles and is a great place to start.
Track Your Spending With A Budget
Notice how I didn’t say, start a budget and stick with it. While this would be super, super awesome it’s a rare person that goes from spending mayhem to strict, perfect budget success. For my partner and myself, it took us years to figure out that we were making what we call “fantasy budgets”. You know what they look like… no spending on restaurants, no fun nights out, rice and beans, beans and rice. 👎 Those stick about as long as a carb-free diet (horrible idea BTW).
This is a good time to write down all of your income and expenses. My favorite app to use is everydollar. Go through your online bank statements so you don’t miss anything. Create a budget and manually put in what you spend. If you’re not even ready for this part simply sign up for intuit’s mint, put in your bank accounts including any debt and it will automatically monitor it for you. Track two weeks of your spending to get really clear on just how much you put towards sushi, artisanal ice cream, web hosting and/or rare recordings of Frank Zappa albums. The goal is to get clear on what your money goes towards.
What Do You Currently Spend Your Money On?
The first time we did this I have to admit I was shocked at how much we were spending out at restaurants, on fuel and poshmark (that was all me). But that’s the point! Knowledge really is power. Learn how you spend without actively changing anything. Then, without any guilt, shame or blame- take a good look at it. If you have a partner I suggest a non-judgmental chat about it.
Make A Solid Budget Plan
Okay, so at this point you should be feeling really clear on where your money is going and where you’d like it to go instead. If you are able to pay for all of your expenses, save enough and have some fun with your income then you’re in the sweet spot. If not then you have two options: you can cut back or you can make more. No one can tell you what to cut because that’s up to you. Permission slip signed. You get to decide if you’d rather have that daily morning latte or pay for your paddle boarding membership.
Knowledge Is Power
If you find yourself in the predicament most of us are in (can’t pay for all expenses, don’t have enough saved, not enough left for fun) then you can totally work on the making more part. But while that’s happening, it’s a really good idea to cut back so you don’t end up in the red. Even if it’s a small amount ($50 or so), you’ve got to save. Without savings, the inevitabilities of life are going to suck.
To simplify things we go with a percentage goal that works for us:
- Housing: 25-35%
- Insurance (including health, medical, auto, and life): 10-20%
- Food: 10-15%
- Transportation: 10-15%
- Utilities: 5-10%
- Savings: 10-15%
- Fun (entertainment and recreation): 5-10%
- Clothing: 5%
- Personal: 5-10%1
Take It One Step At A Time
So by now you know how you like to spend your money and you’ve created a budget plan that seems reasonable and set some goals. Each month, take it one step at a time. Make sure to put your money is savings and where it says fun money, go have fun! Having fun is a crucial part of being able to stick to this budget.
Start Really, Sustainably Small
When I say take it a step at a time I mean start with a small amount that goes directly into savings from your paycheck (so you can’t see it). Slowly increase that amount. Learn about investing in your 401K before you decided that you want to trade on the stock market. Take small, sustainable steps towards your goals. Even if you’re in your 30’s like us, there’s still time. You’re more likely to reach your goals if you do it in a way that you can keep up with it.
It will be tempting to forge ahead, putting 50% of your paycheck in savings right away because ramen (duh). But eating only ramen will land you in the hospital with nutrient deficiencies and hospital stays aren’t cheap. Pay more and more on your debt over time. Remember to slow down and enjoy your life.
This one might be a bit controversial. A lot of old school, boomer, financial gurus like to ignore this one siting that “you’re a piece of shit who needs to pay for your crimes against your bank account”. Or at least that’s what it often feels like. The truth is that this is what I believe is the missing piece of the puzzle.
Self Care Vs. Stupidity
Do I think it’s self care to blow your newly saved up $3,000 on a Louis Vuitton bag? No. I think that’s stupid and those bags are ugly. Do I think it’s a good idea to set a goal (say, $1000 in your emergency fund) and then treat yourself with a pedicure, massage or something small but special? Absolutely. When my husband and I finally got $1,000 in our savings account we went to a local ramen place and had a really good dinner. We talked about our other goals and got some really good inspiration for a ramen we could make at home.
The truth is that there are so many reasons why getting your finances together can be/feel really hard. Most of us don’t have much to begin with or parents who taught us anything or parents who are in a position to help us. We’re also being bombarded almost every waking moment of the days with reasons we should spend in the form of solutions to our unhappiness.
Once you’ve started to get your financial life together then you can start to explore things like high yield savings accounts, investing (so important), getting lots of insurance and saving up for things that matter to YOU and your family. Don’t ever let anyone tell you what should be a priority for you.