Ignoring Your Paycheck

I get paid twice a month, on the 15th and on the last day of the month.  That would make today payday.  As I was sitting at my computer today, I said out loud, "Oh, today is payday.  I almost forgot".

My coworker looked at me and said, "There is clearly a man that doesn't live paycheck to paycheck."  Of course, he is right.

I certainly understand this is a luxury that many might not have.  It's hard enough in this day and age to save any money let alone enough where you can almost completely forget that it is payday.  However, I tend to think most people have a lot more fat in their budget than they realize.  So I tend to think that if more people tried, they could eventually not end up living paycheck to paycheck.  The key is to break it up.

To not live paycheck to paycheck, you probably have to have six months of living expenses.  This is the standard amount that almost any financial advisor would give you to say that you are financially sound.  It is a hard goal to manage, but it is very doable.  The key part of that is not the money you save, but it is the money you spend.

Six months of living expenses is much easier to manage if you cut down your living expenses.  If you can cut your living expenses from say $1500 a month to $1000 a month, that equates to $3000 less you have to save every month.  Now that's a big difference.  I have helped others do this by simply making them list out what they spend in a month, and then asking them a simple question, "Would you rather continue to struggle and worry about your finances day in and day out and have that latte, or would you rather sleep better at night?" (both from being financially secure and having less caffeine)  The answer should be obvious.

For me, saving six months of living expenses has never been hard, and it isn't because I made a lot of money or lived in a cheap area.  It's becasue I controlled my cost.  At no time in my life have I spent more than 70% of my paycheck on my living expenses.  This means I'm saving 30% at a minimum.  Now that number runs closer to 50% as I make more money, and I keep my standard of living relatively flat.  Think its impossible?  It isn't.  When I first graduated college, I made less than $50,000 a year.  While that may seem like a lot to some people, try living on that in New York City.  Now try saving money.  Not so easy.  My paycheck came out to roughly $1600.  I got this twice a month.  Keep in mind this is a NET number after taxes as well as whatever I put away in my 401K (which should never be considered as part of your pay. You should just do it and forget it.  Learn to budget without this money) My goal was then, and is now, to only have to spend one of these paychecks on my living expenses.

Out of college, I shared a two bedroom apartment with two other people.  Our apartment was $3400 a month.  My share of it came out to a little more than $1100.   So how the heck do you live on $500 a month in NYC?  Well to be fair, I did cheat a little.   I was a consultant so I travelled a lot which means I also got a small living stipend for each day I was gone.  This would more than cover any meal I had (I ate cheap) as well as any incidentals.  In fact, I got to save most of the money.  But even without this, I could have made it.  I had no car so no insurace or gas cost.  I limited my going out and my cab rides.  I didn't go to a lot of shows or movies or buy things I didn't need.

Before I left NYC, I had a nice little cushion.  More than enough to cover my move back to L.A, which I had to pay for myself, as well as all the other setup cost I had to incur like security deposits, setup fees, etc.  Not once did I have to go into debt despite the sudden large expenditures I had to make.  Why, because I told myself I would never have to be one of those people staring at the calendar wondering when the next Paycheck was going to come.

In this case ignorance really is bliss.