Stop living from paycheck to paycheck

Stop living from paycheck to paycheck

  • Posted by lifeteachesadmin
  • On May 3, 2020
  • 0 Comments
  • save up, saving money, tips

Take the First Step 

The most important part of this process is getting started. Read it through then go put at least one thing in motion. The only disadvantage is that you’ll wish you’d done it sooner.  

Assuming you already have a checking account, open a 2nd checking account. It can be with the same bank that you currently use, but it doesn’t have to be. It’s a good opportunity to try out a new bank or take advantage of cashback offers for opening a new account.  

Here’s how you will use the 2 accounts: 

  1. This account will not be associated with a debit card or checks. YOU will not be taking money out of this account. It serves only to pay your bills and will be accessed only by ACH from your  You will deposit money via your paycheck to cover those bills, they will automatically be debited, and you don’t have to worry about any of your bills being late or not being able to stick to your budget enough to pay your bills.  
  2. This account will be your debit account. This pays all your variable Everything that fluctuates or gets paid in person comes from this account. This makes it easier to notice your spending habits, now that your spending is separate from your bills.  

Ideally, if you have credit cards available, you can designate one card for groceries to be debited from your bill-paying account. You may consider using a prepaid cash card as an allowance to stay on budget. You load that card every paycheck or every month. Once that card is empty, you’ve used up your budgeted amount for that week/paycheck/month or whatever time period you choose.  

The more you have linked to your bill-paying account, the less stress you have because you have worked those amounts into your budget, and this helps you stick to your budget.  

Set up your direct deposit with your employer as follows: 

  1. Use the next section to determine the amount going into your bill-paying account. 
  2. The balance of your paycheck goes into the other account to cover your variable expenses and your incidentals as they come up.  

How to Determine your Direct Deposit Amount and Spending 

Refer to your statements from the last 2-3 months. Have a notebook handy while you look at it.  

Make separate columns on your paper and list dollar amounts under different categories: 

ACH Accounts                                                                         Variable Expenses 

Utility bills*                                                                               Groceries 

Credit card payments*                                                           Cigarettes 

Gas Buddy**                                                                             Dining out 

Rent*                                                                                          Entertainment/Leisure activities 

                                          Shopping (online or otherwise) 

* I would change the ACH on these to the new account (with no debit card, of course) rather than keeping them there because you probably have Amazon, PayPal, and whatever else you have, attached to this account. You don’t want that stuff coming out of the same account because you don’t want to be dipping into your bill-paying account. (Remember, you’re going to be depositing whatever you need into that account to make sure all your bills are always covered, and you never have to think about them.) 

 **Gas Buddy links directly to your account. It acts as a debit card. Even though the amount varies, if you spend about $40 every 2 weeks on it, then include that amount in your deposit. (Remember to always round up. i.e. if you spend $38, consider it $40. If you spend $42, then use $45) This is worth it for the benefits or discounted gas costs, plus it’s one less thing you have to worry about. You always have money for gas that way.  

 Variable Expenses 

Now that you know all your bills are covered, you have gas money and you don’t have to worry about any of that, you can use your debit card for whatever else comes up.  

 If you find yourself running out of money before you run out of the week, it’ll be easier to notice where you could cut back on your spending. (This is how you get out of the living paycheck to paycheck.) I use my card for everything so I can track how much I’m spending on stuff. This way I can periodically review my spending, etc. 

 Bonus Points – Building Up a Savings Account 

 The next step toward financial freedom is to build up a habit of building up savings.  

 If/When you’re ready, set up a savings account AT AN ONLINE BANK to deposit no more than 5% at first, but just to develop the habit of building up savings (aka paying yourself first). I say no more than 5% because you want to ALWAYS pay yourself first and you don’t want to be tempted to “dip into it” if you run out of money. Using a % works out well for this because here are some examples of how that would work: 

$200 x 5% = $10                          $2000 x 5% = $100                                    $20 x 5% = $1 

Consider it spent when it hits your savings account. We use online so it’s harder to access. You have to think about it before you withdraw anything.  

 This account is NOT for the expensive shoes or hobbies that you want to fund. This account is NOT for lending out money when someone needs a helping hand. 

 This account is a LAST RESORT. If you lose your job or need to supplement your bill-paying account, you could set up a “direct deposit” by transferring from this account to that account while you find another job or source of income.  

 Summary – How Following These Instructions Will Change Your Life 

 Using these strategies changes how you feel about money as you feel less stressed about paying your bills. It’s a set-it-and-forget-it system.  

  • You will save money on late fees and bounced check fees if that’s been an issue until now. 
  • You will notice more about your own spending habits, enabling you to make small changes and become more disciplined than you ever thought you could be. 
  • You’ll learn how to put yourself first and how to prioritize needs vs. wants. (You’ll notice your needs falling into your bill-paying account and your wants will be the ones you keep a closer eye on.) 
  • You won’t be as “scared” to review your bills and spending, enabling you to monitor yourself, your habits, and your spending more closely. (It’s a good habit to periodically review and look for patterns in anything you’re monitoring, whether it’s your finances, diet, sleep or other health habits) 
  • You will watch your savings account grow
  • As your balances drop on your credit card accounts, your minimum monthly payments will also drop. That means that less money is being withdrawn from this account, but you’re still depositing the same amount. 

i.e.  The account starts out where you’re paying $1500/month for your bills because that’s how much you calculated when you start it out. Your credit card bills start out paying $100/month each. As time goes by, your minimum monthly payments drop, causing a surplus in this account. You accidentally start growing this account.  

You will review this account periodically to adjust the amount you’re paying into it and to adjust which accounts are paying the minimum and which accounts have a specific dollar amount, as well as to recognize the progress you’re making so you can celebrate (meaning do a happy dance, not go blow everything you just saved up 😊) 

 Taking Advantage of 0% Interest Offers 

Call each of your credit cards, find out and write a list of: 

  • Your total balance
  • Your current minimum monthly payments
  • Your interest rates
  • Any cashback or 0% offers available

If your monthly income is not steady and you’re scrounging every month to make sure you have enough, you’ll set up to pay minimum monthly payments on all accounts. 

If your priority is saving as much money as possible in the long run, then your priority is to pay down the bill with the highest interest rate. Transfer as much as possible of this account to the 0% account.  

If your priority is to reduce the number of accounts you have open balances on, then you would focus on the account that has the lowest total balance. Clear that account asap, then move onto the next highest account.  

While they say, 0%, keep in mind that it’s not actually 0%. You’re still paying 3% to initially transfer, then 0% for a specified number of months. This is still much less than the typical interest rate that you’re paying on a monthly basis.  

How to Calculate Your Interest Based on APR 

APR of 12% (for simple math’s sake) 

$1,000 x 12% = $120 divided by 12 months = $10/month 

If you transfer this account to 0%, you will have a $1030 balance immediately after transferring. $30 is interest for the term of the promotion (which is usually a year or longer), but it’s not $120. That means your interest will be paid off right away, then everything after that pays down your principal. 

Gas Buddy 

Apply for the debit card to use and save 5 cents on every gallon of gas you buy (10 cents/gallon on first fill-up) 

Use the app to find the best gas prices near you.  

Use the online website to calculate the cost of any trip you take. It even tells you where you should stop for gas.  

Not usable at Mobil stations.  

Use the app to log your gas consumption and keep an eye on your gas consumption and mileage.  

Use this card at certain stores to earn free gas as rewards (i.e. Wal-Mart pays 4% on all purchases, this could solve the groceries issue meaning you could include it in your monthly deposit amount if you buy your groceries at Wal-Mart anyway.) 

 

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