Mo Money's Building Wealth Blog

A 2024 Forbes magazine article indicated that a staggering 78% of Americans live “paycheck to paycheck”- essentially saying that their income for the week barely covers their expenses.  That fact combined with the fact that more than 50% of Americans who have credit cards carry a balance tells you that there exists a common and very real problem with financial responsibility in this country.

“So what?”, you might say.  “Life is short. I’m having a good time. I pay my bills…mostly on time.”  Well, the problem lies in the fact that you put yourself financially at risk if you fail to see the importance of maintaining, at the very minimum, a reserve or an emergency savings account.  Why?  Because nobody has a crystal ball that can predict the unexpected – like job loss, health issues, vehicle repairs, home repairs, sudden death of a family member, etc.  As a result, you’ll have to end up borrowing money to cover your obligations, or charge up those credit cards, putting you further behind the financial eight ball.  And you might try to convince yourself that you’ll always make it work out, until inevitably it doesn’t.  Eventually, you can get yourself into a hole that’s too deep to climb out of.  Not good.

I will offer that the problem is not low wages, inflation, or high cost of living.  The real issue is that the majority of people struggle with the concept of living beneath their means.  Most importantly it comes from a lack of personal discipline but also from the constant bombardment of all the psychological forces within the social framework of our society.  With America having been built on capitalism there are strong marketing forces at play leading to an environment of consumerism that creates and then preys upon our aspirations.  Those aspirations then lead us to a desire to consume goods and services that are well beyond our basic needs.  To put it another way, our society has evolved to the point where our Wants increasingly outpace our ability to pay for them.  So, while we’d like to be able to save or have a little bit of extra money, there are a lot of forces against us each and every day.

What can you do yourself to overcome this?  Simply put, the choice starts from within and our own ability to tune out all of the exterior impulses.  You’ll need to create new habits to better control your Wants and the relationship between them and your income.  Ultimately, the silver bullet for moving out of the risky cycle of living from paycheck to paycheck is to start by living beneath your means.  Essentially, you’ll need to get into the regular habit of spending less money than you bring in.  Admittedly, it’s not going to be easy.  Nothing worth doing ever is, and old habits certainly die hard. Your best bet is to start now.

The best time to plant a new tree was 20 years ago. The second best time is NOW.

-Chinese proverb

Here are some tips to help you start living beneath your means:

• Firstly, and most importantly, take control of your own financial future.  Set a personal goal to become more disciplined relative to your finances. 
• Be aware of and accept the fact that every business out there desires to separate you from your money.  Don’t let them win.  You make the choice to allow it, or not.  Be a winner.
• Separate Needs from Wants.  Typically, Wants are aspirational in nature, and we often use them to project personal status.  Make a concerted effort to stop trying to keep up with the Joneses.
• Create a personal budget using the 50/30/20 rule.
  • Separate Needs from Wants and prioritize Needs
  • Include an Emergency\Reserve savings line item in your budget as a Need.
• Create an Emergency\Reserve savings in an online FDIC Insured bank account . This will keep that ready cash out of your wallet, purse, or local bank and just out of reach of your debit card.  Psychologically speaking, it will keep it out of sight enough so that you don’t dip into that reserve for impulse purchases.  As an added bonus, online banks offer higher interest rates than your local bank.
• Regularly contribute to your emergency\reserve fund until which point as you have enough to cover at least 90 days of no income.  For example, if your take home pay is $3K per month then ideally you’ll want to build your reserve up to $9K.  Understandably, it may take a long time to get to your goal number, but you need to start somewhere.  You’ll get there.  Automatic withdrawal or transfer from your paycheck to your reserve fund each week is a great way to accomplish this task without skipping a beat.
• Reward yourself as you make significant progress toward meeting your savings goal.  A tiny little occasional splurge on a well-deserved WANT is absolutely OK.  You just might feel a twinge of guilt though knowing that you might be repurposing (aka blowing) some money that you could be contributing to your emergency fund.  Feel good about that guilt feeling.  It’s a sign that you’re on the right track as far as creating better habits!
• Congratulate yourself for taking the major step toward better financial responsibility and freedom.  You’ll likely feel better about yourself and will feel that your stress level has been significantly reduced.