Getting started is the hardest part
As children, most of us were taught the importance of saving money. Maybe Mom took you to the bank to open a savings account; maybe Grandpa would give you a bit of money and make sure you put some into your savings before you spent the rest on candy.
Those valuable life lessons we learn as children are still just as important today. Unfortunately, we’d all agree that life can be challenging and sometimes costly. And although we agree with the idea of saving, it’s hard to do so when you live paycheck to paycheck.
In spite of having a very limited amount of money available to spend each month, it is possible to put aside some money for the future. (In fact, that’s the only way you’ll ever get ahead.) Here are six lessons (inspired by George S. Clason’s book, The Richest Man in Babylon [Signet, 2002]) that might help you if you’re living paycheck to paycheck:
1. Pay yourself first. Start by putting aside a bit of money each month into an account for you. Think of this as your “long-term savings fund.” It might be hard to put a lot of money aside right now, but you can start with just a few dollars per month and aim to increase that regularly as time goes by. Just getting started is often the hardest part.
2. Live below your means. This is perhaps the most challenging part of the whole process! Living paycheck to paycheck is possible only when your expenses are less than your paycheck! Take a long, honest look at your life, and make some (temporary) sacrifices: eat out less, consider not upgrading to the shiniest and newest iPhone this time around, and maybe cut back on cable.
3. Create a budget. The most financially successful people create a budget—period. Yes, it sounds old school and boring, but a budget is one of the most powerful tools to keep you on track. Get a pen and paper and create one. You’ll thank yourself later.
4. Make your money work for you. Your money shouldn’t just sit there collecting dust. You can make it work for you by investing it wisely. I’m not a financial adviser, so I can’t tell you what you should invest in, but there are funds, stocks, and real-estate investments that are relatively safe and affordable, which may generate a higher return than your money would just sitting in a savings account.
5. Protect your wealth with insurance. When money is tight, it’s easy to think of insurance as an unnecessary expense, but if something bad happens, that lack of insurance becomes even more costly! Pay for insurance, even if it’s just a bit to get started. You’ll be glad you did. And the peace of mind it gives you (even if you don’t need it) is invaluable.
6. Automate your finances. If you’re living paycheck to paycheck, one of the hardest things to do is to decide how to spend the limited amount of money you receive from each paycheck. One of the best ways to remove the temptation to spend that money is to set up automatic withdrawals through your employer and/or bank to remove a certain percentage of money first (before you get the rest to pay your bills) and to deposit that money into a savings account, an IRA, or a 401(k), or pay for insurance, etc.
Are there other ways to save money while living paycheck to paycheck? You bet! And there are many success stories of people who have built a small fortune in their lives despite living paycheck to paycheck. But learning and implementing these six lessons will get you off to a very powerful start. Master them, and you’ll be well on your way to putting aside more money each month than you ever thought possible!
Jeanne Kelly, ESME's Resource Guide for Work and Finance, is a Solo Mom who founded the Kelly Group, a company that provides credit counseling to individuals and organizations. She has appeared on the Today show and has also been quoted in media outlets such as CNN, Money, and the New York Times. Kelly is the author of the book The 90-Day Credit Challenge.
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