Upon moving to Michigan in 1990, my wife and I made a decision. She left her lucrative executive career to stay at home with our children while I took a new television job in Saginaw.
With our income cut in more than half, we made this choice knowing there would be considerable sacrifice. With our financial resources stretched to the limit, we cut out a lot and pared back on everything left, bought fewer groceries, ate lots of beans and rice, if we vacationed at all we drove, entertainment meant having date night out with other couples with young children once a month.
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We had no regrets. Upon moving to Detroit five and a half years later for a much better paying job, we decided to send our children to Catholic schools for early educations. Living paycheck to paycheck prompted me to learn more about managing money. I ended up going to school to become a Certified Financial Planner Professional™ and it helped us better manage our situation. It allowed us to take a step back, look at the larger picture and plan our finances better and save more. My wife went back to work in the classroom so we could augment income but still be with the kids.
Later, two of my daughters went to Michigan State University, the third is wrapping up her University of Michigan degree. That is a lot of big checks written over 30 years! Though it meant we had to stretch every dollar, it was an investment in their futures we felt important and well worth the struggle. Still, there were days when we felt no matter how much we made, it’s wasn’t enough.
As I said in the original Local 4 Insiders piece, “No matter how hard you work, not matter how well you plan, you always end up with more month at the end of your money. It’s annoying, frustrating and because life always throws you a curve, you end up struggling to make ends meet. Not only is this no fun, but it also often builds to an exceptionally stressful way to live, vacuuming joy from the simplest things.”
We have long since put those “salad days” behind us, but there is much we’ve learned in this process and is very much a part of what you see here in this paycheck-to-paycheck project.
60% to 70% of Americans live paycheck to paycheck
Depending on the surveys you read between 60% and 70% of Americans live this way. There is a way to step off the hamster wheel, but you have to ask yourself are you really serious about doing so?
This is going to require hard work, dedication and considerable perseverance. In reality, it is going to require you to change the way you look at your entire life, create new habits and decide to take control of your finances. Personal finance will have to become a focal point from which everything else you think and do flows. If that sounds like a big deal because it is! It is no easy feat.
Dollar Stretcher: Get personal finances in order one day at a time
Not to get too philosophical here, your life is the culmination of the choices you have made. (My children have heard this their entire lives and don’t like dad’s many blunt assertions). I’m reminded of this in the work we’ve done in this paycheck-to-paycheck project. It’s obvious one of the many reasons people live this way is they’re busy.
They’ve chosen to live an often over-scheduled and built a frantic lifestyle devoid of attending to, or understanding what is happening with their money. They are also entirely too willing to spend everything.
Years ago, I met Metro Detroit contractor by the name of Bob Stern for a story we did about the book the Millionaire Next Door. He told me he became a millionaire through hard work and an incentive; to make certain his special needs daughter had all the services she would ever need, especially after he passes.
His secret to living well and becoming a millionaire was learn to live on 80% of his take home pay. He saved and invested the other 20%. That is a tall order for any of us, but words to seriously consider.
Dollar Stretcher: How to make pay yourself first work
Another problem for the people we’ve spoken with is they have not had much financial education. So, instead of taking a bird’s eye view of their financial lives, they time their payments to their income, hoping they get everything paid by the end of the month.
“Hope is not a plan!” A plan is a form of goal setting that’s essential to accomplish much of anything. It’s not easy and requires a new thought process. If you’ve read the book “The Little Prince” by Antoine de Saint-Exupéry to your children, you might recall the quote “A goal without a plan is just a wish.” Stick with me here. If this is getting to be too much for you, how about famed New York Yankees catcher Yogi Berra’s take on the subject? “If you don’t know where you are going, you’ll end up someplace else.”
He was a very unintentionally funny yet insightful guy! But if you need a thought to truly set you on this new path, how about Warren Buffett? The sage of Omaha and greatest investor in the nation’s history has said “someone’s sitting in the shade today because someone planted a tree a long time ago.” You might take a moment to let that one sink in.
Money is a deeply emotional issue. We spend the way we do because of deep seeded psychological reasons. I am an Ambassador for The Certified Board of Financial Planners and they offer a website with many educational financial planning articles about such things. Here’s one that could help: 7 psychology tips to improve your financial life.
How to get off the hamster wheel
So, it’s rubber meets the road time. Are you ready to take the leap? Are you willing to roll up your sleeves and make your life better? I challenge you to challenge yourself to follow the steps below. Let’s get to work to get off the hamster wheel!
Step 1: Track your spending
Track your spending. Pull out a pad of paper or even a log book. Start at the first of this month, track your expenses. This means write down everything that’s coming in, all of your income. Then write down all of your expenses.
If you have annual bills like auto insurance or license tabs, break them down into monthly payments. In the end you will to learn how much you have to work with and how much you are spending. Please make certain if you make an impulse buy at the grocery story you also include that.
Write down everything! When you are finished, take a look at what you did and make an assessment. Did you spend everything? Did you have a few dollars left over? Are there places where you could easily pare back your spending? All answers you need to get started.
Step 2: Repeat step 1
Repeat step 1 again the next month.
Step 3: Learn to budget and then commit to using it
Learn to budget and then commit to using it. Though it sounds boring, based on what you learned about your spending you can easily create a budget.
Before you say you don’t know where to begin or it is expensive to buy a budget book check this CNBC article out. There are free budgeting apps and computer programs everywhere and they usually come with tutorials. No excuses now!
Remember, budgeting is not an exact science. It will take time to become good at estimating what you have to work with and match it to what you are spending. But taking the time to manage your money pays off over time. This article might also help you.
Read: How to make the most of your trip to the grocery store
Step 4: Start an emergency fund
Start an emergency fund. I recommend pulling together $1,000 in cash to start with and stick it in a safe deposit box.
This cash reserve is there so when the hot water heater blows up or Michigan potholes eat one of your vehicle’s rims, you don’t blow up that budget you’ve worked so hard to create.
Also, I recommend Credit Unions because they are non-profits that don’t “fee” you to death. Our Credit Union offers safe deposit boxes among many other services. Safely keep your cash reserve there.
Also, if you were to pay a visit to a Certified Financial Planner and he or she would recommend putting aside three to six months of living expenses, depending on your marital status.
For most people this is a bridge too far, so let’s start out with a good even number and work from there. You should add to this when you can. $1,000 is good, $2,000 is better.
- The Dollar Stretcher: Easy Steps to Building an Emergency Fund on a Tight Budget
- Let’s Make A Plan: How to start an emergency savings fund
- The Dollar Stretcher: How to know when to use your emergency fund
Step 5: Reduce debt (especially credit card debt)
Reduce debt (especially credit card debt). The first order of business here is to check all of your credit cards and see what you are paying for interest rates. Many charge you as much as 25%.
Think about that, for every dollar you spend you’re going to have to pay back $1.25! This is utter insanity! A Credit Union Credit Card is usually about a third that cost. I am not a fan of debt. I think living as close to debt free as possible is the only right answer.
The way to reduce your debt and increase how much you pay to this debt each month is attached to lower interest rates, thus the Credit Union suggestion here. You might also consider a debt consolidation loan at your credit union that could reduce the interest rate on that debt you are trying to pay down.
This reminds me of “The Snowball Method.” There are many ways to reduce your debt but the guy with the most expertise and the inventor of this debt plan is Dave Ramsey. He hosts a national money management radio talk show that is nothing short of exceptional.
He also offers programs called Financial Peace University that stem from his brilliant book Financial Peace which was updated to a version called Financial Peace Revisited. Minimally, I suggest going to the library and checking out his extensive writing. You can also get a good taste of his debt crushing philosophy here: ramseysolutions.com
Read: 5 things I learned about inflation, after talking to an expert
Step 6: Invest your savings
Invest your savings. As for what to do with your savings you can start with a savings account but, they pay next to nothing. You will want to have easily reachable funds handy at times so have some to work with there. You will want to make certain if you have a 401(k), 403(b) [for teachers] or a 459 plan [for public employees] [qualified plans] you should take
The time to investigate how yours works, how much you can save each year and how much your employer will “match” your contribution. Some do, some don’t. It’s good information to have. The more you save the more gets contributed for the match up to a limit the company sets usually. There is also the option of opening up a Roth IRA.
Unlike the aforementioned plans that set aside money tax deferred [you pay the tax when you start taking your money out in retirement], the Roth allows you to set aside after-tax dollars that grow tax free and do not come with all the government strings attached to your “qualified” retirement plans like required minimum distributions after age 72 and a half and having to deal with taxes after you pass.
Step 7: Look for ways to increase income
Look for ways to increase income. A new and better job is always a good consideration but not always the best answer. Be very careful about finding that next job. Make certain it is an advancement and an improvement.
There are always side hustles and the gig economy. Uber, Lyft, DoorDash might help. Starting your own side business is a great idea as long as it doesn’t interfere with your regular job. It is more important to keep the income you have coming in and augmenting where you can instead of blowing up the whole thing and really causing major financial problems. Check out this article on how to earn extra income in the gig economy.
Read: Experts say women should plan to save more for retirement than men
Step 8: Have a Will and Medical Advance Directives
Have a will and medical advance directives. This is something that doesn’t sound helpful for getting off the hamster wheel, but it is something every one of us should do and this is as good a place as any to make the point. Without a will you leave behind a mess for your family. Going this way is called dying intestate.
That’s the legal term for the court having to step in and determine who gets what of your estate. Without your guidance the Probate Judge will go by the book and distribute the money in a specific fashion that may not track with your wishes. It is easy to let everyone know through a will.
As for the medical advance directives, God forbid you wind up incapacitated in the hospital from some unfortunate accident. Someone will have to make important medical decisions for you. Without your wishes being known this process often can get very messy and emotionally upsetting.
In order to prevent undue anxiety for your family you should have your wishes about whether to have a DNR order (do not resuscitate) or organ donations spelled out in advance. You can do this today!
One of the best pieces of help I’ve ever seen offered comes from the State of Michigan. You can view that below, or click here for a downloadable and printable PDF. It will help you catalog all of your important financial information together, especially for the end life issues. Keep this, use it, make certain your family members know where it is in the event something happens to you.
Step 9: Reward yourself
Reward yourself. At some point in this process, you should start to have a little extra money. I suggest making sure you do take some of that and do something fun. Don’t blow the budget, but treat yourself as a reward for putting in all this work. That stuff about making Jack a dull boy is real!
Now, the frugal lifestyle we are talking about here has endless possibilities. As you may have noticed from the weblinks in this article, I have liberally sprinkled helpful pieces from the absolute best money website I have ever seen: thedollarstretcher.com. Here you can learn quite seriously all you need to know about making the most of your money in your daily life.
The breadth and width of how to live this way is there; every topic you can imagine, every new trend, every savings tip known to man resides here. It is consumer friendly, easy to read and explains the complex simply. It offers financial tips for every life stage and every income level. You can subscribe to its various newsletters and daily emails. I use it for my daily life and my Money Minutes. I highly recommend its many wisdoms and teachings.
So, there you have it, my answers how to get off the hamster wheel. For what it is worth, I am not alone in this thinking:
In the end, you have the power to do this, as long as you have the willpower to stick with the program. We are very interested in hearing whether this works for you. Please feel free to let me know at rodm@wdiv.com
Read: Download or print: Michigan’s financial planning for your peace of mind
Click here if you’d like to download and print this guide for yourself.