According to Careerbuilder, 78% of full-time workers live paycheck to paycheck–even those making $100,000+/year were included in these stats!
They’re strapped for money, and they have to learn how to wiggle themselves out of bad financial health, so they can pursue that dream they feel so passionate about.
That’s what we’ll be talking about here: how to wiggle out of being strapped, so you can infuse our economy with the jobs and the solutions you’ve envisioned.
- 1 How Do You Know When You’re Paycheck to Paycheck?
- 2 Living Paycheck to Paycheck and Relationships
- 3 Let’s try something else…
- 4 Being Broke is Normal
- 5 Learning How To Avoid the Financial Avalanche
- 6 How To Transition From Being Broke
- 7 6. Set Aside a Fund for Your Business
- 8 7. Fully Fund Your Emergency Fund
- 9 8. Plan Your Job Transition Milestone
- 10 9. Continue Reinvesting From the Profit into the Business
- 11 10. Keep Your Disciplines as You Scale
- 12 Final Words on How To Budget and Save Money For Your Business When You’re Broke or Living Paycheck to Paycheck
- 13 Now, it’s Your Turn…
How Do You Know When You’re Paycheck to Paycheck?
What’s even more unfortunate about the statistics of those living paycheck to paycheck is that most people who are living that life don’t even realize it.
They may have sizeable incomes and some high-paying skills.
They are comfortable believing they have a “stable job”, so they never analyze how each paycheck is completely exhausted every time.
And, they could be products of a paycheck to paycheck family life, so it feels “normal”.
However, if you find yourself saying any of these key phrases, you might be living paycheck to paycheck:
“I’m only paying (# of days) late”
“I’ll have to wait until next paycheck for that”
“I didn’t expect my bank balance to look like that (in a bad way)”
“I won’t be able to afford until next paycheck”
Living Paycheck to Paycheck and Relationships
When you’re living paycheck to paycheck, it’s also common to have strained relationships. Billers may not want to lend to you, you may have marriage distress about finances, you may even have altercations with your friends about money. Since you don’t have a surplus, borrowing money or letting others borrow money could also cause extreme strains in relationships.
People who are more financially strapped than you may want loans. They may see the superficial signs that you “have money”. Maybe you have a high-paying job, a nice car, nice clothes, and a full refrigerator, so they think you have alot of money when you don’t have alot of liquid cash because you’re strapped.
You may feel pressured because you understand the illusion you’ve given off, so your giving loans to keep up with the illusion. When they can’t pay you back, then you’ve got lots of friction. The fact is…when you’re living paycheck to paycheck, you can’t give loans.
Let’s try something else…
Let’s imagine your bank is local and has one location. There’s a storm and the power goes out. The bank’s systems are down, and your paycheck has just been deposited today. If the bank told you they would not be operational for another 30 days, would you be okay?
If your next paycheck is CRITICAL to your sustenance, then you’re living paycheck to paycheck.
Being Broke is Normal
You hear it all the time on the Dave Ramsey show, “being broke is normal” or “being debt free is weird” because its statistically true!
I get it.
You have times where you think you can do everything in your head. The mortgage comes out on the 1st and you’ve decided to pay your car payment on the 1st too, so the “biggest expenses” are out of the way. Then, the smaller expenses seem too “small” to need to write them down or think too much about.
Your card is swiping and swiping. Before you know it, you’ve bought stuff on Amazon, stopped to get fast food several times (because you were in a rush), gotten gas, and you forgot to factor in your vehicle registration.
Then, before you know it, the paycheck is gone! It’s so easy to blow thru money, it’s almost natural if you’re not careful.
The normal habits of American families is to scale up the expenses before the income, and I don’t think they planned to do that.
They simply maintained the mental budgeting habit: got the big expenses out of the way and spent more and more until the paycheck was gone. It’s a bad habit. We spend more than what we get, and stay in the bondage of debt–sometimes even for a lifetime.
For most of us, we calculate our income and expenses purely in our heads.
Learning How To Avoid the Financial Avalanche
In his article, How to Start a Budget: 10 Simple Steps to Get Started Today, Paul Scrivs writes about how easy it is to get into a bind when we mentally budget. He said:
I know that I should save that $200 to pay the phone bill in two weeks, but I want sushi today and I know I get paid in a week. So I go out and buy me some nice sushi. Not $200 worth mind you, but some super nice sushi because I know the phone bill is covered.
The problem is this starts what I call a financial avalanche.
I was able to cover the phone bill, but then I was a little bit short on another bill which I’ll have to cover with the next paycheck. Now I can’t take my wife out on date night like I promised her a month earlier.
That Vegas trip with the boys? Still doable, but I’m a lot shorter on the vacation budget than I had hoped.
A lot of problems occurred simply because I thought I could keep track of everything that needed to be paid in my head and figured that Future Me would figure it out.
Future Me continues to look back at current me and wonder what the hell I was thinking.
When we let the spending happen on autopilot, and don’t take a break to track what’s going on, things get “outta whack”, and we’ll never be able to have money to pursue the dream that’s bubbling inside.
How To Transition From Being Broke
There’s a big shift that has to take place to transition from being broke. The biggest shift will be in the area of discipline.
The hardest thing to do is to tell yourself “no”, when your embedded desire is to say “yes”.
The hardest challenges require us to self-discipline ourselves, continually telling ourselves “no” even when we see alternative things we may want to pursue.
Learning how to budget and save money is one of those character-building journeys where you become a changed person because you learn how to say “no” to immediate gratification, so you can achieve optimal outcomes in the long term.
To “crack the code” and leave the paycheck to paycheck life, you’ll have to…
1. Create a Budget and Start Tracking Your Spending
I know. I know. I know….the word budget is like a “bad word” to many people. Most people think of it as “limiting”.
It’s not meant to be that way.
A budget should be liberating. You can free your mind from that constant thought, “Will I have enough?”
The “Will I have enough” thoughts are the worst! They are tiring, discouraging, and downright obnoxious! You should budget to get rid of that thought alone!
To create a budget, you can use an app like Everydollar or Personal Capital. If you want, you can skip the apps and use a desktop or cloud application like Google Sheets or Microsoft Word.
After tracking your spending for a couple months, you’ll begin to see patterns like:
- How much you typically spend on fast food
- How much you spend on groceries
- How much your spending on debt payments
- What your normal utility bills are like
- Areas where you weak in saying “no”
- and so on…
Tracking your spending makes you face your decisions head on.
2. Set Targets of a Maximum You’ll Spend On Line Items
After you know about how much is comfortable spending, you have to set targets. You may need to cut expenses to achieve your goals, or you may just need to be consistent. You may also need to build your “hustle muscle” and find ways to bring in extra cashflow.
Some common budget line items people set targets on are:
- Fun Money
- Debt payments
- and, Extra-curriculars
Then, those who want to take control of their cashflow and become better at making more money may also set targets like, “make an extra $100” and grow up from there.
3. Learn Some Frugal Alternatives
After you’ve learned your normal spending habits and set some targets, you can start to innovate ways to stick to the targets by finding frugal alternatives. You can learn ways to save on groceries, learn alternative ways to cook, and other ways you can cut waste.
Some common ways to switch to frugal alternatives are:
- Cutting some or all disposable items
- Alternating to generic brands for some items
- Preserving food better: freezing, drying, canning, and vaccuum sealing
- Batch cooking or freezer cooking to cut food waste
- Meal planning
- Couponing or using discount apps
- Growing herbs or other edibles
- Repurposing packaging rather than throwing it away (Example: Glass jars can become organizers)
- Buying used rather than new
- Bulk, Wholesale, or Discount shopping
4. Save the Difference or Make More Money
After you’ve alternated to some more frugal alternatives, you should have freed up some cash. The cash you’ve freed up can be saved!
If you still haven’t discovered any freed up cash because maybe your expenses were always greater than your income, then it’s time to start grinding and making more money quickly.
You may need to get a job, an additional job, start side hustling, or doing something to make extra cash.
A business requires an investment and time to build enough traffic to sustain you, so in the in-between time while you’re getting your business to stand on its own, you will need to find a way to make more money.
5. Set up Your Emergency Fund
The difference that you’ve earned by choosing frugal alternatives, working a job (or jobs), and side hustling should first be used to cover your emergency fund. Something can always pop up: vehicle issues, appliance issues, health issues, and the list can go on.
Unplanned things happen.
You want to have a buffer to prevent you from falling into debt. The buffer should be placed in an account where you could easily access it IF an emergency happens.
It’s not recommended to put the emergency fund in an investment account because they typically take about 5 days to get the money to you if you need it. An emergency fund is supposed to be liquid, so if a tire goes flat, you can have an infusion of cash instantly.
It’s good to have at least $1000 of liquid cash before trying to invest or save for your business.
6. Set Aside a Fund for Your Business
Calculate what you need to start your business. If you’re going to follow the $100 startup plan, then when you have $100 of liquid cash beyond your emergency fund and living expenses, you can stash away the $100. However, the $100 is the bare bones startup costs.
After your foot is in the door, take a look at the essentials you’ll need to begin getting traffic to the business.
Often times, startup entrepreneurs focus their startup calculations on operations, and spend a bunch of money on their client fulfillment system when in fact, they have no leads yet. It’s most important that you invest your money into everything you’ll need to start generating leads.
When you’re saving for your business, think about everything you will need to begin getting customers. Some things may include:
- a website
- website hosting
- networking fees (memberships, business cards, etc.)
- and, content distribution
After you have leads, you’ll have to learn to convert the leads into sales. The sales will pay for client fulfillment. The more sales, the more you’ll have to invest into more lead generation, more lead conversion, and higher quality client fulfillment.
Many internet businesses are confortably living off of a startup expense load of $300-$500, and are able to safely begin turning a profit within one year with aggressive (almost full-time) hard work. The internet business models can thrive off of fairly low startup costs in comparison to their offline counterparts, but they require no shortage of effort to make them work.
Check out some honest income reports for averages and be prepared to invest first, and turn a profit later.
7. Fully Fund Your Emergency Fund
If you have funded your $1000 emergency fund and invested in your startup business fund, then it’s time to go back and fully fund your emergency fund. You want to build up to 3 months of expenses, then build from there to 6 months, then to one year of expendable cash. This is your peace fund.
Business fluctuates (especially in the beginning). Unplanned things happen. When you have a nicely stocked account with liquid savings that can cover one year of expenses, it can give you peace of mind when something unexpected happens.
8. Plan Your Job Transition Milestone
Once the 7 systems in your business begin to work well, and your expenses stay within a budget, you should begin to regularly turn a profit. At this point, you can start forecasting how much the business will generate monthly because you’ll see patterns, you’ll know how to influence the patterns, what work you can do to spike revenue or see it fall, and you’ll feel a sense of control.
When these patterns are clear and your forecasting is getting spot on, then you can begin planning your transition. It’s best to transition when the business is able to cover your expenses and savings with some extra cushion.
If you’ve got your savings and your business cashflow coming in, then you can transition peacefully without missing a beat. If you skip any steps, you may have a more stressful transition that could be unhealthy for you and the business.
9. Continue Reinvesting From the Profit into the Business
Too many entrepreneurs start seeing those exciting milestones: their first $200 day, their first $1000 month, their first $10,000 contract, and they splurge. They remember everything they’ve always wanted to try, and start spending too soon.
Maintain the discipline for awhile so you can solidify things first. Make sure:
- Your emergency fund is fully stocked…I know I’m repeating this but its important
- Remember, as an entrepreneur, you have to plan for your retirement and healthcare. You can only invest a certain amount annually into the retirement account. When you start seeing additional cashflow and you can pay yourself more or give yourself benefits from your business, then consider covering your retirement and healthcare
- Save for scaling. You’ll have to hire employees sooner or later if you want the business to grow. Begin saving for the help you need so you won’t wait until you have a workload bottle neck.
- Budget to save for acquisitions that would improve the business
Don’t be shortsighted!
10. Keep Your Disciplines as You Scale
Simply because a business can profit $1 million does not mean the owner takes home the $1 million dollars. If you have a vision that you’d like to use to impact many people, you will need a team, technology, equipment, and you’ll need to continually increase your lead generation methods. As an entrepreneur, you constantly have to be thinking about the vision and mission of the company.
The income of the company has to be placed into a budget to ensure that you can scale. You’ll need to plan the funding necessary for hiring, plan the funding for office space, supplies, and so on. Discipline can’t go away otherwise, the business won’t reach its maximum potential: helping the people that need it.
Final Words on How To Budget and Save Money For Your Business When You’re Broke or Living Paycheck to Paycheck
Living paycheck to paycheck and wrestling with a business idea can be a challenge and it can be stressful. The goal of this article was to relieve some of the stress by giving you some direction to get started without llosing your family, getting your utilities cut off, or eating only beans and rice, but ultimately, entrepreneurs have to take the sacrifices necessary to bring their idea to market.
If you like what you see here at How To Entrepreneur, and you’d like to start an online business and put in the hard work to make it profitable, CREATE A FREE ACCOUNT HERE. You’ll get two free websites, 10 free training lessons towards an Internet Marketing Certification, and access to an amazing community of entrepreneurs. CREATE YOUR FREE ACCOUNT NOW!
Now, it’s Your Turn…
What are your thoughts on saving money to start a business? Have you started a business using your saved money? What was it like? What tips would you give someone who is living paycheck to paycheck, but wants to start a business? Leave your comments, questions, and feedback below.