America is in a crisis. We are making more than ever but for some reason a large majority of Americans are living paycheck to paycheck. The last statistic that I saw said that some 70% of Americans live paycheck to paycheck. The statistics are usually worse for African Americans though. I would estimate that we are at about 85%-90%, living paycheck to paycheck. Given the well documented lack of wealth that exists in the black community, I don’t doubt this to be true. Here are three ways you can get out of the paycheck to paycheck lifestyle and start building reserves so you can build wealth.
Get your rent/housing expense under 30% net take home income.
This is so important but it is also so hard to do. I always tell the story about the time I lived in the small efficiency studio in downtown la, after downgrading from my luxury apartment also in downtown la. It was uncomfortable, embarrassing and my parents didn’t approve, but my finances had never been stronger. My luxury apartment was $2200 per month, the studio was $600.
In order to win financially you have to be willing to be weird because normal is broke. It is the weird people that have all the money. The people willing to be uncomfortable and embarrassed. Low self esteem is very expensive. When you cut your housing down to 30% of your income, odds are you will be living well below your peers who are living at 50% or above their take home income. They will laugh, but you will have the last laugh. As your wealth grows, along with your income, so will your 30% budget. You can get better digs but never more than the 30%.
Punt a check or two
When you haven’t had money for some time it is easy to take that first chunk of excess cash and either take on lingering debts or upgrade your lifestyle. Don’t. You need to do what I call “punting a check”. This means that you need to punt going out to eat, getting drinks, going shopping, getting haircuts, etc, for ONE month while you stash the excess. This will give you the cushion you need for when you do start either chunking out lingering debt or upgrading your lifestyle.
You will find that when you punt this check life still goes on. You don’t need half of the things that you THINK you need. If you can sacrifice those things for a month or even two months then get back on the hustle with a cushion you will be so much further ahead than the people who make it and spend it. Two months later you wont even realize what you missed out on. Memories are fleeting, wealth is eternal.
Adopt the mentality that you don’t have money until you can spend and still have some money.
Part of the reason people live paycheck is because they spend money before they get it and they spend until they don’t have anymore money. There was a popular meme floating around that said “you don’t have $100 until you have $200”. I think the same is true with a lot of things. You can’t afford to buy a car until you can buy it twice. You can’t afford to take the trip until you can take the trip and still come back with bread.
Part of living paycheck to paycheck is impatience. People think that if they don’t do it NOW that they will never do it. We act as if Paris is going somewhere. Paris will still be here two years later when you have indestructible wealth but will you?
You can live fast now and get stuck in the rat race of a paycheck for the rest of your life or you can do it a better way. The better way is to be able to afford something and STILL not do it, until you can afford to do it twice. This gets you out of the race. Patience and planning are the keys to getting out of the paycheck to paycheck cycle.
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