It’s scary: according to Money Magazine, 65% of Americans are in a financial situation where they are less than one paycheck away from financial meltdown. In other words, the majority of Americans are currently living paycheck to paycheck and would be approaching a major crisis in less than a month if one of the family members were suddenly unemployed or injured or a major financial crisis struck.
I used to be on this treadmill, and it was scary (to say the least). I went to work each day with a bit of fear in my stomach, a feeling that if I received a pink slip at work my entire life would sink into an unmitigated disaster. I sat down one day and realized that in order to live and to dream, I needed to find a way to get off this treadmill, but I was addicted to spending.
Yet, after just a few months, I found the treadmill slowing down and I felt myself stepping off of it. Now, I honestly feel as though I could walk away from my job without any serious regrets and be able to leisurely find another position if I so chose. It’s a wonderful feeling that has not only made me personally happier, but also made it much easier to focus on the things that are really important in my life. My stress level has fallen substantially and my family seems a lot happier, too.
Here’s a guide to getting off that treadmill and living a free life again – in just six months.
First of all, set a tangible goal. You are off the treadmill when you are spending less than you bring in and you have at least a weekly paycheck worth of money in a savings account. Eventually, it’s good to have half a year’s worth of salary saved up in a nice emergency fund, but for now, let’s set a goal that can be attained by someone on the paycheck treadmill in a reasonable amount of time.
How can you spend less than you bring in? You can start by putting a little bit each week automatically into a “locked box.” It’s pretty easy: just sign up for an online savings account at HSBC Direct (5.05% APY interest rate) or ING Direct (4.5% APY interest rate, awesome interface, great customer service). Set it up to withdraw a small amount from your checking account each week and forget about it for several months. Depending on how much your weekly withdrawals are, you could suddenly have a very nice buffer against emergencies.
Another technique is to use the ten second rule. Every time you make a purchase of any kind, stop for ten seconds and ask yourself if it’s really worth buying. Quite often, you’ll find yourself putting the item back on the shelf. For some people, a “24 hour rule” works better, but the concept is the same: think before you buy.
Just doing these two things is enough to set you in the right direction. If you’re ready to take another step, try out the one month challenge as a way to really take a fresh look at what you’re buying. Spend that month carefully considering each item you buy and recording all expenditures, then look through the results and ask yourself whether this stuff is worth the stress of barely staying on the paycheck-to-paycheck treadmill.
Give it six months and see where you’re at in that lock box. You’ll probably find more than you think in there; even better, you’ll find ways you never thought of to get yourself on the right financial track.