Living paycheck to paycheck (P2P) fits perfectly with a quote from the Eagles song Hotel California “…You can checkout anytime you like but you can never leave!” Inescapable, trapped, and depressed are just a few feelings that accompany living P2P.
Let’s call it what it is … living P2P is hard. Who wants the fear of how they are going to pay rent or put food on the table? These are the moments when people struggle financially, emotionally, and it impacts the quality of life for many Americans.
When we imagine someone in that situation, who do we instantly think about? I think of the person that served me my pizza today or the cashier at Walmart. But the reality is that all types of people – those making $20,000 or $2,000,000 – are living this way.
And your expenses make all the difference. Spending 100% or more of your money is an issue for anyone, including the rich (think Nicholas Cage, Jonny Depp, Cyndi Lauper, Willie Nelson, Marvin Gaye, etc…).
According to a study by CareerBuilder.com, no title, career path, or income can escape the clutches of living P2P. And it’s not just a poor person’s problem. In fact, it eerily sounds a little like the war on drugs. According to the study, 78 percent of U.S. workers live P2P to make ends meet. Wow!
But that was my family too. Sure, I made a decent salary but that doesn’t mean anything. Yes, we were a one income family with two kids that were in college, a mortgage, and credit card debt but our net worth was only $155,000.
We were part of the statistics … our expenses were too damn high! So, we took a hard look and made some commitments to increasing the gap between our expenses and income. That’s what you must do. It’s not magic or rocket science. It’s essential that you take back control.
Always Live Paycheck to Paycheck (P2P)
This brings me to my point of this article. I’m going to make $244,000 in 2019 and my wife and I still live P2P. We don’t have to but it’s the only way I could retire in 6 years. I’m going to be saving anywhere between $70,000 to $100,000 per year for the next 6 years.
And the only way to do this is to continue living like we are making $75,000. Our expenses are under control (kind of) and we are getting better and better at knowing where our money is going. We are focused. We don’t eat out as much. One kid is off the payroll and another will be in 1-1½ years.
We are paying down our debt. Our $86,000 home equity loan has been paid off. We’ll have our mortgage paid off in 3-4 years too. And we’ll be saving $70,000-$100,000 per year into our taxable and tax deferred accounts.
We are putting distance or a gap between our income and expenses, which will increase our net worth and portfolio. The bigger the gap the more we can save and pay down debt. It’s really that simple. And even if you can only create a gap of $50 monthly then that is a start.
Discussion With A Work Friend
I had dinner with a peer from work last month and we were talking about saving and retiring. I told him that we were going to save $80,000 this year and we’ve still got a kid in college and we are accelerating the mortgage payoff. We probably make close to the same amount of income but his wife makes good money too. Anyway, he said “No way you are saving $80,000 this year and paying extra on your mortgage. That’s just not possible!”
When I asked, he told me they are spending $900 monthly at restaurants. Plus they spend approximately $1,500 monthly on transportation including car loans, insurance, gas, and repairs. My wife and I spend under $200 monthly at restaurants and $900 monthly on transportation (we’ve got two car loans totaling $550 monthly).
Just those two categories are a difference of $15,600 yearly that we can save or reduce debt. He said he liked his lifestyle the way it is and they didn’t want to make any drastic changes. Here’s the point —- I’ll be retiring before he will even though his household income is twice mine. You will need to make changes if you want to accelerate your preparedness for retirement.
You Can Leave Hotel California
Here’s the thing. The higher your income the longer you can wait to get things right. And this was me when I got financially serious at 49 years old. Thank goodness my income was higher than most people and I had a pension when I retire. If the pension wasn’t there then I couldn’t have waited until 49 to get my finances in order. And I certainly wouldn’t have any chance of retiring at 62.
The lower your income the longer runway your need to pay down debt and save. The lower income folks need to take smaller bites of the elephant and, therefore, need longer to get their retirement house in order. The sooner you start the better.
Again, we’ve all been in this situation at some point in our lives. Unfortunately, many never escape “Hotel California” because they haven’t hit rock bottom financially and decided to make a change. Sometimes people just give up too.
You can course correct, even with small steps, but you will have to do something different than you’ve been doing. You’ve got to do things that most people aren’t doing. It will take a commitment to:
- Change behaviors and possibly your lifestyle (if you are far behind)
- Track expenses (I fully recommend Personal Capitol)
- Cut expenses
- Redirect funds to reduce and avoid debt
- Redirect funds to save much more
We did it and are still doing it and so can you.
Thanks for reading!
Mr. TLR