Every week, whether you want to or not, you clock in and out of work. For some, this effort yields major financial progression but unfortunately for others, no matter how hard they work they never even make a dent in their wealth goals. Why is that? Because they are stuck in the paycheck to paycheck lifestyle. While this life of financial destitution is becoming more common by the day, fortunately, this lifestyle can be escaped if you have the right financial system in place. So, if right now you’re struggling to get by, let me share with you how you can stop living paycheck to paycheck in 2022!
First off, one important point to note is that if you’re presently living a tight financial life just know that you’re not alone. In a survey conducted in March of 2021, 56% of respondents said that they are living paycheck to paycheck. Unfortunately, this percentage only rises as we look at my own age demographic of millennials (yes, I am getting old!). A survey conducted by PYMNTS and LendingClub found that 70% of millennials were living paycheck to paycheck, many of them falling into this terrible financial trap while earning six-figure incomes!
Now, if you are presently living paycheck to paycheck then I don’t need to tell you how one falls into this world of financial purgatory, however for those unfamiliar, the paycheck to paycheck lifestyle is a symptom of multiple factors. To avoid living this undesirable lifestyle yourself, it’s important to understand the causes and identify solutions so that you don’t become the next person who would struggle to meet a $500 expense!
Personally, when I look at the statistics around how many people are living paycheck to paycheck these days, it’s really no surprise. I know that for most people, when they see that over 100 million Americans can barely keep up with their bills it triggers a shocking response but when you start to really drill down into the financial system most of us exist in then the fact that the majority of people are living paycheck to paycheck starts to make sense. As such, let me share with you four reasons why so many people are one missed paycheck away from going into the red.
How We Got Here
The first issue that contributes to many people living the paycheck to paycheck lifestyle is debt. As you know, saving is a key financial practice that must be in place to get ahead financially. Unfortunately, when you have debt and are required to make repayments every month, it’s like pouring water into a cup with a massive hole in the bottom; you’re going through the motions but little progress is being made. What’s worse is that most people are not earning enough money to overcome their debt loads and still save money every month but we will dive into that point shortly.
Now, for some, the solution is simple right? Just don’t get into debt! Unfortunately, that’s easier said than done. In the world we live in today, getting a fancy piece of wallpaper otherwise known as a degree is basically mandatory if you want any chance of getting employed anywhere other than McDonalds. As such, the majority of young adults are subjecting themselves to tens of thousands of dollars of tuition costs every year with the majority of them having to take on student debt to cover these costs. Therefore, the cost of entry into the working world has never been higher and as such most young adults are starting their working lives behind the eight-ball thanks to society’s push towards higher education.
However, let’s say that all the stars align and you turn that piece of wallpaper into a nice office job with free coffee and three week’s annual vacation, you’re all set right? Not so fast. Sure, if you’re able to turn those four years of college into a job then you’re probably ahead of many of your fellow grads, however an employee badge and a desk doesn’t mean your financial troubles are going to be left in the rearview. The next factor that is keeping people in the paycheck to paycheck struggle are low and stagnant salaries. If you study entry level salaries over the past 40 years, the figures are frightening. Entry level salaries today, adjusted for inflation, are the same as they were in the 1960s.
Now, given these numbers are adjusted for the present day, you may be thinking, well that’s not so bad. Sure, it wouldn’t be that bad if the cost of actually getting that job aka getting a degree hadn’t exponentially increased in that same time period. This is all to say that your starting salary isn’t likely to wipe your student debt clear any time soon and with salary increases hovering around 3–5%, low and stagnant wages are another reason why so many people struggle to meet their financial obligations every month.
At this point, you’re probably wondering if the world is out to get you because yes it is extremely hard for most people to get ahead financially these days. Now, let’s say that you do overcome the financial burden of your educational journey and do find a job that pays you well. If you can do these two things you’re in the clear right? Think again. As you know, in the world we live in today, one of the cornerstones of adulthood is buying your own home. While there is nothing wrong with renting, I think we can all agree that common convention is to buy a home and pay down your own mortgage versus someone else’s. Well, in practice this seems like the right move to make but again it’s easier said than done.
One common financial principle you often hear is that you should spend no more than three times your income on your home. For instance, if you make $80,000 a year then your home should be priced at no more than $240,000. I don’t know about you but I can’t even buy a shack in my city for that amount of money and as such most homebuyers these days are forced into buying homes that are greater multiples of their income. Now, you can probably already see the issue with this situation however let me pull on this thread a little bit more.
The obvious issue with buying an expensive home is meeting the mortgage payments every month but that’s just the tip of the financial iceberg. With a more expensive home, you have costlier repairs, more property taxes, higher insurance costs and the list goes on. In some circumstances these days, people are spending upwards of 50% of their monthly income on housing costs alone which alone is pushing many people into the paycheck to paycheck lifestyle.
Up until this point, I’ve basically absolved every single person living paycheck to paycheck of their contribution to their own financial destitution. Well, don’t think I’m going to let you off totally scot-free. The final factor keeping most people one missed paycheck away from financial despair are their own money habits. It’s pretty hard to get ahead when you are continuously buying new outfits you don’t need or golf clubs that, no matter how much you dream, won’t have you playing on the PGA tour. In short, those who are living paycheck to paycheck are often their own worst enemy and with all these other financial factors already going against them, another foe is the last thing they need.
The BIDET System
Now that you know the root of the paycheck to paycheck problem, let’s talk about the solution. Given this is a crappy situation to be in, it’s only fitting that we use my BIDET system to get you out of the paycheck to paycheck lifestyle once and for all. The BIDET system is a 5-pillar approach to escaping and staying out of this life of financial despair for good. Let’s break down each factor so that you can get back on your feet and kiss your financial worries goodbye!
The first pillar in the BIDET system is your budget. As I already mentioned, poor spending habits are a key contributor to most people’s financial issues and not having a plan for your spending is like skydiving without a parachute; things aren’t going to end well. As such, you need to have a budget system in place and the budget I recommend is the 80/20 budget. With this budget, you allocate 80% of your monthly income towards expenses, and 20% towards savings. This way, your savings are already factored in and as such if you can stick to your budget then you are guaranteed to start to pad your bank account with a bit of extra cash every month.
The second pillar in the BIDET system is income. Unless you had the worst spending habits in the world, I would argue that if you were making $10 million a month that you wouldn’t be living paycheck to paycheck. As such, part of your financial issue stems from your lack of income. This is why in the second pillar, we focus on raising your income. This can be done in two ways. First, you can cajole your boss into giving you a raise. This is worth a shot but I wouldn’t place all your eggs in this basket. Instead, aim to start generating income outside your 9–5 job. This can be done through picking up a part-time job, creating a side hustle or doing what I did to get out of my own financial rut which was through high-skill freelancing.
The third pillar in the BIDET system is debt. I’ve already mentioned that most people are going to have to interact with debt at some point in their lives and for many this starts with student debt and can expand into credit card debt, auto loans and of course a mortgage if you do decide to buy a home. While it’s generally best to be rid of all these debt loads, the ones you should focus on first are the ones with the highest interest rates attached to them.
This means that you need to steer clear of debts like credit card and auto loan debts as best you can. If you find yourself already laden with debt then here’s what you can do. Organize your debts from the highest to lowest interest rates and start paying them down one by one. Now that you have a budget and are making more income, you should be using that 20% from your budget to squash as much debt as possible!
Moving on, the fourth pillar in the BIDET system is your emergency fund. One of the easiest ways to stay trapped in the paycheck to paycheck lifestyle is to not have money set aside for unexpected financial events. This is because whenever a surprise expense comes up, you have to tackle the issue with debt and this leads to you paying more and more interest every month leading to perpetual financial destitution. As such, when you are able to pay off your high-interest debts, start to stash away money into your emergency fund. I recommend setting aside one year’s worth of expenses but 3–6 months is a good baseline to start with.
Finally, there’s the last pillar of the BIDET system which is time. Part of the reason that people fall into the paycheck to paycheck trap is because they are poor managers of their time. I hate to say it but most people I see struggling financially are those who are always watching Netflix or engaging in pointless debates online. If you’re presently struggling with your finances, one of the best things you can do to help yourself out is to audit how you spend your time. Over the course of the next week, write down how you spend each and every hour of your time.
If this is the first time doing this, trust me, the results will be shocking. Once you have the results, start to identify your lowest-value activities like the 8 hours you spent watching Netflix or the 12 hours you spent leveling up on World of Warcraft. Swap out this time for more financially beneficial activities like taking on some extra hours at work or leveling up your skills by reading or taking a course. When you master your time, your money will follow. Therefore, as we just discussed, living paycheck to paycheck is a shitty situation to be in. Fortunately, with the BIDET system, you can clean up your financial situation and financially start to move your wealth needle in the right direction!