I have spent the vast majority of the last five years living paycheck to paycheck. In fact, it was only just a few months ago that it became realistic for me to spend less than I make.
Unfortunately, that’s the reality for most young adults (and many adultier-adults) right now. Housing is freaking expensive. Student debt is crippling. Cell phones and home internet are expensive necessities.
However, there are also a substantial number of people who make a great deal of money and still live paycheck to paycheck. In fact, as much as 44% of millennials who make $100,000 to $149,000 per year admit to living paycheck to paycheck.
Let me tell you, I don’t make close to $100,000. But last December I picked up enough high paying work to substantially increase my income overall.
I’m not a rub-it-in-your-face kind of person, but I think that it is important to discuss salary openly, so my friends all know that I got a substantial raise.
Since then, I’ve gotten a lot of questions and comments:
When are you getting a new car?
Don’t tell me you can’t afford [whatever], I know how much you make!
When are you moving somewhere nicer?
How I got to the point where I could afford to live below my means
By the middle of last year, I was living right at my means pretty comfortably. I could afford my rent. I could afford a reasonable grocery budget of $50/week, and didn’t have to worry about skipping meals or going to the food bank.
I could afford my car insurance and to eat out once per week.
But by the time each paycheck rolled around, I had about $20 left in my checking account.
I didn’t have crippling debt, but I didn’t have any extra cash either.
Then I got a raise. And the reason I now have extra cash is because I didn’t greatly expand my budget.
Where I Save Money
It’s recommended that you keep your housing expenses around 25% of your gross income. Last fall I was spending around 23% of my gross income on rent.
Since getting a higher paying job, the same apartment I’ve been living in for the last year now only costs 12% of my gross income.
Don’t get me wrong, my apartment is a little run down and I don’t live in the nicest neighborhood, but I have enough space, a friendly and fair landlord, and I never feel unsafe in my home.
Similarly, if I wanted to, I could “afford” to drive a really nice car. However, by today’s standards, “afford” means putting $500 down and taking out a $20,000 auto loan with a hefty monthly payment + interest charges.
Instead, I am perfectly happy to keep my 2000 Hyundai Accent, which will probably last me another 5 years without major mechanical expenses.
I also try to keep my impulse buys to a minimum. If I find that I need or want something I don’t immediately go buy it, even though for most things I could.
For example, right now I have a DVD player but no remote. The DVD player I have is basically garbage anyway, so I should probably just go buy a new one. But I primarily watch Netflix, not movies, so spending $50 on a new DVD player probably isn’t a very smart use of money.
Nowadays most individual smartphone plans cost from $60-$90 monthly, sometimes with additional “phone payments”.
Instead of having the latest iPhone or Samsung Galaxy, I have an Alcatel OneTouch. While many plans will offer a 2 year payment plan for fancy phones, totalling up to $1000 over time, I have chosen to have a slightly less pretty, slightly slower phone for the total cost of $120.
I also have chosen to have slightly less reliable cell service through Cricket instead of Verizon, AT&T, or Sprint, so I pay $35/month instead of $80.
I take small road trips several times a year – sometimes to visit my family who live 650 miles away, and sometimes to do athletic competitions.
I took a trip to the Seattle area in April to celebrate my birthday, and I kept it affordable by:
- Bringing homemade sandwiches and snacks that I bought at the grocery store for the drive
- Renting an apartment on Airbnb instead of getting a hotel – I spent $60/night for a private apartment with 2 beds, a full bathroom, washer/dryer, and a full kitchen
- Eating at affordable restaurants
- Doing free and affordable activities – my mom and I spent most of our first day wandering the Pike Place Market, and the second day we went to the Tacoma Zoo and Aquarium
I’ll be heading to Colorado later this month, and I plan on staying with a friend instead of paying for a hotel.
Where I Splurge
I can’t say that I don’t spend any more money than I did on my former salary, but I don’t spend much more than $100 more a month.
These are the few things that I have loosened my reigns on:
- I go out for coffee 4 or 5 times per week instead of 2 or 3 (my order is only $2 anyway, so it’s not a huge spend)
- I spend a little bit more on groceries (typically $45-$55 a month instead of $40-$50)
- I have invested in a few larger home items: a desk, a bed, and soon I will be buying a window AC unit (I got the desk for $60 at a thrift store, and the bed for $80 at a yard sale, so they were still very inexpensive)
Everyone values different things – having a nice car may genuinely be important to you, while eating out or going out for coffee may be less important.
Why living below my means is the best choice I’ve ever made
My overall financial anxiety is substantially lower
Even now I feel like I can’t afford things. Every time I receive a paycheck I put a substantial chunk directly into savings, where I can’t access it with my debit card. By the time my next paycheck rolls around, my checking account may be feeling a little empty.
However, I don’t ever have to worry about money. Realistically I know that I can afford my rent every month. I can afford my rent even if my paycheck is a few days late, or there is an error with my deductions.
I can be spontaneous
If I wanted to, I could fly across the country this weekend and stay in a hotel in a city I’ve never been to. (In fact, if I wasn’t preparing for an athletic competition in a couple of weeks, I probably would be on my way to the East Coast as we speak.)
I can decide to go to a movie if I’m bored and restless on a Friday night, or I can treat myself to a nice meal to celebrate a small work victory.
While spontaneity may be easily confused with impulsivity, there are subtle differences. Leon F. Seltzer, PhD, describes spontaneous behavior as “natural, and in a good way”, and impulsive behavior as “impelled” or “driven”.
I can spend money to save money
Paying up front for things can often save you a little money, and when you can do it for everything it really adds up.
I can now pay for 6 months of car insurance instead of paying monthly, so I get a discount. I can afford to buy a 24-pack of toilet paper every once in a while instead of buying a 4-pack every week, so I am spending less overall.
Similarly, I can own my car outright instead of taking a loan or leasing.
I am prepared for emergencies
If my car breaks down or is wrecked, I can pay my insurance deductible, pay for repairs, or buy a new (used) car without worrying.
I can easily meet my health insurance deductible out of pocket, so even a medical emergency will not cripple my finances.
Most importantly, I can afford to take a huge pay cut if I ever lose my job and have to take a lower paying job, without compromising my current lifestyle.
Not being broke is awesome. Unfortunately it’s really hard to not be broke nowadays, especially in places where housing is expensive.
While it may not be possible for you not to live paycheck to paycheck right now, chances are you will eventually get a pay raise – and if you can keep your lifestyle at a similar level as today you will find that your financial troubles will become more and more manageable, until finally you’re one step ahead.