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Money Matters by Michelle Floyd | Tired of Living Paycheck to Paycheck? Pay Yourself First

By Michelle Floyd

Are you one of the many Americans who doesn’t have a personal budget? Do you find yourself living from paycheck to paycheck, never having anything left over to save for a rainy day?  More and more of us are faced with this dilemma than we care to admit.  It seems we all have the intention of creating a budget later, but somehow later never comes.  We’re also faced with the dilemma of whether to save for retirement, children’s college, a rainy day, a vacation or countless other things that we can’t seem to prioritize and begin saving.  First, let me just say that no one likes to talk about a budget, it is the dreaded six-letter four-letter word!  Unfortunately, it is one of the most important conversations you can ever have.

How do I create a budget? I don’t know where to start.

Create a record of your expenses and income. Start by writing down everything that you’ve spent that month. There aren’t too many people who still use a check register, but your bank still has them available. Some of you may ask, “What is a check register?” Well, in the not-so-distant past we weren’t connected and online via our smartphones with balance alerts and everything else available at our fingertips. We had to keep a record of all of our purchases and deposits in a check register and wait for our monthly bank statement to come in the mail to reconcile, or balance, our checkbook. There is something to be said for that now nearly nonexistent ritual: It really helped you know where you were spending your money. After you’ve created that record of your expenses and income, do you have money left over or are you negative? If you’re negative, you truly need to take a hard look at where your money is going.

Next thing is to categorize your spending: housing (rent, mortgage), utilities, restaurants, shopping, credit card or car loan payments, to name a few. Now ask yourself, “Can I skip the coffee today? Do I really need that dress (handbag, golf club, etc.)?” More often than not, the answer is no on the coffee and yes on the dress. It may be difficult to drive past the coffee shop, but let’s put it in terms of your future. You spend $15 a day on coffee and lunch during the work week, that’s $3,900 per year. Wow!

Now comes the hard part, actually making these things happen.

So, you’ve set a goal to save $50 per week. Easy way to do that? Set up an automatic transfer from your checking to savings or update your direct deposit information so that the money goes straight to your savings without a stop in the checking account. Out of sight out of mind, right? Let’s look at that $50 per week over five years – that’s $13,000! Now, that is simple math and not including the power of compounding which we spoke so much about in our previous video and podcast (both of which you can find at ExtolMag.com). When you add in the interest element, that number quickly exceeds $13,000.

Which should I focus on first – retirement, rainy day money, debt repayment, children’s education?

This question is best answered case by case, but as a starting point, look at your employer’s retirement plan. Is there a matching component? Such as, if you contribute 3 percent of your salary they will match you 3 percent of your salary? If so, great! Let’s start there. That 3 percent match is free money! Be sure that you are contributing enough to take full advantage of the match (3% is only $3 for every $100 you make. I promise, you won’t miss it after a couple weeks). Never has anyone said to me or anyone on my team, “I wish I hadn’t saved so much for my retirement.”

Having rainy day money, or an emergency fund, is one of the most rewarding things you can do for yourself.

You never know when the washing machine is going to go out or you have to replace tires on your vehicle unexpectedly. As a general rule, you should have enough cash on hand to cover three to six months’ worth of household expenses. We start this by simply putting a few dollars away at time using the methods above. The hardest part is staying out of it! So maybe you open a savings account at a different bank than your checking. Whatever it takes to help you remain disciplined. The next part, and the harder part, is seeing the big picture and not giving in to that new trendy outfit. It is easy to set a goal, but no one else will hold you accountable.

“How am I ever going to pay for my child’s college?”

While having the goal of paying for your child’s education is wonderful, you must be able realize that you are not doing them a disservice by planning for your retirement first. Let’s face it; they don’t want you living in their basement because you planned for their college and not your retirement! We all want our kids to have it easier than we had it, and that is wonderful if you can comfortably make that happen. Just don’t sacrifice your financial well-being to make it happen.

Debt repayment is sometimes a huge mountain to climb.

Have high interest credit cards? Did you know that you can transfer the balance of that high interest credit card to a new credit card, oftentimes with little to no interest and a nominal fee? Check that out, it may save you hundreds of dollars. There are several online resources you can use to find the right credit card for you. In most cases, you can even apply and input your balance transfer information right there. Starting out with student loans, remember they were worth it. I promise you’ll thank you parents later when they still have money to retire and aren’t living in your basement. The key word to any debt is consolidation. You can consolidate your student loans into one payment. This will help you chip away at the principal faster. Have a 30-year mortgage? Keep in mind that you’re not tied to that mortgage for 30 years; you can refinance to take advantage of lower rates. Another great advantage to home ownership is the ability to access your home’s equity to – here it is again – consolidate debt.

To sum all of this up, it is up to you to determine which route makes you feel better and be able to sleep at night. Unfortunately, finances are not all dollars and cents. It is mostly behavioral.

While we all want to all be debt free and have plenty of savings, we must first take the small steps that will lead to greater strides. I encourage you to sit down and take a hard look at everything to determine what is best for you. No one else can plan for your future but you. Still have questions or need some guidance? You can check out the resources available on our website www.AxiomFSG.com or contact me for more information at michelle.floyd@wfadvisors or phone at 812.948.8475.

Wells Fargo Advisors is not a tax or legal advisor. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state. This article was written by and provided courtesy of Michelle Floyd, CFP®, Financial Consultant with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, IN.  She can be reached via email at michelle.floyd@wfadvisors or phone at (812) 948-8475.  Visit our website at www.AxiomFSG.com. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC. Member SIPC.   CAR 0517-02348.

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