Getting out of living paycheck to paycheck (advice needed)

lovelyrobots · March 2014

I need someone to help me figure out where to go next financially, and help point me in the right direction. My husband are wanting to live less paycheck to paycheck and get out of the money rut. Sorry this is so long but I'm going to try to just explain the full situation. Sorry, I guess my paragraphs won't work from mobile. Sorry for the wall of text! The good news is we no debt besides a Small secured credit card that we simply got to try to get credit, we just pay on that monthly. I grew up having parents who were in major dept, bankruptcy, etc... And I just did not want to be like that. If I can't pay cash we just wait and we have saved for big purchases or done "crazy" things (like we a one car family. We sold our two cars that we came into the relationship with for our used van.) we have paid for everything with cash. So great that we don't have debt (it was hard) but we also have no- very little - credit so we are working on that. We want to buy a home, that is our big goal! we had bad finical role models and for a long time the only thing I focused on was making sure our bills were paid on time and staying out of debt. We started realizing we needed to see the bigger picture so that is when we started trying to get credit...now we are wanting more! Emergency fund, savings, a home, etc... We have $1,000 in emergency fund and have started our savings (only have $2000 right now but in the next month we will add at least $1000 to that come husbands latest bonus. ). It's a start and although we don't make a lot we are adding to it each paycheck (bi weekly) and I've been selling things we no longer need and occasionally commissioning sewing work so I can add a tiny bit more here and there! Every bit counts! I think we need to talk and have a goal in mind. I want to have a bigger emergency fund, but I also want to put more in savings because I want to save for our home! But I also can so how it would take so much stress off to have a "buffer" and put that money toward becoming a month ahead (so we are spending last months paychecks this month). It's such a struggle to have to wait for Friday payday when it would be easier to go grocery shopping earlier in the week for example. Plus I spend so much time budgeting check a and b so our bills get paid on time and it's just a pain. If I got the buffer and got a month ahead I can make our month more seamless! Does that make sense? We have the money to pay our bills and have everything we need in a month but it still feels paycheck to paycheck. And I don't want to take from savings as a "self advance" if I want to go grocery shopping (or something else) a few days early just because it's a cycle I don't like. I want to just get a month ahead or learn to balance bi weekly better...I want a home...I want to be a good example for my kids. We make more money now that my DH got his promotion and it's time to get real...

vlagrl29 · March 2014

I understand. I felt we were living paycheck to paycheck as well and once we started the emergency fund, I have felt way more secure financially. It has helped that I have brought in more money thru my gigs and we put half of what I make in the emergency fund and the other have in business fund. DH has been contributing to a fund for our slow times (we are self employed) and I was so happy we didn't even have to dip into it this year

Once we put 1500 more in the efund we are stopping there and then contributing to retirement again. I feel like I can put half of my gig money in my retirement and then we can put the other half in a savings for goals we would like each year such as home projects or vacation. Things that are really important to us. As I've gotten older my important items have changed. I would love to have wood floors one day and a hot tub on our backyard patio (we don't have any neighbors behind us).

It might help to post your budget for us to see and give suggestions where you can cut spending.

brij2006 · March 2014

Here's a few things.

1. Set up a monthly budget and stick to it.
2. Budget down to $0
3. Pay yourself first. So put money into savings out of each paycheck first. Then pay your bills and spend.
4. Slowly pay ahead of time on each bill. For example, my paychecks pay for all of our bills. I get paid on the 10th and 25th. On the 10th, I pay for all bills due between the 15th - 31st. On the 25th, I pay for all bills due on the 1st - 14th. This puts us slightly ahead and gives us a little leway.
5. It sounds like you have been very smart financially about not taking on any debt. What about saving up to pay for your house in cash or putting 50% down? Then your credit score won't matter anyways.

Also feel free to post your budget here. Everyone here is good at seeing where you could cut and giving tips on different parts.

lovelyrobots · March 2014

Thanks! We currently budget every penny down to $0. Haha I don't know how people go without that, if I did not have my budget nothing would ever get done. I did that my first year out of the house and learned my lesson! But I'm horrible at moving things from my envelopes into other places (oh we will just take a few dollars from this envelope and move it into this one) and that has proved to be a VERY bad habit. So hard to break... I think I will post my budget on here. I was always scared I guess because we probally make a lot less then most and our bills and stuff always just look diffrent. Haha silly fear...I need to post it and get input,

jessica490 · March 2014

Try signing up for mint.com, it will give you a snapshot of where your money goes every month. If you are living check to check, you may need to cut down on spending in some areas. Try to find a cheaper cell plan, find a better phone, cable and internet plan, and cheaper car/ home insurance. I used to be in the same position, but once I started to see where my money was going, I was able to cut down on many things. Set some goals for yourself with dates so that way you have something to work towards.

Sisugal · March 2014

Establish an account at a local credit union. They offer more flexible mortgage requirements. Perhaps talk with a mortgage lender there to see what they would look for.

It is easier to give advice when we have a clearer picture of income and expenses.
You are wise to have stayed out of debt and pay off your credit card usage every month. (You do NOT need to carry a balance to build credit!!!!)

When saving for your down payment on a house - remember to also plan savings for the extras that come with buying a home (closing costs, moving costs, utility deposits, repair/renovation costs/ decorating/ additional furniture and appliances/ tools/ yard items/ snow removal items if needed etc.

Keep your housing costs to 25-28% of your TAKEHOME pay - not what a lender says you can afford.

You are doing fine - just keep up the good work.

(Don't forget to have funding retirement in your budget)

Xstatic3333 · March 2014

PPs have given great advice! I can speak a bit to the issue of saving for an e-fund vs. a DP. A DP is our first priority right now too, and it kills me to put money to other things, but I'd get an e-fund together before you prioritize your DP fund. Depending on your careers, I'd save 3-6 months expenses and/or enough to cover all of your deductibles for the year at once.

Why? Well for us, as former CC debt carriers, we want to make sure we could handle pretty big expenses without going into debt again. The risk of big expenses will increase once we own our home. We also work on "soft money" and could lose our funding each budget cycle. I just want to be as sure as possible that once we do buy, we'll be able to keep it, and the e-fund is essential to that.

Welcome to the board and GL!

Wulfgar · March 2014

For us, what helps is that we pay ourselves first. MW and I both have a set amount going to our House/ Emergency Fund. I also fund another savings account/checking account for vacations, gifts, child care, fun activities.

I have always tended to pay my bills ahead. My pay check on the 1st pays for the bills at the end of the month and my 15th pay check pays for the bills at the beginning of the month. I use excel to track this so the money comes "out of my account" when I put it in excel.

hoffse · March 2014

There's no need to be embarrassed about what you do and don't make. Please post a budget.

It sounds to me like one of the problems here is your fear of credit cards. Given your financial role models, that's understandable. But as I see it, people get into trouble with credit cards for three primary reasons:

1) They don't routinely check their cards to see what they've spent that month

2) Credit cards don't have universal closing dates. So you might have a card that closes March 8 and that has a payment due April 8. But another card closes March 25 and doesn't have to be paid until April 25. That can make people lose track of their budget.

3) If you wait until cards close to pay them, you will be spending next month's money on your card before that money hits your bank account. That's because all your charges in March aren't actually paid for until April.

I do think that if you're aware of this, it's not too hard to address. Here is how I address all three:

1) I compulsively check my cards each day. You should do that anyway for fraudulent charges because credit cards companies are a lot more willing to work with you if you catch a fraudulent charge early. I've had 3 or 4 pop up over the years, and I've always won because I call the credit card company the day the charge clears on my account. But by checking each day, I also can't ignore the big huge font on my screen that tells me I have spent $580 this month on this card. I always know within $50 of how much I have spent on my cards by checking each day.

2) I have a personal policy that if a card closes in March it gets paid in March, even if the money isn't technically due until April. That helps me keep up with the closing dates. I have at least 6 cards that I use regularly, and I find that this works to keep track of them all.

3) Because of how I address #2, that means that my Amazon card (which closes on the 8th) is currently being used to spend April's money - because it won't close again until April. So I am recording my expenses as I go on my April budget, rather than my March budget. I get the same paycheck every two weeks, so I can budget a month ahead - I just have to make sure my charges line up with the month in which they will be paid.

If you want to start small/easy then I suggest that you start by using your card only for things that are necessities. You mentioned that grocery shopping is hard because you have to wait until payday to do it. I would suggest making groceries the first thing you buy with your credit card. Buy groceries over the weekend, and once your paycheck clears your bank account pay off the previous week's grocery bill. Once you get more comfortable with that, you can start to use credit cards for more things. Just start small and follow the golden rule: the ENTIRE balance must be paid before the due date. You can pay as you go or wait until the end of the month like I do (it's just what works for me), but never EVER carry a balance to the following month.

Finally, I'll tell you that I use credit cards for nearly everything for two primary reasons: first, I'm really bad at tracking my spending with cash. It just seems to disappear. Because I check my cards each day online, I can't ignore that date night where I overspent or that impulse purchase that was really dumb. I also can't "borrow" from my envelopes, because I have no envelopes. All my bills get paid out of one account.

Second, I use cards to work points and save them for specific goals. It takes awhile to get good at it (and it ONLY works if you pay your cards off in full), but we earn about $1,000 per year in credit card points - and this year will probably be a bit higher than that. H and I are hoping to start trying for kids in a couple years, and I am hoarding Amazon points. We're on track to be able to furnish a nursery and buy baby essentials from Amazon without having to spend a penny out of pocket when the time comes.

Credit cards don't have to destroy your life - and you can make them work for you instead of against you. Just start small, build your credit, and be conscious of how they work.

strickland8052 · March 2014

I'm with hoffse. I have the Chase Freedom card, which offers a pretty good cash back system with no annual fee. I use it for every essential expense that takes credit cards: cable/internet, groceries, gas, etc. I do NOT use it to splurge on things that I normally wouldn't buy like clothes or home furnishings. Using it for the bills basically allows me to pay this month's bills next month. For example, last billing statement covered expenses from January 7 to February 7. That bill wasn't due until March 3rd. However, my goal is always to pay it in the middle of the month, right after the close of the statement (IE: Feb 17). Sometimes a big expense comes up and I'm not able to pay it until the first of the month, which is also fine since it isn't due until after my first of the month paycheck. I like that I'm basically paying all expenses at one time, instead of things gradually coming out of my bank account throughout the month. I also like that I get at least $600 a year in cash back. This isn't for everyone. I realize that not everyone "trusts" themselves enough to manage a credit card. I know some people also aren't comfortable spending money that they "don't already have in the bank. However, I don't think of it this way, because we do have a 10 month emergency fund, and I could always take money out of that if, for whatever reason, I didn't get my paycheck that month.

KatieCutie05 · March 2014

Maybe you'd do better with a monthly budget or "4 week" budget if the 2 week one is giving you a hard time. Then off that you can do an allocated spending plan to figure out when bills are getting paid based on when the check comes in.

You say you pay "monthly" on a credit card- is that paying it off each month or do you carry a balance?

You CAN get a mortgage without a credit score with just work history and income but your just limited as to where you can get one. But if you feel better keeping a credit score then just pull ONE category out of the budget (like gas or groceries) and charge that on the credit card then just pay it off when you get paid. But in your budget that credit card payment is counted as only say "Groceries" - don't keep a line in the budget for a credit card payment.

One thing we do to keep out of the feeling of living paycheck to paycheck - We have a 500 "buffer" in our checking account. We do a zero based budget so i know i'm not spending more then we bring in each month- but i really enjoy not worrying about WHEN i can buy gas/groceries. The 500 buffer is there so if its the day before we get paid i can still put gas in my car to get to work. Everything we pay for comes out of that account and i've discovered that i much prefer just tracking my expenses with mint.com over using cash because its just too confusing. Cash to me is more for people who have a problem with overspending - and thats definitely not me. I have to force myself to spend my spending money each month - and even then i still never use all of it.

jtmh2012 · March 2014

Sisugal said:

Keep your housing costs to 25-28% of your TAKEHOME pay - not what a lender says you can afford.

Just to add to this.....don't forget about the escrow portion of your payment! Lenders don't factor this in all the time when pre-approving you.

We have an escrow payment of just under $300 on top of what we actually owe in order to cover taxes and insurance. If you're buying in an HOA or condo assoc, those fees may also be added.

HarryCanary · March 2014

In my opinion, your emergency fund should take precedence over your downpayment fund. I can't imagine purchasing a home with only a $1k emergency fund.

Make sure you can cover all of your expenses, including your expected mortgage, in the event of a job loss or medical emergency.

Good luck!

MommyLiberty5013 · March 2014

I think you have a great foundation for smart financial decisions!!! You are already miles ahead by not having major debt and by seeing how valuable a budget is, by setting priorities and by working as a team!!! It really doesn't matter how much money you make, it matters how smart you are with the money you've got.

It sounds like one thing you dislike is this budget that keeps you involved in a tight cycle. You want more freedom and flexibility. What about setting up your fixed expenses each month to be paid from a credit card...then you pay the credit card IN FULL and on time each month. Let's say you have 12 monthly bills that come to you each month...if 6 of those companies allow you to pay with a credit card, then you have a more flexible payment schedule to manage. For example, my trash company just offered to give us a $20 credit on our account if they could have us use our credit card to pay. I signed up. Now that's one less bill I have to pay on my own each month (the CC does it for me).

I like auto payments and auto transfers to savings...anything that allows me to not worry about forgetting. There is one important note, though.

I used to work as a banker and I saw a lot of people using their checking account to pay bills. They had given companies their account number and routing number. Then one day their checkbook is stolen or their debit card is stolen...they have to contact each of the companies and give them a new checking account number. There would be a delay in doing this while the transition took place between new accounts and being able to reach the companies they had bills with. In the mean time, their lives were on hold as they got their money sorted out. Big headaches. Lots of tears!

A credit card acts as a protective buffer to your financial life. If you can manage them responsibly, they protect anybody from accessing your actual checking account. Plus, credit card companies cover 100% of fraud without very many questions. Banks can take a week or more to get things sorted out. Use a CC to add a boundary around your finances.

goldiemu · May 2014

lovelyrobots, I thought I would point out that you can contact most vendor's and ask them to change when a bill is due to fit into your schedule better.

Getting out of living paycheck to paycheck (advice needed)

Re: Getting out of living paycheck to paycheck (advice needed)

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