For millions of Americans, payday is the day when they can finally catch their breath. They’re able to pay off late bills. They deposit just enough money into their checking accounts to avoid going into the red. They pay their electric bill days after the electricity has already been shut off.
Being financially fragile, a term used to describe people who live paycheck-to-paycheck, is something that affects people of all backgrounds. From engineers and nurses to small business owners and retail workers, the group of financially strapped adults is wide and diverse.
According to a 2015 report by Bankrate, only 38 percent of Americans can afford a $500 car repair or $1000 medical bill with money they have saved.1
Not only are people cash poor, but they have a diminishing net worth, as well.
The Russell Sage Foundation reported that in 2003 the net worth of the typical household, adjusting for inflation, was $87,992.
By 2013, the net worth plummeted 38 percent to just $54,500 for each household. That is a severe drop.2
One immediate thing you can do to change the flow of money coming in versus going out is to downsize. From your house to your cable bill, take a magnifying glass to every one of your expenses.
Here Are 6 Ways To Divvy Up Your Paycheck That Will Put You Ahead Of The Game
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1. 35% FOR HOUSING
Your housing portion includes bills associated with housing – so your electric and water bills would have to fit into this piece of the paycheck pie. Of course, the smaller your house the lower your electric bill. If you have energy efficient appliances and additions, like solar panels and electric heaters, you will reduce your utility bill even further. So, if your monthly paycheck is $4000 you don’t want to spend any more than $1400 per month on rent, electric, and water.
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2. 15% FOR FOOD
Food can go a long way – as long as you buy the right kind. Pasta, rice, beans and frozen veggies are all examples of inexpensive but nutritious, energy-rich foods. Again, assuming you bring in $4000 per month, you’re looking at a monthly food bill limit of $600. If you eat out a lot, you’ll definitely rip through this amount more quickly than if you prepare meals at home.
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3. 15% FOR TRANSPORTATION
Combine your car payment, auto insurance and gas and it should not exceed $600 per month. If you have an expensive car or a gas burner, then you might want to trade it in for something cheaper and more efficient.
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4. 15% FOR SAVINGS
For many people, savings is something they will do tomorrow. But tomorrow can easily turn into 10 years if you’re not careful. It’s much wiser to sacrifice a luxury now and save money, then indulge today and pay for it later.
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5. 10% FOR DEBT REPAYMENT
Get rid of all of those high-interest loans first then work on the low-interest ones. The goal is to be debt-free and credit rich.
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6. 10% FOR DISCRETIONARY EXPENSES
This is your fun money! Here’s where you pay for your Netflix, cell phone, new shoes and concert tickets. Of course, you can always borrow from your food, transportation or housing allotments – but don’t skimp on savings or debt reductions.
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YOU CAN DO IT!
If you can follow this paycheck formula, then you will move out of that financially fragile group in not time. Don’t despair – there are many people in your shoes. Managing money is like dieting or studying for an exam. It takes a big goal and a little discipline but, after a few weeks, it will feel like second nature – and you will feel like the weight of the world has been lifted off your shoulders.
1http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/
2http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/