2014 will be my first year with a regular paycheck (Hope I didn’t jinx that, I love you employer!) since switching from the hectic life of freelancing in spring of last year and it will also be my first time (and hopefully only?) planning a wedding. What an exciting and expensive year it will be!
So, for my goal of saving $20,000 in 2014 for a wedding, emergency fund and Roth IRA (that’s $20k total, not each. I wish I was that rich!) I’ve discussed the plan to save that much money in a previous post. I do though, think it’s important to talk about my overarching philosophy to save that much money. In order to save $20,000 of my income this year, I’m going to live paycheck to paycheck.
When I was in graduate school, I actually did live paycheck to paycheck and that trend continued as I built a freelance social media business. It was unfortunate at times, but living on sparse income and sporadic income was good practice. Now that I have more income from a day job and my blog, I still embrace the habit of living paycheck to paycheck because I’ve put my goals before my impulses.
If you want to pay off debt or save for something big, you have to treat your savings goal like a bill. On my payday, I go in and pay my bills online but I also have an automatic savings plan set up in a deliberate amount for my savings goals. With tools like Mint’s “Goals” tool and CapitalOne360’s Automatic Savings Plan
with a Capital One 360 Account it was easy to calculate how much I would have to sock away each month to hit my goal in a given time frame.
On payday each month, an automatic withdrawal is made from my paycheck in a specified amount to put me on target for my goal. I treat it like a bill, and because the money is put in another account not tied to my checking account, I can’t easily get to that money. If I slip up and overspend on a credit card, it takes 3-5 business days for me to withdraw my money to pay off my card, which could easily put me in trouble if I don’t plan ahead.
I use Mint.com to budget each month and set up my monthly goal contribution as spending category within my budget so I easily see this money as “spent” rather than having it in an account I could touch if I were tempted. Setting up your goal money to be treated like a bill is a powerful psychological tool, especially if like most humans, you’re tempted to dip into liquid savings for non-emergencies (like ahem, shoes) but it also means that you’ve set realistic goals you can hit in a measurable amount of time.
I can’t tell you how many times I’ve lusted over a piece of Tiffany jewelry or desired to take a vacation only to set unrealistic goals. When I’ve failed to treat my goal like a bill paired with an automatic savings plan, I’ve failed on the goal. Either the promise to “contribute to my goal after my bills are paid” never happens (sh*t happens once in awhile, but when it happens consistently every month, you have to realize that your goal obviously isn’t priority #2 after keeping your electricity on and food on the table).
In the lala land of wishful thinking you tell yourself “I totally can save $5,000 this year!” but relying on willpower alone is a lose-lose scenario. After the other bills are paid that “goal money” becomes “fun money” unless you’ve already snatched it away. If that money remains in your checking account, it’s fluid and that means, it gets spent. I can’t begin to tell you how many times I’ve seen my bank account with $500 left in it and thought “Oh ya, I can afford these shoes!” and forget the goal under the bright lights of the running store, surrounded by beautiful things.
I live paycheck to paycheck because after my bills are paid and my goals are paid- I seriously have a few hundred bucks left until my next paycheck on payday. I make that my financial reality for the month. If I can’t see it, I can’t touch it.
For some reason, when I have $1000 in my account, it feels like I have possibilities, I can totally afford to go shopping. When I have $450 to last me until my next paycheck, I spend more realistically and psychologically it’s easier to stay on track without treating your budget like a crash dieter in a candy shop.
If you’d like to sign up for the checking account I use with an automatic savings plan, the Capital One 360 Account, I recommend it.
Here’s their latest offer:
*That’s an affiliate link! I use this account & love it, so if you feel it’s a good fit for you, I’d love you to use my link!
We TOTALLY do the same thing. Ever since getting engaged and moving in with my then fiance, we started to “hide” the wedding money. If it sat in the checking account, and we could see it we would “borrow” from it. SO terrible. I am so happy to pay everything off, put goal money away, and then live off a few 100. I get so much more creative in what we do with our money/time.
mint.com on my phone! Yay!
Oh yeah, I do not do well leaving money in my checking. I don’t shop, I just eat out constantly if it’s there…
I think paycheck to paycheck living is great when self-imposed 🙂 Obviously, it sucks when you only have enough to pay your expenses, but it’s great when you’re saving the rest! Good luck, my dear.
This is EXACTLY how I think. Pay goes into savings and then I transfer over a certain amount to checking every week for that week’s expenses. Would you say you do zero-based budgeting at all?
I’ve been using a 360 account for awhile and it’s the best way for me to save any money. It’s direct deposited so I don’t even see/feel the difference and like you said, it takes some time to get to, so I have to plan ahead. I also use Mint because it makes me see where I’m overspending so I can try to make changes. Now, if only my salary would increase!