Getting "Beyond Paycheck to Paycheck"

You probably know by now that I love to nitpick, but this article takes all the wind out of my sails. This is a smart, straightforward, and responsible article. I hope the folks here will pay attention to it, and not just the GenY majority … lots of us GenX-ers (and probably older) could really use a similar financial education.

But okay, maybe just one tiny nitpick: I did bristle a bit at the mild implication in the beginning paragraphs that our school systems are somehow to blame for not providing a better financial education. I know that isn't what you intended. But as a parent and an ex-teacher, I'm a bit hypersensitive to folks who suggest that the U.S. educational system should be responsible for teaching all of life's lessons to our young people. But really, that's a whole 'nother discussion. I don't want to distract anybody from all the solid platinum advice in this article.

Well done!

But you can get away without budgeting at all if you simply commit to saving.

That's all I had to read to know I like this guy. I'm not one for "top tens" and committed strategies, but I can look past that because what he's saying is absolutely correct. Going overboard with the monthly or weekly allowances, spreadsheets, etc, can be daunting and can turn people off from saving before they get through their 3rd month of their new "plan."

Simple advice has the most value. Commit to saving. Spend less than you earn. Pay your credit card off at the end of the month. etc etc. Simple rules that can be bent when the occasion calls for it, but as long as you commit to those principles, you should be alright.

Also, to expand on the 401k rollover to IRA note. It can't be stressed enough to do your research properly before you do this. 9 times out of 10 the easiest (and less research intensive) option should be to roll each 401k into its own IRA, and then don't mess with it. Keep it separate from any other IRA/Roth that you contribute to (hopefully) regularly. It makes it much easier to roll over to another 401k if you want, and it's just the safest route to have the most options in the future if you're not going to have an accountant at your side to guide you through the steps. This is what he's saying above, but he's missing the stress that it should be in a separate IRA.

Darn it! We need more posts I can argue about!

I especially like the phrase: "Simple is better because simple gets done". That applies to al lot of things. I think I'll start using it here at work.

Sorry guys, I guess I will have to get more controversial next time. The book is really good and really practical. I'm so sick of the "stop drinking starbucks" line. It's refreshing to hear someone tell you a more practical way of saving.

Thanks for the comments.

-Ryan

I agree with Nathan. It's refreshing to hear that it doesn't matter how I spend my money, as long as I'm putting something away. Because let's face it, I'm going to justify spending way too much on a new pair of shoes that will completely blow any budget I attempt.

As an "underpaid entry level" employee, I am perpetually living paycheck to paycheck. This article comes at the perfect time for me – I'm living in an apartment that, while I can pay the rent, doesn't necessarily mean I can afford to live there. Same thing with my car… I can make the payments, but I can't afford it if I'm going to put something aside for the future. Say it with me: Just because I can pay for it, that doesn't mean I can afford it.

Excellent post Ryan!! I was just having this exact conversation with my friends this past week. As a recent college graduate, it's hard to imagine that even though we have good paying full-time jobs, we're still dealing with the same struggles that we had during our 4 years of school.

I definitely agree with Michael Rubin's point about creating an "emotional connection" with your money. The more you consciously think twice about spending, the more you'll save. For me personally, creating a budget has helped tremendously! Sure, its not set in stone and there are certainly times when I've gone over, but the point is that I'm making a conscious effort to remind myself that all those open tabs at happy hour after work do add up!

One of the things that I've found hardest to get over is buying luxury items just because I want it.

Here's how I control myself:

Always sleep on anything that costs more than $100.00.
Calculate how many hours of work it would take to buy it, AFTER taxes.
If it seems worth it, then I go for it and I dont feel badly about it, but a lot of times working a week or more for that new gadget just doesnt seem worth it.

Thought I would share something with you…

When I first graduated from college, my dad asked me what my plan was for saving money.

I said I would take whatever I had at the end of the month and put it in my savings account.

He laughed.

Anyway, I learned. And we all suffer from the innocence of youth (some longer than others).

Ryan,

Great article and thanks for having the interview with Michael. As a baby boomer who didn't start saving until around 40 years old, I can tell you that saving right away is a huge life changer later on. I started by saving the maximum amount that my company would match in the 401(k) and then putting in raises until I maxed out. And I'm still catching up because I started way late (but doing OK).

Michael has exceptionally practical advice (yeah, I'm tired of the Starbucks example too, living here in Seattle-land…). I'd urge all of us to act on it. You will be very glad you did.

My saving plan has always been to just put the money in my savings account and spend what I need, and it works fine. My entire paycheck, after 401k and insurance deductions, is directly deposited into my account on payday. I like seeing the numbers increase. Occasionally I transfer some money away for a separate investment account, but that's about it.

I'm really surprised no one has mentioned automatic withdrawals for your savings. My savings comes out of my checking automatically each month and anytime I get a raise or a bigger salary I recalculate how much I'm taking out. You can't spend it if it's not in your account.

And just the same way that being separated from finances by direct deposit, direct withdrawal is a good thing. You forget that you're saving and don't check your savings account or stock balance constantly, and then months later you remember and are rewarded with what a good job you've done.

Am I the only person out here with a deeper emotional attachment to my plastic than my cash? It hurts me more to make that running balance drop in my check register than it does to spend the cash in my wallet. For me, cash is play money. That checkbook register, and the credit card bills, are real money because they impact my bottom line. If I overspend from my plastic, then I won't have enough money when it's time to pay for the important stuff. Once I subtract my ATM withdrawal from the register, the money is already gone in my mind, so where it goes from there really depends on which opportunity presents itself first.

Maybe I'm unique, but the one issue I had was the "biggest raise you'll ever get" comment. When I graduated (with no debt), scholarships and any ability to ask my parents for financial help, while my income only went up marginally (about $4,000 a year).

Plus, roommates become less available (more and more people I know either co-habitate, get married, or live alone – I've lost my last 2 roommates to engagements) and I finally had to break down and buy a decent car (my first debt ever), a lot more work clothes, and professional memberships. I still have a roommate, but even adding "neccesary work expenses" in, I actually make less real money from my full-time job than I made my final year of college (working 30-40 hours a week). As students work throughout college more and more frequently, I think the idea of going "from nothing" becomes less appropriate.

Otherwise, I think there are a lot of good, useful points. The housing and car points are especially good. A lot of my friends who are most in debt or stressed for cash could alleviate their problems by simply having roommates, but they want to live alone in as nice an apartment as they can afford.

Alison,

I see your point about the "biggest raise you'll ever get" comment. But I guess it just depends on your experience. I only worked during summers for some spending money during the school year (about $200 a month). Everyone I knew had their college paid for by parents, lived in the dorm, had 7-day access to the cafeteria. If they paid for anything other than beer, it was books.

So yeah, I think the comment still applies (at least it did to me and most people I knew). I guess if you worked your way through college, then the "biggest raise" might come after high-school, or even when you start your first job in high-school.

[...] Yesterday, Ryan Healy, co-founder of the immensely popular Employee Evolution blog, reviewed Beyond Paycheck to Paycheck. In addition to the review, you'll find some thought-provoking questions by Ryan and my corresponding answers. Not surprisingly, this conversation led to some great comments to this posting that you just might enjoy reading. Take a look at the blog posting. [...]

Thanks for the comments everyone. I think the moral of the story is simply be smart about your finances. Figure out what savings method works best for you based on your age, occupation etc. Take calculated risks if you think they can pay off, but don't be stupid!

Thanks to Michael Rubin as well.

For 20 somethings it is important to understand the time value of money. If you contribute 1% of your salary, more than likely you will not even miss it. If you are unsure if you are going to be able to live without the extra cash in your checkbook, wait until your next raise. If your raise is 4%, put 2% into the 401k. You will still get to experience the satisfaction of getting a raise, but you will also see your 401k growing.

Anyway, good article Ryan. I haven't had the chance to read this book, but like you I also received my Bachelors degree in Finance. One other great benefit that I've used in the past couple of years is the flexible spending account. Instead of using a credit card or loan to get that Lasik done, use your flex spending. Otherwise I wouldn't have been able to deduct this expense from my taxes, but with flex spending you can without having to worry about itemizing.

Keep up the great posts.

[...] if you are living paycheck to paycheck or poo-check to poo-check (as in poor) this is a must read – Getting "Beyond Paycheck to Paycheck". I know that GenPink readers are all independantly wealthy but you probably have some friends who [...]

You make an excellent point. Public high schools have been teaching the same subjects for the last 50 years. A lot has changed since then (computers, global economy, etc.). Schools are still in the business of training workers. Unfortunately many of the jobs high school graduates are prepared for can be done much cheaper overseas.

Its important parents are aware of this so they can prepare their children for the financial real world. Parents it's up to you to give your children a practical financial education.

Most of us learned about money from the 'school of hard knocks'; but it doesn't have to be that way. Give your child the advantage you wish you had. Help they transition from dependent child to financially independent young adult without the stress and worries caused by financial illiteracy.

Vince Shorb creator of 'Financially Free by 30' home study course.

Here is another individual fighting for financial literacy. http://www.youtube.com/watch?v=Vv2-K7knBX8