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This last part of the year is pretty unique because it’s the only time of year we refer to as the holiday season. And it’s the only one people gear up to. It’s great to sit down with family whom we see way less than we’d like to. And it’s nice seeing college kids come home and reconnect with hometown friends.
But to be honest, it’s a season of consumption. There’s a reason why gyms are packed in January. We tend to over-indulge physically and financially. This past week I wrote about ways to drum up cash for the holidays with the intention of starting the New Year without an additional pile of debt.
But a stat I saw recently made me reconsider the “holiday hustle” idea. According to Career Builder, almost 80% of people live paycheck to paycheck! And not just young people, early in their career. People of all ages, at all career levels.
Eighty per cent! Although the article didn’t say why most people are living on the edge, I’ve gotta believe it’s because we tend to get caught up in debt. We’re constantly yo-yoing between paying it down, then having an emergency that jacks it up again. Or we’re charging things like a 60 inch flat screen that we want now.
Fun fact: I bought a big screen TV the day before the Giants/Patriots Superbowl, and when I went to the pickup location, there were at least 6 other people picking up the same thing! And yea, I charged it.
So, if almost 80% of people are living paycheck to paycheck, they’re probably saving and investing almost nothing. Letting a few decades slip by without consistently saving reduces your chance of retiring – not as a millionaire, but just comfortably – by a lot.
According to Bankrate.com, the biggest financial regret of people over 30 is that they didn’t start saving soon enough. Especially if you’re working for a company that offers a 401k with a matching contribution. It’s gotta hurt looking back and realizing how much money you left on the table by not starting to save sooner. The difference between starting in your 20’s versus your 40’s or 50’s will be huge – several hundred thousand dollars.
What about you? Are you stressing over the save or pay off debt dilemma every month?
After thinking about how many people are stuck in this hamster wheel year after year, I thought, why just do a holiday hustle to generate cash to blow at the mall? What if you could generate even a few hundred extra dollars per month and continue it into the New Year? Dedicated to nothing but eliminating debt.
It’s always debatable whether you should focus on saving or paying off debt. Having a mortgage is one thing, but if you’re paying credit card debt every month, doesn’t that negate the gains you’re making by saving? Paying credit card rates well into the 20-26% interest range, then trickling a few dollars a month into an investment that’s generating 7-10% is a losing battle.
So, I’m all for eliminating any consumer debt and then focusing on saving. Saving is something you’ll do for most of your life. There may be a ballpark number for you personally, based on your age and family. But there’s not an exact number you’ll need to squirrel away – just, as much as you can.
But with credit card debt, you can just add ‘em up and there’s your number. That’s your goal. That’s the number that’s been holding you back from accumulating some real savings – and being able to pay for emergencies. You can write the number where you’ll see it every day and celebrate each time you chip away at it.
So how about it? Are you one of the 80% who’d like to finally move to the 20% who are actually seeing their net worth increase each month? It is possible, even just by earning a few hundred extra per month.
Suppose a year from now, you ended 2018 like this:
- No credit card debt.
- A good start on an emergency fund – at least 2 month’s salary and still building.
- A regular monthly deposit into a 401k or Roth (or both).
3 simple goals.
These are achievable over the next year, but simple doesn’t always mean easy. If you’ve always lived the buy now, pay later lifestyle, you may find that the only thing harder than making money is changing your attitude about spending it.
We all seem to get sucked into the debt spiral at some point in our lives. I sure did. We start buying things, not because we need those things – we buy how those things make us feel. Nobody needs a 60 inch flat screen. They’re sure nice to have, but not if the payment on it prevents you from having an emergency fund.
Nobody needs the $1300 iPhone X. But people line up for the chance to finance it for 2-3 years. I’m surprised to see even fourth graders carrying iPhones! When I was in fourth grade my parents worried that I’d make it to lunch without losing my PB&J!
So, it may seem a bit early to start talking about New Year’s resolutions two weeks before Thanksgiving. But this kind of resolution may need to percolate for a month.
Here are a few questions to ponder that may help to consider your spending plans for the next year:
- What are some of the more expensive things you’ve bought over the last couple years? Did you choose this particular one because you thought you’d feel better once you owned it? And once you bought it, do you actually feel that way, considering the cost?
- Think about the people you know. Is there something that many of them have that you’d love to have and would consider charging on a credit card just to get it now? (For me, that’s a hot tub. There’s something about sipping a beer in a hot tub in the middle of February – and no, I didn’t buy it).
- If you owe a few thousand dollars on credit cards, do you know exactly what it’s for? Or is it a multitude of things, some of which you don’t even remember?
- Look in your closet. How many of the shirts or shoes in there do you really wear? Are there things you bought on the spur of the moment because you thought they’d make you look or feel better?
Many of the things we buy – or worse, many of the things we charge, are things we may not really need – or may not need immediately. We buy them to satisfy a feeling rather than a true need.
If you’re living paycheck to paycheck, and you’re struggling with debt, here’s a challenge to consider for 2018:
- Write a simple budget. It doesn’t have to be elaborate. Just a simple listing of your income each month and every expense you have. See just how much over or under you are. And how much of that is credit card debt.
- Decide on one way to generate a side income that’ll go only to paying off debt. For some brainstorming ideas, check out 30 Ways to Generate Quick Cash for the Holidays.
- Put away your credit cards. Resolve not to use them at all.
- Use the debt snowball method. Write down the amount of each debt, the monthly minimum and put it where you’ll see it every day.
- Make the minimum monthly payment on each account except the smallest debt. For that one, throw as much money as you can at it. This is where your side income will make a world of difference.
- Once that smallest account is paid off, then repeat the same process. Pay the minimum on all the remaining accounts except the smallest, where you’ll pay as much as possible each month.
- By targeting the smallest debt first, you’ll chalk up victories quickly and generate momentum. And don’t just rely on your paycheck or your side hustle to pay down your debt. Whatever windfall of cash you come into – a raise, bonus, tax refund, or a gift. Throw it all toward that smallest debt.
- Don’t worry that the due date hasn’t arrived, Send it in as you get it. It’ll reduce your temptation to spend it and you’ll see your debt shrink that much quicker.
Here’s one thing I’d also do while you’re paying off your debt. Establish an emergency fund and start funneling small amounts to it. The reason to start that fund now, and not wait until your debt is paid is that we’ve put the credit cards away. So if you have an emergency, like a car repair, having the cash for it will enable you to keep the credit cards stashed away and not add more debt.
The simplest way I’ve found to set up an emergency fund is through Digit. Their free app took me less than ten minutes to set up and requires no extra work. It sends small amounts from my checking account when it sees I have the money. Then it texts me each day with my checking balance. Here’s my review if you’d like to read a bit more about it.
Now, depending on your own situation, this process could take a few months or most of the year. But each time you chip a little more of your debt down, just remember – you’re well on the way to increasing your net worth rather than treading water for decades. Each month when you see yourself a little closer to your goal, celebrate! Cheaply though.
Having zero credit card debt and an emergency fund would be huge for your finances. You’d be able to save a higher amount every month that’s also not being negated every month through credit card debt.
The term “retirement” seems so abstract to many of us. We see those commercials on TV or ads online with an old white-haired couple sitting on a bench. “They’re comfortable because they invested in the XYZ fund!” It’s hard to relate to something like that in your twenties or even your thirties.
But life does goes by way faster than we realize. Knowing that almost 80% of people spend their lives living paycheck to paycheck, is enough to make you wonder: What if they re-evaluated their needs versus their wants early in their career and were able to live without flushing money down the toilet of debt for hundreds of months?
Getting ahead is so much more about consistency and behavior rather than financial expertise. So, what would your situation look like a year from now if you were to generate even a few hundred dollars extra per month? Not to buy stuff, but to eliminate debt and move into the 20%.
The most valuable commodity we have is time. And by eliminating debt and then recognizing and accepting our needs versus our wants, we can buy ourselves more of it. Not just years, but years to enjoy our own pursuits while we’re still healthy and motivated. So how about you? Got any plans for 2018?