Saturday, 6 July 2019

Follow This Step To Stop Living Paycheck to Paycheck

Follow This Step To Stop Living Paycheck to Paycheck

I want to layout a powerful 2 step process to stop living paycheck to paycheck for good. This framework works no matter what financial position you find yourself in, what job you currently have, what educational background you might have. Whatever just follow these 2 steps and you can escape the paycheck to paycheck.

1. Own It

This first step in getting out of the paycheck to paycheck living is like the least tangible but the most importantly, you have to own it in other words you have to take 100% responsibility for your financial position in life right now.

  • I don't care if your high school didn't prepare you or your parents taught you bad habits or your spouse spends way too much money on Gucci bags or whatever, maybe you got into money problems because of some kind of medical issue or maybe you were laid up

  • Whatever, I don't care whose fault it is it's not about fault it's about responsibility. Maybe that sounds harsh but the truth is nothing is going to change until you change your mindset about who has the power to change your life

The government isn't going to do it, your parents aren't going to do it, your spouse isn't going to do it, you got to take 100% responsibility for your financial position but don't think of this as like a negative thing it's actually incredibly powerful because it means that you have the ability to change it

Look, I can't change the weather but I can change where I live. That's fault versus responsibility, does that make sense.

2. Assese It

You need to assess the situation in detail and understand exactly where you stand financially right now, can you write down exactly how much money you made last month. And how much money you spent right now, what is your net worth? Can you tell me?

Sadly, people would not even know how to start looking that stuff up, do you see how important this is it's somebody who really wants to lose weight but they have no idea how much they weigh right now or how much they eat or whether they've worked out in the past month, like how serious do you think that person would be about losing their weight if they don't even know those basics and how serious are you about no longer living paycheck to paycheck if you don't know the basics.

You need to know exactly what your finances look like, I want you to fill out a simple personal financial statement, it's a really simple document, don't get overwhelmed, it just helps you list your income, your expense, your assets, the value of properties you own or the value of stocks or bonds or mutual funds, the value of any businesses you might own, then there are liabilities which are things that you owe money on like debt

On this personal financial statement, you're going to list every bit of income you currently have, then you're going to list all your expenses and separate them into one of 3 categories and then grouping them into subcategories

The 3 categories are

1. Fixed Expenses

Those are bills that come regularly and they don't change that much it's like rent

2. Variable Expenses

Which are bills that we all spend money on every month but can fluctuate quite a bit like eating out, gas, groceries, medical bills, clothing?

3. Other Expenses

Which would be like totally optional stuff like going to a movie, went on vacation, in fact for most people there's quite a bit in this category, it's basically stuff that you spend money on but you could have survived this world without. I'm not saying you shouldn't have those things it's just that they don't fit with either fixed or variable expenses.

Most people have a really strong tendency to increase their spending to whatever level of income they find themselves in, I call it the income creep like you get a raise and you spend more money. But we need to fix that behavior before we increase our income, or else the extra income will simply mean we are living paycheck to paycheck with a nice couches and a nice car

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