First Person: I'm No Longer Living Paycheck to Paycheck

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Like most middle-aged people, my husband and I depend on our paychecks in order to pay our bills and feed our family. In the past 10 years, however, we took two actions that I think are fundamental to becoming liberated from our paycheck dependence. The No. 1 most important thing we did to stop living paycheck to paycheck was invest our money. The No. 2 most important thing we did, in my opinion, was buy a home.

Getting a handle on our budget

I don't think anyone can overcome paycheck dependence if they still have debt. Debt is the opposite of wealth. After getting out of debt, we started living according to a budget. Our budget was the secret that helped us spend less than we made so we could save and invest.

Keeping our hands off our savings

By investing money, we can reap the benefits of compounded interest. We had to save enough so we would have money for emergencies. The worst thing we could have done was touch our retirement savings. We didn't want compound interest to work in reverse. If we had taken $5,000 out of retirement for an emergency hospital visit, we really would have been taking out $5,000 plus the interest we would have earned over time.

Investing sooner rather than later

I wanted to save a solid $100,000 in our retirement accounts before the age of 40 so we could start to make money off of our money. Without having a chunk of change at an early age, I knew I'd end up like some of my friends that have pitiful retirement accounts. Money makes money.

Letting time work for us

According to a stock return predictor chart I found online, the best possible annual return on my money in a 30-year period is 8.26 percent, while the worst possible is 4.26. If I only had 10 years, my best possible return would be 8.38 percent but the worst possible would be negative 3.62.

Owning our home

The sooner we can pay off our house, the sooner we overcome our paycheck dependence. Most of our paychecks go toward paying our required mortgage payment and our optional payments toward the principal. Although most experts claim it's better to put your extra money in the stock market instead of paying down a mortgage, I don't think they are considering the worst possible scenario. In 10 years, my mortgage will be completely paid off, but I could have had a lousy negative 3.62 annual return on that same money.

To me, the stock market only works when looking at long-term results.

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