It’s the time of year when many of us fill out our tax forms and hope for a big refund. It’s nice to have some “extra” money. But while it’s OK to treat yourself every now and then (within your means), even your refund should have a place in your budget.
Many people in America live paycheck to paycheck. Some estimates suggest nearly three-quarters of us spend all the money we have coming in. This is usually portrayed as a bad thing — people not having enough “extra”money to save. But even those who have “extra” money can benefit from budgeting until the amount coming in equals the amount going out. (This doesn’t mean never, ever treating yourself — just giving every dollar a destination.)
Basically, we should aim to live “paycheck to paycheck” if it is the result of budgeting well. This can help keep money from disappearing to mindless or useless spending. You are tricking yourself into using your own money to work harder for you. It may sound impossible, and it’s not the right strategy for everyone, but here are some steps to try before you decided zero-based budgeting isn’t for you.
Try saving before you pay for anything else. Keep the amount of money small and set up an automatic deposit into a savings account or retirement fund.
When I started my first job, my salary was extremely low. Every month, my checking account balance dropped dangerously close to zero before the next paycheck came in. I didn’t think I had enough money to save for retirement so I didn’t.
When I finally got around to reading my employment packets, I saw I was missing out on matching contributions to my 401(k). So I signed up to deposit a small amount. When the money wasn’t in my checking account, I couldn’t spend it. This sounds silly and simple, but it meant in the days before my next paycheck I made meals from the cans at the back of my pantry and went to events with free food. I got by and I started saving. It wasn’t easy, but I learned it was possible.
Get Used to Living Dangerously
This plan does require close attention to detail. You don’t want to withdraw your entire checking account, bounce a check or have your debit card declined. This means you must keep careful track of your spending. Whether you use a special app, a spreadsheet or pen and paper, make sure you stay on top of where your money is going and what expenses you have coming up. By earmarking every dollar, you force yourself to stick to the plan or risk big fees.
Whenever the amount of money coming in changes, adjust your budget accordingly. Up the savings in your emergency fund or retirement contributions. Plan how you will spend all your money, including a bonus, raise, gift or tax refund, to help move you toward your goals.
Remember, this isn’t a punishment. It’s a plan to help you meet your own financial goals — whether that’s early retirement or buying a home. The idea is simply to ensure you’re using your money in the best way to get you there instead of living in search of “extra money” to make up the difference. Work your budget so your spending equals your income. Just make sure your “spending” includes savings. It’s a new way to look at living paycheck to paycheck.
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