Stop Living Paycheck to Paycheck—Here’s How

by | BiggerPockets.com

Want to stop living paycheck to paycheck and find yourself with extra money that you can invest in a better future for yourself? I can show you exactly how to do that—without eliminating all the fun from your life.

While today I earn way more than I spend and live a pretty cool life on Maui, doing the things I love to do with the people I love, it wasn’t always that way.

For the first half of my 20s, I lived paycheck to paycheck. If it wasn’t for the lessons I’m about to show you, I’d still probably be living paycheck to paycheck.

Let’s get to it.

Related: 3 Simple Ways to Cut Back & Save Money Without Feeling Deprived

How to Stop Living Paycheck to Paycheck

1. Own It

The first step in getting out of paycheck to paycheck living is the least tangible but most important step. Listen close: you have to OWN IT. In other words, you have to take 100 percent responsibility for your financial position in life, right now.

Maybe you got into money problems because of a medical issue or being laid off. It doesn’t matter who or what’s at fault. It’s not about that; it’s about responsibility.

2. Assess It

You need to assess the situation, in detail, and understand exactly where you stand financially—to the penny. Right now, could you write down exactly how much money you made last month and how much money you spent? What’s your net worth?

Sadly, most people wouldn’t even know how to begin looking that stuff up.

To truly get a firm grasp on exactly what your finances look like, I want you to fill out a personal financial statement. It’s really a simple document that helps you list your income, your expenses, your assets—which are things that add to your net worth, like the value of properties you own, the value of your stocks or bonds or mutual funds, the value of any businesses you own, etc. And then list your liabilities—which are basically things that you owe, like debt.

You can download a really easy-to-use personal financial statement here.

List every bit of income you currently have. If you’re self employed, average the last six months. Then, you’ll list all your expenses and separate them into one of three categories:

1.) Fixed Expenses: These are your regular bills that don’t change much (i.e., rent, credit card payments, and the like).

2.) Variable Expenses: These are bills that we all spend money on every month but can fluctuate (i.e., stuff like eating out, gas, groceries, medical bills, and clothing).

3.) Other Expenses: This is totally optional stuff, like movie tickets, Starbucks, or vacations. For most people, there is quite a bit in this category. It’s basically stuff that you spend money on, but you could have survived without it.

But we’re not done. Knowing something isn’t the same as doing something, right?

Now, soon we’ll explore some ways to increase your income to help you make significantly more each month. BUT the reason I never want to start this discussion there is because people have a strong tendency to increase their spending to whatever level of income they find themselves in.

I call that “The Income Creep.”  You get a raise, you spend more. 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 nicer couches and a nicer car.

So, let’s go on to step three—what most people don’t have the willpower to do with their money.

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3. Dominate It

Dominating your money begins with understanding how your cash flows through your life. To do that, think of a cash flow funnel (it’s something I talk about in detail in my book How to Invest in Real Estate).

Most people’s expenses flow through them like this:

  • Money is spent on fun stuff without thinking
  • Then on variable expenses
  • Then on fixed expenses
  • Then maybe if there is something left people will give to charity or save it in an investment

But this is not how wealthy individuals filter their money. Instead, wealthy people flip the chart upside down.

The first thing they do is tell their money to go into savings to be invested. In other words, they pay their future self first.

Rather than giving your future self “the leftovers,” you’re giving it the prime rib. Rather than treating your future like a second-class citizen, you’re treating it like royalty. You get the idea.

OK, so they save money first. Then, wealthy people filter their money through giving money away. Then, they pay their fixed expenses, followed by their variable expenses. Then, with what they have left, they spend on fun stuff.

And here’s the great thing: you don’t have to be wealthy to begin thinking this way. Maybe you start with saving just $10 per month or giving away $10 per month. The point is changing your mindset, the way you approach money. You’ve got to flip that triangle.

To dominate your money, it’s time to get in the driver’s seat and tell your money where you are taking it. How much do you want to set aside, this coming month, for savings? I’d encourage you to do something, even if you don’t think you can.

What about giving money away? You might be wondering WHY giving away money is even being talked about now. Well, research has shown that by giving away money, it actually changes the way you think about money and can actually help you earn more because of it. So, it’s important.

Now, what about those fixed expenses—your rent, your car payment, etc.? You might be tempted to think that these bills can’t be changed. They are fixed, after all. But while these bills are not always the fastest to change, they CAN be changed and usually they’ll result in the biggest impact.

Move into a cheaper place, get rid of your car, do something. These changes might seem drastic at the time, but they’re not forever.

In terms of variable expenses, go out to eat less, shop smarter at the grocery store, don’t buy the cool new gadget or wardrobe. You’ll survive without it.

And finally, we get to the fun money. If you were spending $1,500 total on random stuff, from your manicure to your weekend trip to the lake to fancy coffee, what if you dropped that to $1,000 instead of $1,500? There’s another $500 in savings, and you still get to enjoy most of what you had before.

So rather than being miserable, rather than feeling like you’re sacrificing, recognize that you’re empowered, in control.

4. Grow It

Chances are, you have dreams in life that are going to require more income than what you currently make. Or maybe you’d like to reduce your hours or travel more or spend more time with family and on hobbies.

Whatever the reason, you now have the necessary foundation for building wealth. You know how to own your money. You know how to assess your money. And you know how to dominate your money. Now, it’s time to grow it.

There are an infinite number of ways to grow your wealth and income—both actively (earning per hour) and passively (earning always—even while you sleep). It’s not just about real estate. Real estate has a lot of cool things going for it, but it’s not the only way to make money.

I actually have numerous income streams that I’ve built. I make money from rental properties, each and every month. I make money from products that I’ve designed and sold. I make money from book sales, from websites, from speaking, and so on. And because you are no longer living paycheck to paycheck, you can afford to venture into some of these income streams.

I hope at this point you can see how this all works together to create true financial freedom.

Because when you OWN your money situation, you put yourself in a position to make real change happen. Then, when you ASSESS your money situation, you see exactly where you are at—no more hiding. Then, when you DOMINATE your money situation, you put yourself in the driver’s seat and begin directing what happens. You have total control. And finally, when you GROW your money situation, carefully and with the extra income you’ve freed up, you have the ability to build a great life that gives you time and money for the things you truly want to do.

And that’s how to stop living paycheck to paycheck!

Watch the video above, where I go into way more detail about how you can stop living this way and start building your wealth.

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About Author

Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

7 Comments

  1. Lee Williams

    For anyone looking for more motivation and detail on this topic I highly recommend “Set for Life” by Scott Trench. It provides actionable advice for the kind of mindset taught in “Rich Dad, Poor Dad.” I have heard Brandon recommend this book in a podcast as well (Sorry if I misremember!).

    The most helpful lesson from “Set for Life” is the different lense Trench views fixed vs variable expenses with. Entertainment, coffee, and a few beers on the weekend are highly controllable expenses but Trench points out that these so-called “variable expenses” are overshadowed by so-called “fixed expenses” such as rent and transportation. Skipping Starbucks or canceling your Netflix subscription might save you a few dollars every month but it is likely to have a significant impact on your daily life and slowly grind on your motivation to save money. Trench offers solutions to replace the large ticket items on your expenditures with solutions that are less likely to reduce your enjoyment of day to day life. This drastically enhances your ability to save away money while at the same time not feeling guilty about being able to eat out a reasonable amount of the time.

    The book is more useful for people like me who are at the beginning of their wealth generation journey. Happy reading!

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