Is A Larger Paycheck The Solution?

 


Do you ever feel like your financial stress and ability to manage debt depends all on the size of your paycheck? When it feels like there is more money going out than coming in, it is easy to become frustrated and feel that the issue can solely be blamed on not making enough money. I am not going to deny that having a larger salary can make a huge difference at times. However, I will argue that an extrinsic issue like this may not be the first step in a solution to your money woes.

At the Center for Financial Success, we have found that the difficulty in managing money lies not in the size of the paycheck, but in one’s resolve to learn how to effectively manage their money and stick with it. People are quick to assume that a larger paycheck will solve all of their financial problems – keep in mind that even millionaires declare bankruptcy.

In our experience at the Center working with students and community members to create long-term practical money management solutions it starts with helping the client learn how to live within their means. What does this look like? It looks like avoiding the use of credit on consumer items that you need every month if can’t pay it off at the end of the month. It looks like breaking the habit of living from paycheck to paycheck and learning how to not spend every dollar you make. It involves incrementally cutting back to the point where there is actually a small amount being saved every month. This eventually leads to addressing debt, getting a month ahead, and the beginning of making progress on your financial goals.

The point of this article is not to dissuade you from pursuing a higher paying job. However, there are certain financial habits that must be formed regardless of income level. Regardless if you are making $32,000 or $1.5 million a year, you will fall into the same problems of being trapped in overspending and unnecessary financial stress without healthy spending habits.

Once you are able to develop basic financial management skills instead of focusing only on the need for more money, it can be a little easier to avoid the financial stress caused from overspending. After you establish financial goals and develop a maintainable spending plan, you will find these principles to be effective regardless of how much you earn. You will be getting “more bang for your buck” – a habit that will pay huge dividends especially as your paycheck increases!

Unfortunately, a one stop solution that magically enables someone to pick up the basics of personal financial management does not exist. Sound financial management skills can be compared to a muscle –  it must be exercised before it can be strengthened. Just as a weight room is a great resource to strengthen your muscles, there are great resources out there to assist you in growing your personal financial management skills. We offer resources for these skills through our blog, peer financial coaching services, and presentations. When you visit our website, you can find links to external sources we find helpful.

If you enjoyed this content and would like to enhance your personal financial management skills, take a few seconds to fill out our new client form so you can be on your way to a life with less stress with Peer Financial Coaching Services.

Don’t Trust The Card or Yourself Without a Plan

Don’t Trust the Card or Yourself Without a Plan

In the world of purchasing with plastic (credit or debit card) we sometimes lose sight ever so quickly of exactly how much we are spending! In fact, I find that by the time I am in the parking lot after making a purchase my mind has already moved onto the next thing. By the end of the week when I am about to make another purchase I have already forgotten that I even made the first purchase which causes me to have a false idea of how much money I actually have left to spend. Before I know it if the plastic I am making a purchase with happens to be a credit card then I could so easily fall into the trap of purchasing an item with future income (money from my next paycheck that hasn’t even hit the bank yet). This can happen to even the best of us.

Let me be clear I am not suggesting we should all revert back to the archaic envelope budgeting system and cash. However, I am suggesting there a few things we can recognize when purchasing everything with a card to ensure financial success.

Here are a few tips that can help lead to financial success if you pay your bills and make all of your purchases with a card, especially if its a credit card.

1) Keep Track of What You Spend.

Don’t fall into the trap of only reviewing the balance on your credit card every couple of weeks or once a month when your bill comes due. If you are using a debit card be careful to avoid only reviewing the available balance in your checking account when in the checkout line at a store or on pay day.

I am not a psychologist by any means, but I know myself well. I do not think I am alone when I say that it is easy to underestimate how much I’ve spent since I last looked at the balance on my card and overestimate how much I can afford to spend when I have not sufficiently tracked my previous purchases. The Consumer Financial Bureau suggests that there is some research to back the assessment that I have made.

It may not be fun at first, but putting a spending plan in place and rigorously keeping up with it will be one of the greatest stress relievers you can experience regarding money. If money is a source of stress or anxiety it can be tempting to ignore the way you spend, your bank account or credit card balance, however, this will create more stress in the long run and financial disaster I might add. I personally prefer to track my expenses through the use of budgeting software called youneedabudget.com. I know others that prefer good ole excel spreadsheets, pen and paper, or mint.com.

2) Don’t Trust Monthly Minimum Payment Offers.

When things are tight and there are extra items needed or wanted, it can be extremely tempting to take advantage of the credit card offer to carry the balance on your card over to the next month and only make the minimum payment. This can be especially tempting during times where there is stress pouring in from other areas of life.

It is important to recognize that when you only make a monthly payment, it means you are committing your future income to interest payments on items that are not worth paying interest on. Also keep in mind credit cards offer some of the worst, if not the worst, interest rates. They can get up to almost 30%! Nerd Wallet, a reputable personal finance website, goes as far as to say they are designed to keep you in debt. Click here if you want read more on minimum payments.

It can be tempting and you might say to yourself that you will be able to pay it all off the next month before the interest takes off and gets out of control. That can be a dangerous place to be especially considering personal finance tends to be one of the most unpredictable areas of life, because it involves almost every aspect of life. You cannot predict when your car is going to breakdown, you are going to have an emergency room visit, animal needs to go to the vet, or some other unexpected expense shows up.

3)Preemptive Planning vs. Reactionary Spending

If you want to beat living paycheck to paycheck, pay down debt, and avoid having to pay only the minimum payment on a card it happens through planning. The words “budget or spending plan” are not everyone’s favorite words. However, they can be such a lifesaver! For some they do not like the idea of a budget because they feel that it will constrict their financial freedom to do as they please. For others it is just an overwhelming, daunting task and an area that causes anxiousness so they just avoid it.

I would like to suggest that choosing to be preemptive in planning, how to spend and save your money, will actually create a sense of financial freedom not experienced beforehand and will help reduce anxiety surrounding money. Planning our spending will prevent those moments when we react to a need or want, have not planned our spending for the pay period/month and then swipe our card, and we can’t help but experience the anxiety surrounding the purchase. The all too familiar questions surface in our mind such as “can I really afford this and will I have enough left for my bills due soon?” I would like to suggest these questions almost steal the joy that could have come from the purchase.

On the other hand, when you take time to plan your spending upon receiving a paycheck and then follow point #1 of tracking your expenses, you can feel comfortable spending money because you have planned the spending and do not have to deal with questions like “Can I afford this and will I have enough for my bills?” It creates a since of freedom and peace of mind. Finally, it is important to be aware that everything might not always go according to plan, however if there is a plan in place you will know how to adjust to ensure that you are staying within your means.

How to Live Well All Year Long (as a college student)

When I first started budgeting, I realized I was spending an absurd amount of money at Starbucks and eating out.

Like many others, I work as much as possible during the summer and winter to stockpile money for the semester when I cannot work as much. My financial goals at the start of each academic year are always to:

  1. Make my money last until May.
  2. Experience that year with my friends and family.
  3. Save money going into the next academic year

In August, I would look at my bank account balance and be afraid to spend because although my bank account balance was high, I was unsure how long my money would last. I would say no to weekend trips or events with my friends, and I stressed about unexpected expenses.

It wasn’t about having money, I had some, but I constantly worried, Do I have enough?

Enter budgeting. With my budget, I decide how much I want to spend each month to live comfortably. I decide how much I need for gas, for eating out, for gifts, for trips, and all of the other things that might happen in my life that academic year. I also consider things that might happen, such as having to get new tires or replacing my phone. After deciding how much I need, I spread my pile of money out from August to May.

I don’t have enough money for everything that I list out that I want. Because of this, I must prioritize what is important to me and eliminate those things that are less important. For example, I do not buy coffee from Starbucks anymore, unless I am having coffee with a friend. I also follow the same rule for eating out. For me, I was spending too much of my money on grabbing coffee and food alone, that I had to say no when friends were going out. I also do not buy new clothes and limit myself when buying new possessions. I don’t have enough for possessions and experiences. If I buy a new shirt, I must say no to fun with my friends later that week. I try to choose people over things.

Depending on your goals, your budget may lead you to work less or work more. For me, my budget enables me to stress less about work because I know how much time I need to spend at work to fund my priorities.

For help getting started with your own budget, we have a Quick Start Guide to Your Financial Success on Budgeting available for you here:

https://www.wku.edu/cfs/quickstartbudgeting.pdf

As always, we also encourage you to take advantage of our free peer-to-peer financial counseling by setting up an appointment with one of our counselors. You can do that here:

https://www.wku.edu/cfs/become-a-client.php

How {not} to spend your tax return

It’s tax season and for many of us that means a hefty tax return. What is the healthiest and most effective way to view your tax return?

Many people view a tax refund as free money and spend it almost as fast as it hits their bank account. But this attitude is dangerous. You work hard for your money all year, you have taxes withheld during that time, and now the government is giving you back some or all taxes withheld because you had more withheld than your tax liability.

Your tax return is an opportunity for you to create leverage in your financial life.

Here are 5 ways you can use your 2017 tax return:

  1. Open a high-yield savings account. You can use bankrate.com to research savings accounts and deposit the tax return money for safe-keeping. This can act as an emergency fund.
  2. Pay for school expenses. Your tax return could be used to pay off all or some of your WKU shortfall, allowing you to minimize the student loans you take out this fall.
  3. Pay off your credit card debt. It is not abnormal for college students to find themselves in credit card debt. Credit card interest rates are high and not paying hurts your credit score- use this as an opportunity to wipe the slate clean.
  4. Use it for an experience. Managing money is about using your money effectively to meet your short, intermediate, and long-term goals. It is okay to use part or all your return for a bucket-list item, if these other opportunities do not apply to you.
  5. Start a Roth IRA. A Roth Ira is a retirement savings account. Starting to save while you are young allows you to benefit from compound interest-and with a Roth IRA your money grows tax-free!

As always, for more information or to meet with a Financial Counselor, contact us at the WKU Center for Financial Success! We would love to sit down with you, go over your specific situation, and help you use your tax refund effectively!