6 Steps to Successfully Living Off Your Paycheck

6 Steps to Successfully Living Off Your Paycheck

Follow these 6 essential steps to live your best financial life.

This is a third in (hopefully) an ongoing series of podcasts that I am doing for a client of mine.  You can watch and listen to it here.  Following is the transcript:

"Hello and welcome to the podcast.  This is Kimberly Zimmerman Rand of Dragonfly Financial Solutions.  I am here today to talk about the Six Steps to Successfully Living off Your Paycheck.  Let’s dive in!

1.    Understand What Money Means to You

The first step towards gaining mastery over your money is to identify your money values and your money personality, the unique ways that you interact with money in your day-to-day life.  Some categories of money values include the importance you place on food, clothing & personal appearance, sports & recreation and church & charitable giving.  One way to identify you money values is to ask yourself, “If I had an extra $50 today, how would I like to spend it?”

Another point to reflect on is what money means to you.  For some people money represents security, while for others it represents enjoyment.  Some feel stress when they think about money, and still others believe that money represents “the root of all evil.”  What does money mean to you?

2.    Create Goals for Your Money

The next step is to create goals for your money.  If you do not have a use for your money in the future then it is easy to spend it today.  Think about what you would like to achieve for yourself and your family.  Maybe you want to buy a home.  Your goal would be to save towards your down payment.  Maybe you want to take a vacation without maxing out your credit cards.  Plan how much that trip would cost and now you have a savings goal.

Once you’ve identified your saving goal you can make an action plan.  Determine what your savings goal will cost, and give yourself a timeline to reach the goal.  Divide that savings goal by the number of months.  This will tell you how much you need to save each month.  Be truthful, is this a realistic number?  If not make the savings goal smaller or give yourself more months to save.

3.    Track Your Dollars to Create a Realistic Spending Plan

The third step is to track your cash flow to create a realistic spending plan.  About two-thirds of Americans don’t keep a budget, so if you don’t have one you are not alone!  Tracking is the first step towards creating a spending plan.  It includes monitoring what is coming in to your household (income) and what is going out (expenses).  

There are different ways to track your dollars, from something as simple as a pencil and a notebook to something as high-tech as an app for your smartphone.  The most important part of tracking your dollars is to choose a method that you enjoy (or at least don’t hate) so that you will continue to track every month.

The second step to creating a spending plan is to analyze the income and expenses that you are tracking.  Take a hard look at your spending and think back to your money values.

Remember that category that you would spend if you had an extra $50?  Don’t worry about cutting that category (at least not for now).  Start by looking at your spending categories that won’ hurt if you cut them.  We call this low-hanging fruit.  Start there and then proceed to creating a realistic spending plan.

4.    Start to Save

The forth step is saving.  Do you know that less than half of Americans have enough money in their savings accounts to cover a minor emergency?  For this reason – as well as to achieve your financial goals – it is important to build a savings habit.

Do you want to know one successful way to save?   It is to automate!  Use direct deposit (if your employer offers this) or automatic transfers from your checking account to your savings account.  “Set it and forget it” is a way to set yourself up for success.  You will quickly learn how to live with what’s in your checking account and you will never have to make an active decision to save again.

5.    Use Credit Wisely

The fifth step is using credit wisely.  About 60% of Americans have a credit score of less than 660, and this makes credit more expensive to use.  And since most people will need to access credit at some point in their lives – maybe to purchase a home or to buy a car – it is important to use credit wisely.

There are two ways to ensure that your credit score will be its best.   The first is to make sure that you pay all of you debts on time.  The second is to keep your credit card balances low.

6.    Protect Yourself and Your Family

Finally, protect yourself and your family.  While some insurance are required – like homeowners and auto – other insurances are not required but are just as important to have.  These are the insurances that facilitate your ability to generate an income like health insurance and disability insurance.

So those are your six steps to successfully living off your paycheck:

•    Understand what money means to you
•    Create goals for your money
•    Track your dollars and create a realistic spending plan
•    Start to save
•    Use credit wisely
•    Protect yourself and your family

Follow these steps and celebrate your success!  Again, this is Kimberly Zimmerman Rand of Dragonfly Financial Solutions.  Thanks for joining me!"

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