The phrase “living paycheck to paycheck” most often has a negative connotation. Most people interpret this as meaning you spend all your money and wait for the next paycheck to arrive to make bills, never being able to save anything.
I, on the other hand, see this mentality as one of the best ways to save.
My method is simple. It is centered around automating almost everything (I’ll explain the things I still leave manual). I set up automatic transfers to our bill account, savings account, and investment account each week I get paid. By the time I open my eyes on payday, the transfers have been made and in my checking I only see what remains.
After all my bill and savings transfers, I’m left over with the money I’m allowed to spend. I grew up having “pay yourself first” drilled into my head daily so it’s always so important to me to be sure I’m meeting my savings goals.
Here is the list of recurring bills I have each month:
- Cell phones
- Car insurance
- Water bill
- Total = 32.79% of gross pay
My husband and I have joint checking and savings accounts that we use for bills as well as our own individual accounts that we’ve always had. We deposited all our wedding gifts into the joint savings so we have an emergency fund, then add transfers to cover bills each month.
We sat down and calculated all the bills we pay each month. For the ones that vary month to month or due to time of year (like the gas bill) we took a year average. Then we divided it up into what we would need to contribute to the joint account each paycheck. We set up automatic transfers from our own checking accounts (where the direct deposit paycheck comes) to the joint account. I get paid weekly so I set up the transfer to go every week the day I get paid so by the time I wake up on payday it is already gone from my account. It shows up in the joint account the next day.
If there is anything else that comes up randomly, we cover from this account. Last month, for example, our dog was due for his checkup and all his shots so it was an extra $400.
These are the automatic transfers I set up for savings.
- Cash Savings
- Non-retirement investment accounts
- Total = 28.26% of gross pay
I leave what is leftover from that in my checking for spending each week. By the next paycheck, I transfer whatever is leftover into savings. This is what I consider living paycheck to paycheck. I only ever have what was just paid in my checking account until next paycheck comes.
This also means that 28.26% is just the minimum I save. Typically it is more like 35-40%. Things come up though, as we all know, so some weeks it differs. One weekend last month I was due for some car maintenance that totaled around $300 so I was not able to transfer more.
I did have student loans on automatic debit monthly and paid extra each week. The extra was at least $75 but typically more like $150. Since I have finished my student loans I changed my automatic savings contribution to include that extra $100 I’m not paying on loans.
Once I reached my emergency fund goal when I had student loans, I kept the automatic transfer to savings. Every so often when it added up to a nice chunk I used that money to make an additional student loan payment (on top of the auto minimum and my weekly payment). This was really just a mental move. It was satisfying to have an extra few hundred or so in my savings and make another loan payment to see the balance drop even more that month.
The extras (not the fun stuff!)
- Health (medical, HSA, dental, vision)
- Taxes, etc. (Federal, State, Social Security, Medicare)
- Total = 29.31% of gross pay
If you are checking my math, this reaches 94.06% of my gross pay, the rest remaining for whatever I wish.
I have the mortgage, car insurance, and cell phones on auto pay. Since electric and gas vary each month, I want to review it first before I pay to mitigate any surprises and validate it. The water bill is small and I would automate it if I could, but it’s the only one that has no online payment option. They only take checks. I use my credit union’s bill pay system so I don’t personally have to cut the check and mail, the credit union does, so that’s as automated as well get for that one.
For car insurance, they do try to sneak the price up every few months but I get a $10 discount having auto pay from my checking so I leave it on and just stay aware of the charge.
Protect Against Lifestyle Inflation
This means if you get a raise or come into any money, you don’t splurge it and get yourself used to making more and speeding more. Last year I changed jobs and received about a 23% salary increase. My student loan payments were only slightly above the minimum as what I could afford at the time. I subtracted the exact difference from my new paycheck to my old and paid the difference each payday into the loans (in addition to what I already was paying). The payoff really started to pick up and I still continued living happily, not finding reasons to blow the extra money.
Since I just paid off my student loans, we have no other debt but the mortgage. We have a pretty low interest rate so we don’t plan on paying it off aggressively. My plan is to now take what I was paying weekly and add that to savings to build up my emergency fund a bit more. I have no lifestyle wants or needs (except to save!) and want to make sure the extra dollars I’ll have not going to debt will now go to savings.
I recently accepted a new job with an increase in pay. Between this and having no more student loan debt, I want to increase my cash emergency fund as my first goal. Once that has been met, I’ll increase my investments.
I will once again subtract the difference from my current pay to the new take home and make sure that difference is going straight to helping meet my savings goals.