Photo by dmmd303

Are you tired of the weekly excitement and drama of wondering how you’re going to make ends meet until your next paycheck with only $25 left in your pocket?  I sure am.  Having lived paycheck to paycheck for almost 10 years is enough for me to either realize I’ll never be different…or drive me SO crazy that I’m going to SCRATCH AND CLAW MY WAY OUT OF THIS MESS!  Ok, an obvious emphasis on which one I’m leaning toward. 

After doing this for so long, I’ve realized that it’s time to stop looking back and to move forward with new habits.  Before doing that, I want to reflect on some of the things that I’ve been dealing with on an almost daily basis for as long as I can remember.  There’s heartaches, crisis, disappointments, sadness, frustration…so many feelings and painful experiences when living paycheck to paycheck.

I want to share some of these paycheck to paycheck disadvantages with you in hopes that you too can see the light and really WANT to get out of the mess.  This isn’t really a "how to" message, it’s really just me sharing and identifying some of the struggles in one place to really emphasize how much it STINKS to live like this.

1. No long term progress - living in the now doesn’t allow you to save or invest in the future.
2. Not enough money this week - sometimes there’s just not enough money to pay everyone you owe right now.
3. No money for emergencies - living check to check doesn’t really allow you to be prepared for a crisis.
4. Miss out on important events - sometimes you just have to miss out because the only $800 left on payday has to pay the rent.
5. Stress - worrying about money every single week for 10 years can really take its toll.
6. Arguments - fighting over where the last $100 belongs can be like watching two lions fighting over the last scrap of meat on a zebra.
7. Penalties - Being unable to pay for some things means even more fees, worse credit, higher rates, etc.
8. Unprepared all the time - you end up not being able to take advantage of sales because you don’t have the money, then pay full price for things because of when you need them!
9. Priorities get mixed - you end up focusing on the smaller luxuries in life to the point where they become dangerously close to habits.  i.e. junk food, gambling, drinking
10. Envy - everyone else around you always seems to be doing better.  Even though you probably make more than them, it just seems like they always have more money available.
11. Your money works for someone else - wouldn’t it be nice if your money was working for you instead of someone else.  Not only are you missing out, but you’re helping someone else instead!
12. Motivation - living paycheck to paycheck completely takes the motivation out of trying to get ahead.
13. Avoid budgeting - you end up avoiding any kind of budgeting because of how horribly the numbers won’t work out to your advantage.  So you end up digging a deeper hole.

Photo by hufse

I’m sure there’s more.  I’ve only highlighted the major things that have come to mind for me with some examples of each and how it relates to my experiences.  There are COUNTLESS other effects that negatively impact our lives.  I’m absolutely sure of this.  There’s simply no reason knowing all of this can make you just want to sit there and do nothing about it.  It’s time to take control of yourself, get on a plan, FOLLOW the plan until you reach some milestones, and stop living paycheck to paycheck.  Sometimes you need to take a leap of faith to get started on something, this is your chance if you haven’t already!

Hopefully this list has motivated you as much as it has me.  It’s funny how I’ve always known there were things that bothered me about living paycheck to paycheck, but listing all of these disadvantages in one single place has really made me realize how bad it is.  I simply can’t fathom anyone wanting to do this stuff to themselves ON PURPOSE.  And that’s what we’re doing!  Millions of us!

So get started on a plan today!  I’ll be sharing later this week exactly how I’ve managed to stop living from check to check, so stay tuned by coming back or subscribing to my feed available in the sidebar.  In the mean time here’s some great links that could help get you started on how to approach such a feat:

1. Kiplinger: Stop Living Paycheck to Paycheck
2. Zen Habits: How to Stop Living Paycheck to Paycheck
3. Motley Fool: 5 Steps to Stop Living Paycheck to Paycheck

I’d love to hear any success stories or tips that you have to share for breaking this vicious cycle.  Share with the rest of us, and I’ll be back later this week with mine.

Update:  See how I stopped living paycheck to paycheck using the Budget Buffer in my follow up articles:  The Budget Buffer and How to Stop Living Paycheck to Paycheck.

Photo by jtyerse

It’s been a super-exciting few weeks for me after having filled out our tax returns and getting everything rolling early again this year.  (We always get our taxes done in February right after all the W2s come in the mail. 

Now, before I go rattling off how much money we got back from the government, I’d like to let everyone know that this year’s withholdings were WAY off for the majority of last year.  I’ve since adjusted my W4 and am paying a lot less in federal taxes every paycheck.  I’m still doubtful that I’ll get less than $2-3000 back for next year’s refund even after recalculating, but I’ll eventually get where I should be with that.

So, what’s the magic number?  Brace yourself… almost $7000 for federal and state combined.  Crazy huh?  I was only expecting to get about 4-5 thousand, but 7 will do.  :)  About $5500 of that was federal, and $1500 from state.  Needless to say, we couldn’t wait to get that money to work for us.

What’d we do with all that cash?  Well here’s the list:

1. Got caught up with bills.  We were borderline behind on everything.  It was nice to be able to pay a lot of things off just barely in time right before payday hit.  It almost served as a bridge loan for a week.
2. Filled up our $2000 emergency fund.  I know, it’s only supposed to be ONE thousand.  Well, I have practically 3 families worth of kids, so I’m doubling it.  That’s just what makes me feel comfortable, and I’m not going to feel bad about letting that extra $1000 sit there and do nothing but bail me out when I need it for an emergency.
3. Paid off a $2500 credit card!  Heck yeah!  Gooood bye 28% interest store card!  I will never miss you or use you again.
4. Started our envelope budgeting system.  I like to fill the envelopes for the next month before next month even gets here.  Having a good chunk of money in the bank made this really easy to do…having the cash to put in the envelopes right before the next month actually started.
5. Took advantage of some serious sales.  One expense that just doesn’t ever seem to have enough money behind it is clothes.  With our super-large family, we just
   

   Photo by GigHarborUndressed

   always need new jeans or something for one of us.  Well, we actually were able to take advantage of a clearance sale and managed to get all of next year’s winter school clothes for the ones in school for under $250.  That sounds like a lot, but we’re talking 4 kids having 3-5 outfits a piece.  The younger ones get some hand-me-downs, but the oldest always needs a lot of new stuff because of how fast he outgrows things.  It was so nice to have money during the sale rather than having to find him half as many clothes when they’re in season.

6. Finally, my wife and I went out on a date!  :)  That’s actually a very rare thing, so I don’t feel bad about being able to do this at all.  We needed a night out.

So there you have it.  My refund money applied in a nutshell.  We’ve still got a little bit of that in the bank account, but I think it’ll just have to sit tight until we can figure out where we want to start applying our additional funds every week.

So what kind of refund numbers are you guys getting out there?  Anyone beat my $7K?  I’ve got a friend that went over $10K, but they do it on purpose.  (Like I used to.)  No thanks, not into doing that any more…

I’ve seen a lot of posts about people trying to figure out what they’re going to do with their money.  I really liked seeing a couple say they planned on spending some of it.  It just made them unique.  :)  (PaidTwice for example.)  The thing is, nobody I’ve seen really plans on splurging and getting something they weren’t already going to try to get anyway.  Medical, house fix-ups, etc seems to be about it.

Me?  Well, I’ve got SIX kids…so we’re going to get $3000.  That’s right THREE THOUSAND DOLLARS!!! 

I typically get a bonus check each year for about $3000, but it ends up being less than $2000 after taxes.  This is a full 3K!

So, to make this a little more fun, we plan on splitting this up into a few categories.  As much as I’d love to just dump the entire thing on a credit card balance or something, we’re going to compromise as a family. 

We have a vacation planned for next summer to drive cross-country for a small family reunion we already agreed to last year.  Since we don’t have a vehicle that fits the whole family, the wife is going to fly with the baby while I drive the van with the rest of them.  The trip expenses are probably going to be about $600.  This was going to kill our budget, but we’ll just allocate some of the 3K toward that.  In fact, we’ll make it $1000 and have some extra fun on the trip to make it as memorable as possible for the kids.  (We don’t plan on doing much for vacations for awhile.)  So there’s our "economy stimulation" right there.  We’re going to purposely spend extra money on our trip.

The other $2000 will probably get applied directly toward a credit card.  I just wouldn’t feel right if we didn’t do this.  I’m still paying for all that economy stimulation I’ve been doing the last 10 years, time to put a stop to it. 

So how much of your check do you plan on spending?  Anyone else out there planning on splurging a little?

This year I think I’m going to end up with a tax return in the $4-6000 range. This has always been a huge part of our financial planning because of our inability to save money on our own.  We’ve always used it as our "force-us-to-save" method.  (I know, lame.)  The problem with that (and our solution) was addressed in my post about how to choose your W4 elections.

Photo by flippin’sweet

So, this is the last year we’re PLANNING on getting a large return, but people still get returns pretty often…so my question is, "What will you do with your tax return?"

Obvious Options:

• Blow money - spend away!
• Apply toward bills/debt.
• Save it for emergency or rainy day.
• Invest it.
• Pre-withhold for next year’s taxes.

I’m sure there’s lots of different variations on the options I listed, but I’m looking for some personal spin on these.  That’s what makes it interesting, especially with the huge range of amounts possible.

My Plan

My plan at this point is probably just to establish my emergency fund and get ahead on my bills.  One thing I’m going to do just a little different though, is start building up the "next month’s budget" ahead of time.  By the time I get to March 1, I want to have every dollar I plan on spending available in my account so I can just start paying bills and stuffing envelopes full of money for the entire month.  This living paycheck to paycheck thing really sucks.

As for the emergency fund, $1000 just doesn’t seem like enough for me.  With such a large family and all the chaos that comes with it, I would feel much more comfortable with $2000.  I don’t think that’s too unreasonable.  I’ve always heard Dave Ramsey tell people below the poverty line with small families that $500 is enough to start, so why not apply it the other way a little?

In order to do exactly what I need, I’ll be using $2000 toward the emergency fund, and roughly $5000 for a monthly expense buffer.  I know that seems kind of high, but that’s the budget for us.  I don’t think I’m going to get a return quite that large, but I think I can get the buffer in place and start toward the emergency fund.

So how about you?  Got some bills lined up already?  Vacation plans?  I’d love to see what everyone else is getting return-wise and how you plan to use it.

Photo by zbili

Last week in my journal I was hinting that I’d roll up all my "holiday bad news" into one post.  Well here it is!  Please note that I’m not exactly happy with this, but admit total fault in letting it happen.  This is the kind of major setback we simply don’t need in our lives. 

The "well, this’ll be the LAST time before we start the budget" arguments started flying around back around Thanksgiving when all the relatives were visiting and talking about all their glorious Christmas plans.  (Can you say "Keeping up with the Joneses"???)

That was stupid.

The Tally

I can hear it now…  "Holy…     you spent what?  What the heck did you get for all that?"

Here’s the real kick in the pants.  Not much.  I can account for about $1000 in gifts.  Probably another $1000 from all the traveling & eating out we did when my grandpa died.  The rest is just what happened once we broke away from sticking to the budget when family was here at Thanksgiving through to about January.  And when I say broke away…I mean shattered it by an extra TWO THOUSAND dollars a month.  (I think we caught up with a lot of medical bills during this time too, but come on…)

Onward we march

So, I’ve updated my net worth resource page.  Luckily we’ve only gone down by about $2500.  Somehow I managed to overpay my student loan principal by a month as well as drop my overall balances down while my 401K balance kept going up.  So now that we’ve got this mess to clean up, I guess our tax return isn’t going to be available for the 2nd mortgage like we’d planned when we took on the sub-prime loan.

Stupid…

On a side note, we’ll be getting the additional $3000 rebate if all goes as expected this week in congress.  You can bet your big toe we won’t be spending much of that when it comes in!

Anyone else out there just totally fall apart during the holidays?  I’ve heard so much about how everyone did so well this Christmas with Dave Ramsey quoting the average household spent only $700 on gifts this year.  We probably doubled that for gifts and went way over grocery/entertainment/travel budgets making the worst holiday impact we’ve ever had.  So how did you all fare during the last three months with respect to prior years?

Recently I decided to re-examine my W4 with my employer.  There’s a number of factors to consider, and there’s not one single perfect approach for deciding what you want to select on this form.  However, there’s definitely something to gain by making sure you’ve got this form updated to make your money work for you the best way possible.

Current Situation

For the last 10 years, I’ve gotten tax deductions in the area of $4000-8000.  As my family and income grow, my returns grow.  It’s gotten to the point where we just plan on some big "bonus" each year to help get all the shopping paid off that we did for the holidays.  Sure, we plan on each return to pay down a credit card or something, but that rarely happens in full.

Calibrating Dependent Count

Well no more.  Up until today, I’ve had 6 deductions claimed for my total family.  When doing the math on some online W4 deduction calculators it turns out I should be declaring 15 to actually get my paychecks stop taking out so much tax so I don’t get too much of a return.  FIFTEEN!?!?  I’ve only got 6 kids…what the heck?

There’s actually a worksheet on the official W4 form where you not only count yourself and your spouse (when filing jointly) and each dependent child in your family.  But there’s also a line where you declare, based on your income range, how many qualifying children you have for the child tax credit.  This was the part I’ve never figured into it that made my returns so large. 

Without this tax credit, I’d probably only be declaring the number of family members I have on my W4.  However, since we apply the credit I actually declare more so that at the end of the year I almost end up with no return, and no owed taxes.

The Paycheck Effect

Now that I’ve changed my W4 to have 15 dependents, I expect my normal $8000 worth of returns to evenly apply to the 26 paychecks I get every year with around another $200-300 increase per paycheck.  Maybe more.

End Benefit

This is huge, but don’t let it make you think you’re getting a pay raise.  All it’s doing is giving you your money when you earned it instead of the next year after letting it sit in the governments pockets.  The way I see it, if I get my $8000 a year early at the cost of paying 15% interest on my credit card with that balance I’m losing well over $1000 a year to this simple little problem.

Now, I know everyone else out there may have a different method to their W4 madness.  It’s very simple for people without families to just declare the minimum.  However, if you’re getting huge returns every year, you really should consider adding a couple of dependents to your W4 so you don’t let the government get all that nice money in their account for free until the end of each year.

 [update] - I finally got my next paycheck reflecting the changes.  My take-home after taxes and deductions went up $205!  Definitely well needed while up against the wall financially every month.