Time to Get Off the Money Stress Cycle

Written by Lunionsuite Financial Blogger, Lawrence G. Financial Literacy Educator

According to the Bureau of Labor Statistics, the median wage for workers in the United States was approximately $45,000 per year for a 40-hour workweek (as of December 2018). Granted, salaries vary significantly based on experience level, occupation, educational attainment, and location. Some college graduates in professional, technical, and management occupations earned an average of $65,000 annually. Others in service-related industries earned an average of $30,000 annually. No matter how much we are making, we are living paycheck to paycheck. It’s stressful.

In larger cities like New York, Atlanta, and Washington, DC, jobs tend to pay more and are often adjusted to cost of living increases vs more rural areas like Tampa, Florida. With that said, it’s important to remember it is not just about what you earn, rather than what you keep in the end that counts. There are plenty of professionals in their 40s with reputable careers, awards, and accolades making over $130,000+ annually. Unfortunately, life tends to move quickly and even they have less than $100,000 in retirement savings while living paycheck to paycheck. *Shockingly

Here are the first steps to reevaluate what’s going into, and what’s coming out of your bank account. The top 3 steps on how to use your paycheck:

1. You Aren’t Saving Enough

Nearly 40 million working-age households (45%) do not have any retirement savings. The average household with retirement savings has $60,000 saved. A quick test, by Age 30, you need at least 1x your salary income saved. So if you are making $50,000 a year, instead of having a birthday week celebration or a full travel excursion to Bali consider if you are on the right track (with $50k+ in savings) or the wrong track. By age 35, it’s 1.5x saved. By age 40, it’s 2x saved.

Savings order of operations for rookies: 1) Matching any available 401k, 403b, or 457b at your job, 2) Basic savings of 1x month expenses (min $1.5k), and 3) High-Interest Savings of 3-6 months (min $5k). Once you accomplished that, make the upgrade to take full advantage of the tax benefits associated with your contributions to your 401k (or the like). It can reduce your taxes, however, you can only contribute up to $19,000 annually (+$6,000 if older than 50). If you want to ensure that you aren’t living a life of struggle, it’s time to make the adjustments.

According to a survey done by Transamerica, among those with retirement accounts, here is what the average American has saved so far:

At age 25: $16,000

At age 30: $45,000

At age 40: $63,000

At age 50: $117,000

At age 60: $172,000

2. Understanding and Adjusting Your Withholdings

You likely asked HR about the Federal W-4 Form and you signed just about anything in there. In simple English, the W-4 tells the government how much money they should hold from each paycheck so that they can use it later to offset your taxes. For most of the middle class, a tax refund is just your money back for taking too much throughout the year.

While some fake experts would instruct you to limit the takeaway to $0 throughout the year, I would warn you that it might be easy for most people. By April of the following year, I would rather have paid too much and get money back, rather than paying too little and owing money to the IRS. You can end up owing more than $2,000. You likely blew it already.

For help, please use the IRS’s Tax Withholding Estimator.

3. Money Management

With the rest of your cash, start prioritizing your money. Automate your worries away. Know the difference between your needs and your wants. Find a budget that fits you. There’s the 80/20 lifestyle where 80% of your income covers your spending and 20% goes to savings/investments. The 20% savings includes retirement savings, emergency fund savings, and getting out of debt.

You can also try the 50/20/30 Budgeting Rule where 50% of your income covers your essentials, 20% covers your savings, and 30% covers your personal lifestyle. Your essentials are those expenses that you have to pay. These are typically your housing, utilities, food, transportation costs (for work), etc. While most experts generally say save at least 10% but that’s because most people aren’t saving anything at all. 20%+ is the best approach. The last category which differs from person to person is “Lifestyle”. This category completely discretionary and likely the best place to make adjustments. These personal lifestyle expenses include your cell phone plan, internet and cable bill, subscriptions that you likely don’t use, and trips to the coffee shop.

Experts would say cut eating out (great advice), however, I have another mathematical solution. It can cost you over $300 more per month on eating out, but you can save $500 – $600 per month if you switch up your living arrangement. Get a roommate and cut a big piece of the pie.

Takeaways:

You don’t have to live this way. You deserve better than the paycheck to stress cycle.

I cannot tell you what you should do with your life. Better yet I won’t, however, I can advise you on the things that you might be doing wrong and the things that you might be doing right. Your Personal Finances are “Personal”. USA Today reported that “the average American is struggling to make ends meet each month, with 59% of U.S. adults saying they live paycheck to paycheck, according to a recent survey from Charles Schwab. Furthermore, nearly half of survey participants say they carry credit card debt and struggle to keep up with the payments.”

If you want to change that, you have to take the right steps as soon as possible. Tune in next week for more financial lessons and dives, right here on www.lunionsuite.com. Until then Share, Inspire, and Discuss all things money with your friends and family. Unlock generational wealth. Ann Palé Kob.

Bonus Resources from the author:

Between Mint.com and Personal Capital, I’m gonna go with Personal Capital because A. they give you $20 Amazon gift card with my referral link (once you complete it), B. It’s what the big CEO-types use. Why not? No matter how you slice it, it’s FREE to use. https://lnkd.in/dD9K_-5. Additionally, download and print out the NetMax Plan that help me go from NEGATIVE $110,000 to POSITIVE $200,000 in net worth in 5 years. We also have them for NetMax Plan – Single Parents, and for NetMax Plan – couples.