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Paycheck to Paycheck, Crisis to Crisis

Plan Your Way to Freedom

By Mel Clark, 2015

Table of Contents

SECTION 1: Introduction

SECTION 2: Why Should You Listen to Me?

SECTION 3: How Does it Look and Feel to Have Your Financial Life Turned Around?

SECTION 4: What is Money?

SECTION 5: Where Does Your Money Go?

SECTION 6: The Tracking Your Spending Process

SECTION 7: What Do I Do With It?

SECTION 8: Spend Less Money

SECTION 9: What Do I Do Every Payday With the Money Allocated to Expenses that Don't Get

Paid Every Payday?

SECTION 10: Creating the Emergency Fund

SECTION 11: Make It Automatic

SECTION 12: A Round "Toit"

SECTION 13: Pay Yourself First

SECTION 14: What About My Credit Card Debt?

SECTION 15: If You Don't Plan, You Plan to Fail

SECTION 16: Help! I'm Up to My Eyeballs in Debt!

SECTION 17: Stop Using Credit Cards

SECTION 18: Ask For Lower Interest Rates

SECTION 19: Transfer Balances from High Interest Rate Cards to Lower Rate Cards

SECTION 20: Repeat Until All Debts Are Paid

SECTION 21: What's Important?

SECTION 22: Managing Your Cash Flow

SECTION 23: Variable Income

SECTION 24: A Minimalist Lifestyle

SECTION 25: Insurance

SECTION 26: Getting a Raise

SECTION 27: Retirement Accounts

SECTION 28: Additional Uses for the Spending Tracking Spreadsheet

SECTION 29: Summary of Suggested Accounts

SECTION 30: Partners

SECTION 31: Final Words

SECTION 32: Further Reading and References

SECTION 1: Introduction

Living paycheck to paycheck, more like crisis to crisis, is very stressful. Where will the money come from to buy that new set of tires? To pay this doctor's bill?

It's depressing. It's destructive to your self-esteem. You feel inadequate. You're ashamed that you can't take better care of your family.

You don't even want to think about retirement.

There's Social Security, right? But will it be there for you? Will it be enough? Will you end up another bag lady or working until you fall into the grave?

You know you need to get control of your finances - your money. Right now, it's in control of you. But how to do it? It's hard.

Save for retirement? Don't make me laugh. With what money? Everything you make goes to pay bills.

I know how it feels. I really do. I've been there and done that - I've got the Tee shirt.

SECTION 2: Why Should You Listen to Me?

I'm a pretty smart guy with a couple of degrees. But that doesn't matter. A bunch of PhD’s, some with Nobel Prizes on a shelf in their den, caused the 2008 Global Financial meltdown and the 1998 meltdown as well.

And remember Timothy Geithner? Our former Freaking Secretary of the Treasury who testified before Congress that he failed to pay his income taxes because he couldn't figure out the Turbo Tax software package?

Not to worry though. It doesn't take a degree to get control of your money. The fact is, a degree doesn't even help very much.

Everything that's worth knowing about managing your money is pure common sense.

Definition: Common sense is a basic ability to perceive, understand, and judge things, which is shared by nearly all people, and can be reasonably expected of nearly all people without any need for debate even if they can’t explain why.

What is required is a little thought, and a lot of self-discipline.

And here's the rub. Common sense isn't all that common (especially among the PhD crowd) and self-discipline is rare indeed.

I'm not a Certified Financial Planner. I'm not a Certified Public Accountant. And, most assuredly I'm not licensed to sell you insurance, stocks, or mutual funds.

I'm a guy who's made most of the personal financial mistakes one can make and lived to tell about it.

I'm also a guy who's learned from my mistakes and who has educated himself about how money works by reading lots of books.

And, I've tested what I've read using controlled experiments with my own money. Some of what I’ve read I feel sure will work for other people, but it didn't work for me. Some of what I’ve read and tried worked really well for me.

I don't claim to have tried everything, nor do I know everything about money. I doubt I could get a job with the Federal Reserve.

On the other hand, I find that I actually know quite a lot that is both practical and usable by common, down to earth people who are trying to improve their lives.

Are the things that work easy and simple? Well, they're simple enough to learn and easy enough to do if you can exercise that bit of self-discipline required.

Want to know why I'm doing this?

I'm a little proud that I found the self-discipline and the knowledge to turn around my own financial life. And that feels pretty good.

I've also helped a small business owner who was deeply in debt turn around her business and get out of debt. And that feels pretty good too.

I believe I have something useful to share, and if I can help someone else turn around their life; why, I think that would feel pretty good.

Along the way, I'd like to sell some books. I think that would feel pretty good too.

So, how could I not write this book and hope that you'll buy it and turn around your financial life because of it?

SECTION 3: How Does it Look and Feel to Have Your Financial Life Turned Around?

Turning your financial life around doesn't mean life's a dream. I still have problems, believe me. Just ask my wife.

Sometimes she and I argue. I hate that.

Sometimes I don't like what I have to do in my job.

Often I have to put off buying something I'd really like to have because it's just not in the budget.

Occasionally, I have to completely dismiss the idea of buying something I want because, realistically, it's never going to be in the budget.

If I lose my job there's a limit on how much time I have to get another.

Sometimes our cars break down and sometimes the house needs a repair.

But ...

I can pay my bills without worrying that the check might bounce.

I don't have to choose which bills to pay and which to let go until next month.

I don't have to keep charging things on my credit card carrying increasingly higher balances from one month to the next.

I don't have to worry about maxing out my credit card limit.

I don't have to decide not to go to the doctor because there is no money for the insurance copay.

I'm no longer concerned that I might lose the house and I'm not in danger of going bankrupt (again).

There was a time when I worried about ALL of those things. Believe me, it was a huge relief when the burden of those worries was lifted.

It feels really good when you finally stop hitting yourself with the hammer - when you control your money instead of being controlled by it.

So, how do you get there from here? Follow the money!

SECTION 4: What is Money?

Before we start following the money, just what is money anyway?

What is it about these little pieces of green and white paper (and the ones and zeros that represent them in computers) that makes them worth all of the trouble?

Many people have been taught that money is the root of all evil. A subtle but very important error in quoting the Bible reference, "The love of money is the root of all evil."

Because of that error, many people think they are inherently bad if they what to have money, so they arrange to dispose of all the money that touches their hands.

They also justify their lack of money with the old saw, "Money can't buy happiness." And of course the old saying is true. Money can't buy happiness. However, the lack of money buys plenty of misery.

You hear people saying that others who have a lot of money are "materialistic" as if materialism is a characteristic of the rich and unvirtuous. My observation, is that no one is more materialistic than a starving man.

Lack, or as they used to say, "want", motivates envy, theft, even murder. "Plenty" motivates philanthropy and altruism. There are exceptions of course, but the rule holds far more often than not.

By changing your attitude toward money you will propel yourself out of "want" and toward "plenty".

So what is money? It is the stored value of your labor. It's the one thing that can be exchanged for most other things (a medium of exchange). It's a tool (capital) used to accomplish tasks great and small.

Often heard in the men's room of bars across the English speaking world are these words, spoken by some man as he stands in front of a urinal, "You don't buy beer, you just rent it."

Money is like that too. Money exists to be exchanged for goods. Money is accumulated in order to be exchanged for goods on some future date.

It is not evil. It's as necessary to civilized life as air and water.

SECTION 5: Where Does Your Money Go?

Do you know where your money goes? Unless you make a serious effort to track your money I assert that you don't really know where it goes.

Try and see. I dare you.

Right now get out a pencil and paper (or an Excel spreadsheet if you're so inclined) and write down everything you've spent money on in the past 12 months. You don't even have to know the amounts, just the categories.

You can download a free copy of my Spending Plan Workbook template by clicking here (link).

Follow the Money Example 1:

Finished yet?

Now to the right of the categories write your best guess of how much you spent in each category in the past 12 months.

Now add it all up and divide by 12 to get your guess for your monthly expenses.

Follow the Money Example 2:

Okay. Next let's do a little research.

Look at your checkbook and your on-line bank transaction history and write down all of the checks you wrote and all of the electronic transfers and "bill pays" that you made in the past 90 days. If you have more than one account, look at all of them.

On another sheet of paper (or spreadsheet) write them all down by category including the payee and the amount for each.

Now go on-line and capture all of your credit card transactions and write them down.

Then, think real hard about how you spend cash out of your wallet. Write down those categories too and make sure to estimate how much cash you spent over the past 90 days in each category.

Finally, add up the amounts from all of the categories and divide by three to get your actual average monthly expenses over the past three months.

How'd you do? Are all of the categories from the second sheet listed on the first?

I thought not. How close are the numbers? And, how does the monthly average compare to your monthly income?

If you did this exercise you've already got a leg up on tracking your spending. But, you’re not done.

Much spending is seasonal - think Christmas or the beginning of a school year. And, some spending is less frequent, like property taxes, income taxes or car repairs.

So, in addition to the data you've already collected you need to go back a full 12 months and pull those expense categories and amounts into your spreadsheet.

And, now you really do need to put it all in a spreadsheet. You will be using the spreadsheet quite a bit.

Follow the Money Example 3:

Again, you can download a free copy of my Spending Plan Workbook template by clicking here.

Your Spending History Spreadsheet (the "History" tab of my template) should have the following columns:

• Category

• Description

• Payee

• Date of Payment

• Amount of Payment

In addition to looking at history, start writing down the details each time you spend cash. Do this for at least 30 days to make sure you've captured most of the miscellaneous cash spending categories.

SECTION 6: The Tracking Your Spending Process

Here is the process in bullet format.

Tracking Your Spending:

• Create a "Spending History Spreadsheet".

• Review checking account statements, checkbook registers or your bank's on-line transaction

history and record each payment made in the most recent 90 days in your spreadsheet.

• Scan the checking account records back a full 12 months to identify payments made to payees

and categories that didn't occur in the detailed review of the most recent 90 days.

• Review credit card statements or the on-line transaction history and record each payment

made in the most recent 90 days in your spreadsheet.

• Scan the credit card records back a full 12 months to identify payments made to payees and

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