Personal Budget Planning

When you spend all the money in your paycheck and have none (or very little) left over, you are living paycheck to paycheck. It’s natural to spend the money you have and you are not alone. When you live like this you place a lot of your life in the hands of your employer. You risk losing your car or house if your employer misses just a paycheck or two. You also give up the freedom of being paycheck independent. If you disagree with the ethics of your position, see something at work that gnaws at your soul, or hear opportunity knocking, you have to think twice about whether you can afford to make quick maneuvers.

So how do you get out of the paycheck to paycheck trap?

1. Create a budget that you can live within. When you are spending less than you are making, it is a natural function of time. If you stick to it, soon you will have extra money piling up.
2. Account for your money on a paycheck basis. Divide your bills into paychecks. I’m going to pay the credit card bill, utility bill, and auto loan with this paycheck, and the next paycheck I’m going to pay rent, cell phone bill, and student loans. This way you are not reliant on any backup funds, just the paycheck coming in.
3. Calculate how long its going to take to have a one month cushion saved up and track your progress. After you’ve setup a budget you can live within and monitored your money on a paycheck basis, you can easily see how long it’s going to take you to save that money. Keep yourself informed of your progress to help keep you motivated.

Once you’ve saved up a month’s worth of expenses, you’ve now reduced dependency on a paycheck by at least one paycheck. You no longer need to budget your money on a paycheck to paycheck basis and can look at your expenses from a month long distance. I view paycheck independence as having at least one month in your checking account coupled with a 3 to 9 month emergency expense. After you have a month, just keep on budget and soon you’ll build up your 3 to 9 month emergency fund without much effort at all.

So there are really two goals:

1. Build at least one months planned expenses as a cushion
2. Build 3 to 9 months planned expenses as an emergency account

Accomplishing the first goal of saving one months planned expenses allows you to easier budget your money. This is the first step to financial independence. After you have that cushion it makes working with your budget a lot easier. After that, saving 3 to 9 month planned expenses becomes painless.

More Resources:

StackBacks Automated Budget System

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