Tip:
Highlight text to annotate it
X
Hello and welcome to Ask USAA.
I'm Scott Halliwell, I'm a certified financial planner
here at USAA, and this is our featured question.
Our question today comes to us from [? Tesh ?].
And unfortunately, [? Tesh ?] is facing a situation that's
familiar to far too many Americans these days.
She says, I'm living paycheck to paycheck.
What can I do to fix this and how?
Well, the good news, [? Tesh, ?] is that with a
fair amount of effort and some planning, this is a situation
that typically can be fixed because what we're talking
about here is cash flow.
When you have a cash flow problem, two ways to fix it.
You can either increase your income, or you
can reduce your expenses.
Since most people can't just decide to go out and increase
their income, let's focus on the expense reduction side of
this equation instead.
I have a five step process that I like to identify, walk
people through, for helping them get their
expenses under control.
The first step of this process is to know what you spend.
To do this you need to track your expenses.
I don't care if it's a notebook on your nightstand,
or a piece of paper on your refrigerator, a software
program on your computer, whatever it is, you need to
know what it is that you spend money on on a regular basis.
And here's why, our second step of this process is to
take that data that you've collected and divide it into
two categories, those being needs and wants.
Needs are those things that are necessary for basic
functioning in our society, things like food, clothing,
shelter, reliable transportation, maybe child
care for children if that's an issue for you.
Bottom line, things that you absolutely have
to spend money on.
Everything else falls into the category of a want.
And believe me, there's an awful lot of things in that
want category.
I certainly understand that.
But it's important that you categorize them like this
because our third step is to look at those wants and figure
out what can you cut back.
This is really where we start to get ahead of the curve and
where you really start to feel like you're not living
paycheck to paycheck.
Because cutting back those wants is where you're going to
free up money that you can begin to save
on a regular basis.
So you have to identify the needs and wants, and then free
up the extra cash so that you can put it into savings.
Once you have that, our fourth step of this program is to
create a budget.
That budget is going to say here are my needs, here are my
wants, and here's what I'm going to save
on a regular basis.
Step five, and this is a critical step, it actually is
to save that money first.
I know I mentioned it last, but that's not the way it
should work.
You want to say this is what I've identified that I can
save, so I'm going to save that on a monthly basis before
I spend money on everything else.
This is really then how you begin to build your emergency
fund so that you've got money available when life throws
those curveballs at you.
So there you have it.
In summary, there are five simple steps for you to help
build your financial security.
Know what you spend, identify the wants versus the needs
within that.
Cut back on those wants, create a budget.
And then above all things, save money first so that
you've got money set aside in the bank.
Obviously, if you're working with a clean slate this is an
awful lot easier to do than if you've already put yourself a
bit behind.
But regardless of the starting point, this can be done.
I always tell folks this, think of it this way, the
short term pain that's created by going through this process
I've identified is typically worth it for the lifetime of
gain that it can create when you've got a solid financial
foundation in place.
So thank you, [? Tesh, ?] for your question.
I really hope this answer helps you get
things squared away.
And I appreciate the opportunity
to give you my thoughts.
Best of luck to you and I wish you all the best.