Financial Foray

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Saturday, September 30, 2006

Paycheck to Paycheck

Living paycheck to paycheck has been a major issue of mine since graduating the University of Maryland (GO TERPS!) and entering the real world. I am paid on a bi-weekly schedule and I tend to spend all of my money within five days, including funds ear-marked to pay bills. Subsequently I must tap in the savings I direct deposit each paycheck to cover my monthly expenses. This ultimately keeps my savings low and when a big or unexpected expense comes along, and they come too often, I must use a credit card. This negative cash flow cycle is sending net worth the wrong direction. I know I am not alone with this problem, it is probably the largest issue facing individual wealth today. I have been playing with a few ideas on how to escape this trap:

1) Just make more money. Not as easy to accomplish as it is to type.
2) Cut back on expenses. Very, very difficult when you are planning a New York wedding
3) Develop a better cash flow system. I need a system that will help me from raiding my
savings while covering all needed expenses, and still enjoy life.

The first will take care of itself over time. I am a dedicated and hard-working employee and I am confident my paycheck will rise in time. The key here will be to roll the extra money towards savings and eliminating debt. Also I consider myself opportunistic and I am always on the prowl for a better employment opportunity that will advance my professional aspirations and fatten the paycheck.

The second step is the most difficult. I have a lot of extra expenses right now as I am getting married. However, I have cut back where I can. No more Dunkin Donut coffee breaks or splurging on shopping sprees.

Step three, developing a cash flow or budget system that will pull everything together and make it work. I think the most important step is to pay myself first. I have set up an automatic 401(K) and a direct deposit into my savings at ING Direct. I plan to increase both over time as step one takes care of itself. In addition, I now separate all monthly expenses in half and withdrawl that amount from each paycheck, placing it into a separate ING Direct account and pull the funds when needed. As I am on a 26 paycheck a year cycle this will hopefully allow two paychecks worth of expenses to be added to my personal savings.

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