If You're Living Paycheck to Paycheck, This Episode of Money Confidential Is for You

More than half of Americans are living paycheck to paycheck—and even many with comfortable salaries find themselves unable to save and get ahead. That's the issue for Nicole (not her real name), a 39-year-old college professor in Florida who finds that her paychecks slip away quickly—especially with expenses for her kids.

"It's just endless," Nicole says. "It's the end of the year—there's teacher gifts. And then, oh, my daughter wants drum lessons, so let's see if we can get drum lessons going. And then it's like, the one kid needs shoes. OK, we gotta buy the shoes."

Nicole knows that there are some ways to cut back, but isn't sure that they're worth it. "We could live a very simple lifestyle, but my husband and I both work hard, we do make good money, and so it's like, are we supposed to live for 10 years in this monastic lifestyle where we're all like eating ramen noodles every day? I don't want to do that."

The key to breaking the paycheck to paycheck cycle is finding that sweet spot—where you are able to pay for things that bring you joy, but still get ahead with your finances.

—ALlison Baggerly, host of the Inspired Budget and This is Awkward personal finance podcasts

And for financial expert Allison Baggerly, host of the Inspired Budget and This Is Awkward personal finance podcasts, and founder of Inspired Budget, it all comes down to one word: Budget. "It's a balance," Baggerly tells host Stefanie O'Connell Rodriguez. "Whenever you do spend money on the things that you love—writing a budget allows you to spend money on what it is that brings you joy. Sometimes that does mean delaying other things like saving money. Sometimes we could save a little less one month and then really ramp up the savings another month. That's the joy with budgeting—you can make it fit your life."

Baggerly spends five minutes every day going over her spending, and slotting it into her budget, to make sure she stays on track, and prioritizes her spending so she's putting her money toward what really matters to her. "I think it's important to realize that not everything is a priority," Baggerly says. "So being able to step back and look at what is a priority right now for this month, let's have that be number one. Then if I have leftover money in my budget, what's coming up? That's going to take off the stress, the pressure, and really it's going to help her budget work better."

To get the full story on how you can use budgets to help you get ahead (and stop living paycheck to paycheck), check out this week's Money Confidential podcast, "I make a lot of money, but I can't stop living paycheck to paycheck," available on Apple podcasts, Spotify, Amazon, Player FM, Stitcher, or wherever you listen to your favorite podcasts.

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Transcript

Maggie: I've written myself off as someone who's bad at money. And I feel like that's prevented me from being good at it.

Lexi: I got a good degree from a top business school and I do have a good job, but I just feel like I'm never going to be able to like save money

Annabelle: I would like to just feel like freedom, like not to be worried about my finances constantly and know that my money's working for me and that I have it when I need it.

Stefanie O'Connell Rodriguez: This is Money Confidential, a podcast from Real Simple about our money stories, struggles and secrets. I'm your host, Stefanie O'Connell Rodriguez. And today our guest is a 39-year-old college professor from Florida we're calling Nicole—not her real name

Nicole: When I was growing up I had sort of this perception that money was an unlimited resource. When I had my very first professional job I was making pretty good money, and I would run out at the end of every month and I would have to call my mom and she would have to send me money for gas and she always would, which was fantastic. But I still didn't really learn that money was limited.

And so within the last decade, I've really been trying to rewire the way that I think about money and it's a constant struggle.

Stefanie O'Connell Rodriguez: What was that turning point that really made you think, oh, wait, I need to really change this relationship?

Nicole: The first was my husband. He had a very different upbringing, and he has a different relationship with money than I do.

You know, as an example when I was starting law school I took out the absolute maximum amount of student loans that I could possibly take out.

And I had like a moment when I was like, oh, should I not? And then people said like, oh, you're going to be making money. Don't worry about it. Just take out the loans. And so I am in severe debt for those loans.

Stefanie O'Connell Rodriguez: After making payments on her student loans for the past 15 years, Nicole's total student loan balance still sits at nearly $200,000. While both she and her husband earn a good amount of money—between their living costs, student loan payments and the costs associated with raising their four children—Nicole still feels like she's stuck in a cycle of living paycheck to paycheck.

Nicole: The most helpful thing for me is having a limited amount of discretionary spending and that's very difficult to do but saying, you know, a hundred dollars for groceries and so that's exactly how much we have and trying to use cash more often.

But it's very difficult to do that if we're buying groceries online and then you can't use cash. So we have this system, but it's like, things always come up.

It's just endless. It's the end of the year. And so, oh, wait. There's teacher gifts and I have an army of children and so I have to buy teacher gifts for all these children. And then, oh my daughter wants drum lessons, so, okay. Let's see if we can get drum lessons going. And then it's like, oh you know, the one kid needs shoes.

Okay. we gotta buy the shoes, you know? And those are sort of like needy needs type things, but then it's like we want to have a big party for the end of the year and have people over because it's been such a hard year and we would love to celebrate, but that takes money.

So we have wants, and then we have wants that are sort of like clothed in these needs. And I just don't know how to get a handle on that because there's so many. It's constant.

We could live a very simple lifestyle but then there's part of it is that my husband and I both work hard, we do make good money. And so it's like, are we supposed to live for 10 years like in this monastic lifestyle where we're all like eating ramen noodles every day. I don't want to do that.

Stefanie O'Connell Rodriguez: It sounds like you feel like you're living beyond your means, but also the advice that you're getting suggests that the only other alternative is this monastic lifestyle

How do we get to an in-between that's sustainable?

Nicole: I have thought about how do I align what I'm saying yes to, with my values. For example, I have to work for three weeks, while my kids are technically in summer. And so I had to pay for camp for three of the kids. And it was $200 a week per kid. But I could have chosen the Y, which is a lot cheaper but then what's my value?

It's to make sure that my kids have this good experience. And so that's worth putting my money towards.

And then also the compulsion for groceries, I feel like I want to be making a nice dinner for my family every night.

But could I really just make chicken nuggets and french fries every night and my kids would love it instead of like the egg roll bowl that I made the other night. And they all were like, this is gross. I don't want to eat this. You know?

Stefanie O'Connell Rodriguez: I'm noticing this pattern when we're speaking where it's like I'm either gourmet splurge or I am frozen meal, and I feel like we're really missing this in between. And I think it is the fault of people who've been peddling advice that you can't have a latte if you're going to be financially responsible and it's set up this binary, that's just not true.

Nicole: Yes, I think you're so right! I do have that feeling like I cannot buy that latte because that's irresponsible.

Stefanie O'Connell Rodriguez: Nobody wants to live through a framework of being told what they cannot have. Of course I want more money and more savings but it's not super motivating in a way that me saying, oh, what I really want to do is save up to take my kids on a road trip at the end of the year making trade offs in the moment with that in mind becomes much more sustainable on a day-to-day level than just I'm gonna not do this because I can't afford it. Or like, I shouldn't.

Nicole: You're so right. Because what it is now, is "okay, well, if we can budget in this way, then we can put more money towards my student loans." I don't want to do that.

But next year I want to take the kids to Europe and spend six weeks and live there. And so that's going to be flights and room and board. And so if I can set that up now and start working towards that. That's very attractive.

Stefanie O'Connell Rodriguez: How does it feel when you spend money?

Nicole: So honestly. How it feels it makes me feel a little nervous.

Yeah, like when I'm hitting buy online, like buy now or add to cart or all of those things I get that feeling in the pit of my stomach. Like, oh, I hope this is okay, because I don't know.

Stefanie O'Connell Rodriguez: How does it feel after you buy?

Nicole: I don't usually have buyer's remorse. because it's normally ok. The money comes.

Stefanie O'Connell Rodriguez: I would be really interested for you to keep a spending journal. Not just tracking your spending in a spreadsheet, but tracking what you're feeling in the moment kwhen you make those decisions.

What we're finding here is you don't have any problem with the math. And you're earning good money. So this is an emotional thing. What makes it hard about the emotional part of it is it's not like a playbook. It's not something that what works for me will work for you.

The only way you can figure out what the pattern is, is if you really figure out what's the trigger for me. And it's probably a bunch of things. It might be a feeling of obligation. For me, it's like when I'm hungry, forget it. When I'm hungry and tired, I will spend all the money in the world to make something go away.

Knowing that about myself, what are the failsafes I have in place? And I think for you, part of this might also be upping your automations. So if you've already saved more money, that gives you less disposable income that you can freely spend.

And then that savings is there. If you need to tap into it. It's there. You can use it to pay bills, but if you get more of it into a savings account, out of your checking account, it'll force you into different behaviors.

While there are financial steps you can take to help break the cycle of living paycheck to paycheck, there are at least as many emotional aspects to consider. Feeling like a failure. Feeling like "less than" as an adult or as a provider. So after the break we'll talk to a personal finance expert about what it takes to stop the paycheck to paycheck cycle—both financially and emotionally.

Let me start with a very complex question. Why is it so hard to budget?

Allison Baggerly: Oh, you know, money is emotional. If money was just math, if emotions were removed from the situation, then budgeting would be super simple, but money is emotional.

Stefanie O'Connell Rodriguez: That's Allison Baggerly, founder of Inspired Budget and host of the Inspired Budget and This is Awkward personal finance podcasts.

Allison Baggerly: So a budget includes your income minus all of your expenses. And I think some people think that it's just my rent or mortgage, electricity, utilities and food, but it should include everything. It should include budgeting out money towards investments and retirement it should include money that you're saving for vacations. It should include money that you're saving for Christmas. So a budget is essentially your spending priorities on paper.

Sometimes we write budgets that are completely unrealistic to our current life. We're almost writing them for the people we want to be. When instead we need to just be writing them for the person that we are and accept who we are today and write a budget for that person.

Stefanie O'Connell Rodriguez: What if the person I am today just wants to spend all my money on takeout?

Allison Baggerly: I mean, it's a balance. It's a give and take, right? Whenever you do spend money on the things that you love, which you totally can and writing a budget allows you to spend money on what it is that brings you joy, what brings you happiness. Sometimes that does mean delaying other things like saving money.

So there's no hard and fast rule that says that you can't do both. Sometimes we could save a little less one month and then really ramp up the savings another month. That's the joy with budgeting is you can make it fit your life.

Stefanie O'Connell Rodriguez: To your point, setting a budget around who I am, aspirationally who I am in a perfectly rational, perfect world in which I do everything according to the rules of money to best optimize my bottom line.

But none of us live in that reality. So what are the strategies that are effective for making it work for you on a day-to-day level?

Allison Baggerly: So when you work on your budget once and you put it in a binder or you leave it on a spreadsheet that you never open, or you're never looking at it.

No one's going to stick to that because it's not in the forefront of your mind. A budget needs to be in the forefront of your mind. What I do is I track my expenses every single day and I match up to my budget. Am I meeting my goals? If I'm going crazy on takeout, then I need to go in and actually alter my budget, to account for my past money choices that I've made. And how can I work my budget to hopefully still be able to reach my goals, but also live that life and accept that there's going to be times when I want to go out to eat instead of cooking dinner at home. And that's ok.

Stefanie O'Connell Rodriguez: I do know that this has not always been the case for you though. I know that you, at one point, you and your husband were in six figures of debt and you paid it all off in four and a half years. So what did that look like?

Allison Baggerly: My husband and I found ourselves in a situation where we started budgeting based out of fear. I would love to tell you that it was because I wanted to be a better person and I wanted to invest and retire early.

But no matter where we started, we got here to where we are today. Not because of fear, but because of consistency. And we started writing budgets that allowed us room to pay off all of this debt on two teacher salaries. And it's because of that consistency, not because of perfection, we were able to really truly make a huge financial change in our life that otherwise we would not have been able to do.

And when I talk about budgeting, I think so many people assume that it's a nuisance, but truly to me, budgeting began as a nuisance, but has turned into my ticket to freedom and my ticket to being able to do things that maybe the world otherwise told me no, I'm sorry. You don't fit in this box of people that can achieve these things. And budgeting allows me to say, 'No, I don't agree with that.'

And I'm gonna do what I want with my life. I'm going to reach to my money goals.

Stefanie O'Connell Rodriguez: How long did it take for you to feel that change from budget, feeling like a nuisance to it feeling like this tool that enabled freedom?

Allison Baggerly: I would say probably at least like seven or eight months. It's not something that's going to happen right away.

I had to unlearn all of these past money habits that were truly harming me and create money habits that were helping me. And there were times I didn't want to do that. And writing a budget was one of them. I didn't want to feel controlled.

And it wasn't until I really started seeing progress, started seeing loans pay off, started seeing, oh my gosh, if I just continue to write a budget, which just, it's essentially just a boundary that I have set for my money and hey, boundaries are healthy.

If I continue to enforce this boundary in my life, then we can do incredible things.

Stefanie O'Connell Rodriguez: How do you make yourself stay with it during those first few months? What is it that kept you coming back and having faith in the process?

Allison Baggerly: I really was very careful with the content I consumed. And honestly, I was driven out of fear, fear because we didn't have enough money to pay for our upcoming baby's daycare. Ultimately something had to change or else we would continue to be living beyond our means every single month and our baby—we wouldn't be able to put him in daycare.

So for me it was having a drive that was bigger than myself, and then really picking and choosing what I surrounded myself with. So when there were moments in those first seven, eight months, when I thought is this really worth it, I would go online and I would be Googling, money stories, money wins.

I was reading books that would keep me motivated when social media and my past self and everything was telling me to do something different. I was then saying, okay, well, anything I bring into my life, let me make sure that it allows me to focus on those bigger goals.

Stefanie O'Connell Rodriguez: I really like this because one of the things that I think is really tough is changing your financial habits when the world around you is reinforcing your status quo, but if you use the internet and you use books and podcasts, you can create kind of your own soundscape.

One of the things that's interesting about this story is this listener really doesn't have so much of an earning problem. But she really does struggle with the spending side and overspending and sticking to a budget. And one of the things that came up for her is things always come up.

She has children, so obviously a lot associated with that teacher gifts coming up, drum lessons, summer camp, kids outgrowing shoes. How do I account for all of these things that come up within a budget?

Allison Baggerly: I think it can be so easy to think that everything is a priority when it comes to our kids. You want to give them everything that they want and need, but not everything is equally important.

As a mom I want to do right by my kids. I want to give them maybe what I didn't have. I don't want them to go into therapy saying, mom, didn't buy me new shoes.

I think it's important to realize that not everything is a priority. So being able to step back and look at what is a priority right now for this month, let's have that be number one. Then looking back, okay. I have leftover money in my budget. What's coming up? That's going to take off the stress, the pressure, and really it's going to help her budget work better.

It sounds like this mother loves her children very much. And that it sounds like this is a mom who wants to show her love for her kids in the way that she takes care of them and the way that she feeds them and the way that she makes sure they have access to the best schools all the drum lessons, music lessons, sports lessons they want. And I think sometimes it's okay also to remember that you can love your kids that way, but you can also love them well and not go into debt, loving them. And that I think is a hard thing for a mom.

But there is a balance in terms of feeding them healthy meals. And then, you know, having one day where you do give them the DiGiorno pizza because it's easy on you and because ultimately doing that and having balance in your life, it won't hinder them.

It will teach them that not everything has to be perfect, that we don't have to spend money on everything and that there are other things to save money for. And that's good.

So I think that as moms, sometimes we can easily equate spending money with love and that's not the case. And so when you can step back—and it's so hard to step back, I totally get it, it is hard—but when you can step back and even get the kids involved and say, look, mom and dad, we want to be able to save for X, Y, and Z.

We want to be able to save for our retirement that way y'all don't have to worry about it. And, you know, we can take our grandkids out and do fun things, but something has to give. We have to find ways as a family unit to work together, to find something to free up some extra wiggle room in the budget.

And I think that empowering age-appropriate children with that conversation. A lot of people don't want to do it because there's fear involved. What if they think we're poor, but when had correctly, openly, honestly, in a positive environment, it can empower them to realize, hey, you know, I might have to make these choices when I'm older as well.

And here's how mom and dad did it. And here's how I can do it whenever I get older.

I think that it's very important to realize that the thoughts that enter our mind about money can lie to us. They are not all true. And when you've been believing these thoughts for 40 years, about money, I will always be in debt. I will always have loans. I need to spend money because you know, this is important for my family because this is the right thing to do.

It can be very difficult to realize that those thoughts are lies because they are lies masked as love. They are lies masked as love saying that I need to spend all of my extra money on my kids and not save for myself and retirement or pay off $179,000 worth of student loans is a lie masked as love.

So when you can have the thought into your mind, what I tell the people that I work with is to realize, is this thought true? Is it true that she has to spend $800 a month plus or whatever it is that she's spending on her children. Is it true? No, she can take some things out.

And then when she is doing something like buying something, do I need this item? Right? You said she shops online. I need to buy this item. Do I need it? No. The thought I need this item, does it serve me? No. And so I tell my students to say does this thought serve me. It does not serve me.

It is not welcome here. And to say that over and over again, is this serving my goals? If it does not serve my goals, it is not welcome here. And to repeat that, but it's a process because you have been thinking this way for years on end. So it's not this easy, overnight, flip a switch. Like you want it to be, unfortunately, that's not the truth here because money is emotional.

Stefanie O'Connell Rodriguez: I think it's a really important message to think through the framework of the process. How do we learn to love that process?

Allison Baggerly: I think that doing it over and over again and realizing the freedom that it brings you, the freedom, the control, the boundaries that it gives you because ultimately the process is just a process until it becomes part of who you are. Until it becomes part of your identity. So there's going to be a period of time where budgeting, writing a budget, managing your money better, it's just a thing you do, but over time, it's no longer going to be a thing you do, it's going to be who you are. You are a person who manages money. You are a person that budgets to support your future.

You are not writing a budget, you are a budgeter. I know Stefanie that you're a runner and you, when you say that, you know, oh, well I just go on some runs every now and then.

No, you are a runner. It is who you are. It's not a thing you do. And the same can be true about money and budgeting. Is it fun? Is it as fun? Probably not. Right. Can it be as impactful in your life? Absolutely. So giving yourself that time to go from it, just being this thing you do to ingrained in your identity will allow you to no longer make it to where it's something that you're like, well, I'll just start over next month. Oh, I didn't stick to it this month. So, you know, maybe, maybe I'll start over in January. That's no longer an option because that's not who you are.

Stefanie O'Connell Rodriguez: Now as you are going through the process of getting to that point of having it really feel part of your identity, how do you make it sustainable?

Allison Baggerly: Five minute check-ins, 10 minute check-ins, everyday or even every other day makes it to where it is something you are practicing. And when I say check in what I mean is looking at your spending from your last check-in totaling up what you've spent in this budget period, and ask yourself, does it match? If it matches, great! Keep going.

If it does not match, we need to make a little change. To make sure we don't go over budget and we can still meet those goals. It doesn't have to be complicated, but when you don't do it, that's when you give yourself permission to stop. But when you're checking in every other day or every two or three days, that's when it really does become a part of you.

And I recommend not waiting, you know, two weeks, because then it's this huge ordeal, right? Tracking all of your spending for many, many days. And checking in on your budget. When you wait and you only do it every now and then it's a huge ordeal and you don't look forward to it.

You're thinking, oh my gosh, I have to stop and check in. Is it going to take me an hour? But I would rather do something that takes me three minutes, five minutes. And then spread that hour out over many, many times.

I think so many people don't do this because when you initially sit down, it might not be an enjoyable experience when you're in debt.

When you have a spending problem, it might not be enjoyable. However, you know that when you build these habits, you can get to the point to make little changes over time that snowball into amazing changes in your life. So sometimes when you start out, it's not always fun in those moments.

I hated budgeting. I never thought I would do it. I thought I'm only going to do this until we're debt free. And then I'm done. I'm done with budgeting

And now it's part of who I am. And just like you, I look forward to those moments. It brings me peace, but it didn't always bring me peace. And so allow yourself to understand that this is a process that as you continue working on it, your feelings toward it will change and welcome that change.

Stefanie O'Connell Rodriguez: More than half of Americans say they're living paycheck to paycheck—and like Nicole, many are highly motivated, hard working and in some cases, even well compensated. But breaking the cycle of paycheck to paycheck living is not just about the numbers on the page. While setting and regularly checking in with a budget is certainly part of the process, so is understanding why our spending goes off track and digging into the thoughts and emotional triggers that contribute to the cycle of paycheck to paycheck living.

Changing these patterns can take time. And making a mistake or experiencing a setback is merely part of the process.

More than perfection, it's the commitment to consistently practicing habits like budgeting and tracking your spending and interrogating the feelings and emotions around your purchases—that can help enable you to live securely and freely outside of the paycheck to paycheck cycle, and on your own terms.

This has been Money Confidential from Real Simple. If you have a money story or question to share, you can send me an email at money dot confidential at real simple dot com. You can also leave us a voicemail at ‪(929) 352-4106.

Be sure to follow Money Confidential on Apple Podcasts, Spotify or wherever you listen so you don't miss an episode. And we'd love your feedback. If you're enjoying the show leave us a review, we'd really appreciate it. You can also find us online at realsimple.com/MoneyConfidentialPodcast.

Real Simple is based in New York City. Money Confidential is produced by Mickey O'Connor, Heather Morgan Shott and me, Stefanie O'Connell Rodriguez O'Connell Rodriguez. Thanks to our production team at Pod People: Rachael King, Matt Sav, Danielle Roth, Chris Browning and Trae Budde.