Tuesday, August 21, 2007

How will I know when I'm off the treadmill?

When I looked at my finances at the end of April, I realised that my savings would not be able to cover the loss of a single paycheque. I've often heard numbers thrown around about how many North Americans are "less than a paycheque away from living on the street", but it was shocking to say the least to find myself in that position.

Trent at The Simple Dollar has a great post on getting off the paycheque-to-paycheque treadmill. The gist is that, when you have at least one paycheque saved in the bank, and are spending less than you make, you are "off the treadmill", and no longer living paycheque-to-paycheque. I really like this post, because although the goal he describes would not exactly make one financially independent, it represents a huge step in the right direction. I've found that that first step, from doing nothing to doing something, makes all the difference.

I'm not yet at the point that Trent describes, but I am spending less than I make, and I have several hundred saved in my Emergency Fund. I'm on the right track. However, I still find myself "riding out" the last few days before my next paycheque, and counting the pennies until that next influx. Although I have a positive savings rate, I still feel like I'm living paycheque-to-paycheque, and I'm wondering whether this feeling will ever actually go away.

I think the problem is as follows: with every paycheque, I first transfer my savings to ING, and then earmark the money that needs to go to bills and debt repayment. Good so far. Then, with what's left over, I cover my expenses for the next two weeks. In this "other expenses" category, however, I always spend every dollar, so there's never anything left over, and I'm always counting down the days until my next paycheque. I'm technically following the rules, but I still feel as if I'm spinning away on that treadmill.

I believe that, as I get more and more practice with frugality, and as my savings grow and my debts shrink, I'll feel this pressure lift, as the habits become more ingrained. I just hope I'll recognise the feeling when I get there.

What's been your experience? Have you lost that paycheque-to-paycheque feeling, or have you just learned to manage it better?


SavingDiva said...

I'm still on the treadmill. I feel like I always will be. I have a hard time saving money. I do spend less than I make, but I have to automatically save (and not have access to the money). I have no willpower. I'm struggling to stick to my budget...

Canadian Dream said...

You know what might help is if you put your monthly budget and let use PF bloggers poke holes into it. You might be sitting on some places to save that you haven't thought of before.

As to combat that feeling of running out of cash I take my cash out twice a month for spending. That way two 'going broke' days in the middle and end of the month are easier to take then four 'going broke' days at the end of the month.


George W. said...

I've been in the same situation for the past few years now - positive savings rate, mortgage slowly being paid down, but every two weeks (right before payday) I'm feeling broke. I've become used to the feeling, and it's comforting to know that when other people are "broke" it's because they really are - when I feel "broke" it's temporary, and I have money socked away for my goals.

Over time your expenses should go down, and your income should go up, giving you a bit more breathing room.

JSan said...

wow! I could not have said it better myself. I have the same feeling. Can you ever really get of that tredmill feeling.

I'm currently working on a similar plan. I save every bi-weekly pay. I have calculated what I owe per year for a bill then divide by 26 to get the amount per paycheck to save. Once I have enough to cover a bill for one years pay that bill is no longer part of the treadmill. I save for the next bill. Once all my bills are saved up in this way I will be off the treadmill.

I will still be putting out the same amount per pay but if I miss one or loose my job the bills still would be getting payed therefore I have some wiggle room.