One of the scariest things financially is relying completely on your next paycheck to pay for food, shelter, and utilities. However, 4 out of 5 Americans live paycheck to paycheck. This was highlighted by the government shutdown in the United States at the start of this year. Since many people were living without a safety margin, they were forced to immediately go into debt for basic needs.
Of course, this isn’t ideal and it’s not a situation that anyone plans on.
To get out of this paycheck to paycheck cycle, it helps to build a little bit of a safety margin into our monthly expenses. For instance, if we make $5,000 per month, we absolutely can’t spend $5,000 per month. Spending our entire paycheck on our monthly expenses will make it impossible to get ahead financially. This will also guarantee that we will go into debt when we incur any type of emergency, whether big or small.
Emergency expenses
If you own a house or a car, you know as well as I do that expenses tend to pop up. As a matter of fact, as I sit here and type this, a heating and cooling guy is over at my house adding coolant to my air conditioner. This obviously wasn’t an expense that I planned for at the start of the summer, but it is something that I want to have fixed. If I spent every dollar that I made and didn’t have any type of emergency fund, then I would only have a couple of options for this air conditioning repair.
- Pay for the repair with a credit card, payday loan, or other type of debt.
- Work more.
- Don’t get the repair.
Unfortunately, every single one of these options have some problems. Obviously, we don’t want to go into debt every single time something breaks. We may also find it difficult to work more if we have a job that doesn’t offer overtime and don’t have any side hustle income.
Of course, this leaves us with the third option of not getting the air conditioner repair. Here in Michigan, I may be able to get away with this option, but it is tougher to do in warmer climates.
Again, if I don’t have a safety margin in my monthly expenses, then even a small expense such as an air conditioner repair can be impossible to pay for.
Fortunately, there are a lot of ways to build safety into our monthly expenses. And usually, it all starts with spending less money.
Spending less
One of the easiest and quickest things to implement is spending less money every month. When we spend less money, there are a whole list of possibilities that opens up for us. We can save for retirement, set up a travel fund, build an emergency fund, or plan for other huge expenses that will inevitably happen.
Since my expenses are less than my monthly income, I automatically have a built in safety margin every month. This means that I don’t even need to access my emergency fund if I have emergencies that pop up. Instead of accessing the emergency fund, I can make sure that my expenses stay less than my income by doing the following:
1st: Stop contributing to our travel fund. We like to set aside money every month for future travel expenses. Even though it’s nice to set aside this money, it isn’t actually a need. Therefore, stopping this contribution for a month or two is easy to do when emergencies pop up.
2nd: Stop contributing to our fixed expense fund. We currently set aside some money each month to pay for future large expenses. These expense include car purchases and large home repair or remodel expenses. For instance, we know that we will need a new roof one day for our house. This fund will allow us to pay for it without debt. Since this fund isn’t needed today, we can forego a contribution to pay for a monthly emergency.
3rd: Stop contributing to our retirement fund. This is a more extreme measure, but I’d rather stop contributing to our retirement fund for a month than be forced to use debt to pay for an emergency.
Since our monthly expenses are less than our monthly income, we have three levels of safety built into our monthly expenses before being forced to rely on debt to make a necessary repair.
But what if our monthly expenses are already close to our monthly income level? If we have already cut our expenses as much as we can, then we should be looking to increase our income.
Increasing our income
Just like decreasing our monthly expenses, increasing our income also can give us a bit of a cushion and add some safety to our finances.
I know that a side hustle may not be for everybody, but it can often serve as a great way to build a monthly safety margin. Whether we start working a part-time job, increase our hours at our full-time job, or start a new business, we can usually increase our income within just a month or two.
So remember, if you make $5,000 per month, then you absolutely can’t spend $5,000 per month! Instead, you must build a bit of safety into your monthly expenses.
How are you building safety into your monthly expenses? Make sure you let us know in the comments below.
And, as always, thanks for reading!
~Nathan
Let’s keep living a great life … with the help of money. So what’s next?
- You can travel for free by using rewards credit cards.
- You can get motivated and get out of debt.
- You can check out the next post or the previous post and continue to learn.
But no matter what you decide to do, let’s leave the ordinary behind and take action today!
