If you feel like you’re stuck in a rut, living paycheck to paycheck and worried that an unexpected expense could topple your financial situation, you’re not alone. The good news is there are little things you can do today to break the cycle, and no, I’m not talking about making a budget or cutting back on dining out (although those things can help).
Part of the escape from paycheck-to-paycheck living is a shift in your mindset. A little bit like Jedi mind tricks, one part of the solution is to change the environmental cues around us to encourage, motivate, and support mindsets and behavior that lead to better financial decision making.
Here’s what I mean in 3 different ideas.
Harness the power of pre-commitment
We tend to think of our future selves as a more perfect version of our present self. Yet like the popular phrase reminds us, it seems like tomorrow never comes. Pre-commitment will help you think about your future self by making a binding commitment today to save money from a future payday.
How to apply it
Next time you expect a tax refund, bonus, or pay raise, make a binding contract with yourself to save a portion of that money (remember, pay yourself first). Some ideas to implement that include:
- Use an app that lets you make savings decisions in advance such as Digit.
- Set a savings goal in percentage terms in advance of receiving your tax refund, and stick to it. For example, commit to putting 30% of your tax refund in savings.
- Establish a preset percentage or dollar amount of your bonus that you will set aside, and set it up before you get paid.
If you can pre-commit and set it on automatic, the savings magic can happen.
Use transition moments to your advantage
We tend to get really excited anytime our lives are transitioning, whether it’s a birthday, new year, the start of a new week, or the changing of a season. It’s called The Fresh Start Effect and it’s a real thing. Take advantage of this behavioral phenomenon to take positive financial action accordingly.
How to apply it
Highlight a specific transition moment that is going to happen in your life and set a reminder in your calendar to do something that you’ve wanted to do financially before that day or time. Some ideas include:
- The day before your birthday, increase your 401(k) contribution or the amount of money you are saving on a monthly basis by $100.
- Decide that every Monday or perhaps the first Friday of the month you will sit down and review your budget.
- Schedule 30 minutes at the beginning of every week to work on your side hustle (or any other medium to longer term goal), until you get it going.
You’ll find that you will have a much easier time getting motivated to do these things by leveraging the idea of a “Fresh Start.” The great thing is, if you ever need one, you can conjure one out of thin air!
Change your environment
If you find that it’s the small, frequent purchases that are adding up to slowly kill you, welcome to the club – this is what kills most of our savings efforts. Studies show that the #1 expense we regret after bank fees is eating out.
Take a look at your credit card or bank statement for the last few months. You’ll notice that a coffee here, a burrito there, a health smoothie next all adds up. And if you live in a city, ride sharing apps can be killer. Think about all of those times you took an extra 5 minutes to get ready and as you are running to catch the subway or bus, you give in to grab a ride instead ($$$). (These were all my personal Achilles heel of money). Small and frequent purchases to our budget is like death by 1,000 cuts and my bank account is proof.
How to apply it
Link a pre-loaded card to these purchases, then commit to using ONLY that card for those purchases. Physically force yourself to take your other cards out of your wallet and unlink them from your wallet app (I know I am asking a lot here, but it’s for your own good).
Every additional step (or barrier) that you can add will help you to stop and think before you mindlessly spend another $3 here or $10 there on something you’ve already said you regret spending so much on.
Another idea is to limit yourself to how many rides you will take per week, or how many small favorite food purchases you will make per week. Since we tend to enjoy tracking and counting how many times we do things these days, this mental hack can work to your advantage.
Mind tricks work
Getting out of the paycheck to paycheck rut takes a little mental hacking so that you can change your environment to help your future self, but it works. Follow and apply these 3 behavioral principles and I am confident that your days of living paycheck to paycheck will soon be behind you with your brightest future just ahead.