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A Money Plan for People Living Paycheck-to-Paycheck

The first installment of our new series — The Normal Person’s Finance Guide

Don’t have piles of money to invest? Lacking the time to constantly scan the stock exchange? Just want to be able to afford to live? This is the finance guide for you, fellow regular human.

The Man

Ian, Los Angeles, CA
Occupation: Journalist
Goal: Stop living paycheck to paycheck

The Money Situation: “I’m coming up to two years out of college, and I make somewhere around $2,400 a month after taxes,” Ian tells us. “About $1,000 of that goes to rent and utilities each month, another $90 goes to car insurance. Between driving a truck and having a not-so-great commute, I usually spend about $200 a month on gas. My current cell phone plan is paid off, so I don’t have to worry about that, which means I’m left with around $1,100 a month for expenses (i.e., I spent $200 servicing my car last month), grocery shopping and having a social life.

“I tend to spend money eating out quite a bit, as I usually leave my house around 8 a.m. or 8:30 a.m. for work and arrive back home between 7 p.m. and 8 p.m. It’s also not uncommon for me to spend $100 each weekend drinking and doing other activities with friends. Occasionally, I also splurge on a tattoo, which can run for a couple hundred dollars.”

The Debt: “I’m not in any kind of debt, thank God.”

The Goals: “My basic goal is to have enough money to afford a nicer apartment closer to my work. But they can run anywhere from $1,200 (if I’m lucky) to $1,600 or more a month, and it seems crazy to spend half or more of my income on my apartment. Either way, it would be nice to escape my paycheck-to-paycheck financial situation, so I’m not living on a diet of Cup Noodles for a whole week before rent’s due. I’d also love to save a few hundred dollars each month that I could potentially use on a vacation (or a large tattoo) a few months from now.”

The Limitations: “I don’t have a car that’s capable of driving Uber or Lyft, and I’m not totally sold on the idea that I’d have the time to work a second job anyway. Because I don’t have any savings, I don’t have any money to invest or set aside.”

The Plan

Find a Friend You Can Stand to Live With: “First off, congratulations on not having debt,” says Certified Financial Planner David Rae. “You’re light years ahead of many people in similar situations to yours, who sadly have racked up a ton of credit card debt.”

“Let’s tackle the living situation first,” he continues. “You’re setting yourself up for failure if you spend 50 percent of your income on rent and utilities, and you’re at a higher risk of racking up a ton of debt. To find a nicer apartment while also shortening your commute, saving money on gas and dropping the expense of rent and utilities, I’d say look into finding a roommate situation near work. You’ll spend less, probably end up with a nicer place and cut the cost of utilities almost in half without having to actually cut back.”

Get Really Good at Making Sandwiches: “In general, try to keep to a 50–30–20 budget: 50 percent of your income for all of your essentials (rent, insurance, basic food, etc.); 30 percent for personal things like fun, travel and dining out; and 20 percent for savings or paying down debt. Since you have no debt, you may be able to put some of the “savings” back into your budget for rent or other areas that are challenges in your spending plan. Look for ways to cut back that don’t feel like cutting back to free up money for fun stuff. For example: Bring your lunch to work so you can go out with friend on weekends.

“Now, if you’re anything like me, you probably hate bringing your lunch to work. But look at it this way: Brown-bagging lunches can literally mean an extra weekend away every month, or a few extra nights out with friends. Save that money up a little longer and you may even have enough for a real vacation. If you look at it this way, giving up going out to a crappy lunch during the work day doesn’t seem so bad.”

Squirrel It Away: “You’re working, so find out if your employer offers a company match on retirement contributions. You’ll probably need to start small, but even putting 1–2 percent of your income away each month can add up, especially if your employer makes matching contributions. It’s like getting a raise without working any harder: You don’t have to pay taxes on the money you put in, but it still pays off later when you retire and take the money. After the tax deduction, you won’t even notice the few extra dollars missing from your paycheck.”

Get On With It: “The important thing is to get started. Start small and increase what you put away every month. Try opening a savings account and set up an automatic contribution: When I was 22 and barely earning anything, I started with $25 per month and just increased that over time as my career progressed. Put a little more away, and you’ll have money when that fun trip pops up, or you feel the urge to get that next tattoo.”

The Reaction

Ian, Do You Think You’ll Actually Do All This Stuff?: “Unfortunately, it’s nearly impossible to not spend 50 percent of my current monthly income while living in Los Angeles — especially if I’m hoping to move closer to work — which sort of screws up the whole 50–30–20 budget. That said, the advice did (kind of) encourage me to put a little bit of money away each month before I spend it on something silly.”

How Do You Feel About Making Your Own Lunches?: “I’ve been meaning to up my cooking game, so I’m all in. Now I just need some advice on meal prepping.”

What Do You Think About the Roommate Situation?: “I initially forgot to mention that I already have a roommate, although I’m actually planning on sharing my single room with my girlfriend come August, so that should help my financial situation tremendously.”

How Long Will It Take You To Save Up For a New Tattoo With This Plan?: “If I can manage to cook for myself every day and save 20 percent of my income, I could have another tattoo in just one month (depending on the size of the tattoo)!”