284 | Rewind: 4 Areas to Check When You’re Living Paycheck to Paycheck

If you’re a lawyer making six figures but living paycheck to paycheck, you’re not alone.

It also doesn’t have to be this way.

In my time working with lawyers on their finances over the years, I’ve noticed 4 budget categories that tend to contribute to paycheck-to-paycheck living most often.

In this rewind episode, let’s talk about the 4 biggest culprits and how to address them.

• • the experience of living paycheck to paycheck
  • the 4 budget categories that contribute most often to paycheck-to-paycheck living
  • tips to decrease spending in the 4 categories

• Need help with your finances? Schedule a consultation here

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back.

Today, I am bringing you a rewind episode. This episode first aired about a year ago, and I’m bringing it back because I’ve had a number of conversations recently with lawyers who are living paycheck to paycheck and are in positions that just feel really tight, and I thought that it would be helpful for anyone else out there who finds themselves in that position.

So we are talking today about the four areas to look at if you are living paycheck to paycheck. This episode will help you to address those areas so that you can loosen up that budget some so you’re not in that paycheck-to-paycheck situation.

I also want to encourage you, if you’re in that situation, you are not alone again. I’ve talked with multiple lawyers in the last couple of weeks who are in that exact same situation, and I want you also to know that it’s possible for you to get out so please check out this rewind episode, “4 Areas to Check When You’re Living Paycheck to Paycheck.”

****

These are four areas that I have seen be the culprit, if you will, when I’ve encountered people who are living paycheck to paycheck. So if you are in that position, you want to check out these four areas and see if you can get them down.

The first area is housing. So many lawyers are spending a lot of money on their housing. I have seen people spending half their income, like a whole paycheck, going to just their rent or their mortgage.

If you’re spending half your income on housing, it’s going to be too much. You don’t have enough money left over for your other bills, for things that you just want, or for your financial goals, like getting out of debt or saving.

A good rule of thumb is to keep your housing costs to 25% or less of your income. That way, you have plenty of money left over for other bills, other things you need, other things that you want and your goals. So for example, when we bought our house, the bank approved us for something like $800,000, but the payment on that kind of mortgage was going to be a huge chunk of our income. I don’t remember exactly, but I want to say it was probably like maybe half, maybe more than that.

And so we decided to get a house that was 225,000 and so that payment ended up being about 25% of our income at that time. However, over the years, our income grew, right? We got raises and things like that. And so the percentage that our housing ended up taking up like decreased over time. So it’s now at the point where it’s less than 15% of our income.

And I say all the time that that one decision of buying a less expensive house was a huge part of the reason that we were able to get out of debt as quickly as we were, because the housing was a smaller percentage of our income, and it left so much more of our income free to be able to pay off debt, like, to make those extra debt payments.

And we also were intentional about keeping our expenses low in other areas as well. So, like, we had some lifestyle creep. We went out to eat more or things like that, but we tried to keep the living expenses low so that we had more money available to make those extra debt payments.

So if you are in a position where you’re living paycheck to paycheck, how much of your income is going to your housing? If that percentage is more than about 25% then let’s look at ways to bring that down. And this is not to say that if it’s 27% it’s wrong, right? It’s not like a hard and fast rule, but when you start getting to a third and stuff like that, like over that percentage, then it’s going to be really hard to make the progress that you want to make.

And because so much of your money is tied up in this one bill, it makes everything else feel a little tighter. So you want to look at ways to get that down. It could be moving to a less expensive place. It could be getting a roommate, maybe renting out a room, whatever it is, but try to get the cost that you are paying for your housing to 25% or less, and that’s gonna help to loosen up that budget a little bit, so that you’re no longer living paycheck to paycheck.

The next one that I see a lot is food. This is a big one for a lot of lawyers. How much do you spend eating out? How much is DoorDash and Uber Eats showing up to your place? Because I know for a lot of people, it’s a lot, especially if you are busy. You’re getting home, you don’t feel like cooking all that kind of stuff. But if you allow your food expense to get too out of control, it can also be contributing to living paycheck to paycheck.

Another thing that often comes up here is people buying groceries only to throw them away because they don’t get around to cooking, right? They buy the groceries because they feel like that’s the responsible thing. That’s what they should be doing. That’s what it means to be good with money, right? Buying groceries.

But if you’re just throwing them away, you’re literally throwing money in the garbage. Food is a big expense for most people. And I wouldn’t say that there is a one-size-fits-all rule for how much you should be spending, but I can give you some actual numbers from my life, from some of my clients lives, of numbers that have worked for different family sizes, different locations, so that you can kind of gauge where you are in relation to those.

So for my family, we are in Atlanta. We are a family of four, and we spend about $600 to $800 a month on groceries, and then another about $500 a month on restaurants and takeout and stuff like that.

I worked with a family of three in DC, and they were spending about $500 a month on groceries and about $450 to $500 a month on restaurants and takeout.

I worked with a client in Denver who was helping to take care of a family member, and she spent about $1,200 a month between groceries and restaurants and takeout. And it fluctuated. So basically, like, if groceries was more in one month, then restaurants and takeout was less, and vice versa, but it always added up to around that $1,200 figure.

Another client in New York, spent about $700 a month on groceries, mostly because she was doing Instacart and stuff, so she didn’t have to carry her groceries. But she also spent $300 to $500 a month on restaurants and takeout.

So costs are going to vary depending on where you live, depending on what’s going on with your family, but if you are living paycheck to paycheck, look at how much you’re spending on food and see if that’s high, and if it is, then think about how you can get that spending down.

Maybe it’s taking time on the weekend to cook a few meals ahead of time. This was something that I did when we were in the thick of our getting out of debt journey. I would cook on Sundays, and I would try to cook things that would last multiple days, because it is tough when you’re busy to then come home, like I’ve been tired, or I’m tired from working, and then come home and I gotta cook.

So finding that time on the weekends to make a few extra meals so that you don’t have to, or if I made something big, like I make a big pot of spaghetti sauce, and I maybe freeze some of it so that in times when I’m tired, I don’t feel like cooking, I can just pull this spaghetti sauce out and heat it up and we’ve got dinner.

You could also try the meal kits, like Blue Apron or Factor. Some of my clients found doing those things were better, or was better for them, because it’s like, all of the ingredients are right there, and so they knew that they weren’t buying extra stuff that they didn’t actually need; they weren’t going to use; they end up throwing away anyway. But it was cheaper than going out to eat.

It could be going to less expensive restaurants or going to restaurants less often, so you don’t spend as much. It could be actually going to the restaurant versus ordering from Uber Eats or DoorDash. Like I remember this one time I was going to order a pizza, and the pizza itself was like $20 but after all the fees and taxes and whatever else on Uber Eats, it was like $40 for one pizza. I was like, Absolutely not. And so I just got my shoes on, I got in the car and I went in or picked up the pizza myself, right?

There are just a lot of different ways that you can handle your food expense and get it down if it is high. So if you’re living paycheck to paycheck, experiment with what works best for you so you can get that cost down, but still get that need met in a way that works for your life.

The next area that I see a lot in paycheck-to-paycheck situations is transportation, and typically the way this one shows up is in car payments that are too high. And again, like with housing, if a huge chunk of your income is going to this one bill, then you’re not going to have a lot of money left for your other bills, the things you want, your goals, all of that stuff.

With a car, I think it’s even worse than the house, not worse…but kind of. With a car, it’s going down in value, and you’re putting all this money in. Even if you’re renting an apartment, it’s not going down in value as you pay it, right? But with a car, it’s actively going down as you’re paying into it. So that’s something to think about.

This is not to say that having a high car payment or anything like that is bad. I know that there are people who love the luxury cars and all that kind of thing, and I am not one to judge what people spend their money on. But I’m saying when you’re in a situation where you’re living paycheck to paycheck and you’ve got this really expensive car, it’s something that you might think about because having all that money going to your car payment is what’s making your budget tight.

My typical rule of thumb is to keep your car payment to about 10% or less of your income. I’m not a fan of car payments that are pushing $1,000 or even more. It’s not a huge deal if your income can support it, but if we’re talking about living paycheck to paycheck, then your income can’t support it right now, right?

Sometimes even a car payment that technically falls within the rule of thumb might still be too high because of other things that you have going on. When I have seen this, it’s like, technically, the car payment is fine, because it’s 10% of their income.

However, they’ve got all of this other money going out to these debt payments. And by getting rid of that car payment, they would have more money available to pay off the debt, to get rid of those debt payments as well. That’s something that we’re going to talk about, also. It’s actually the next area.

But I just want you to think about, if you’re in a situation where money is feeling tight, you’re feeling like you’re living paycheck to paycheck, you’re running out of money before the end of the month, like all that kind of stuff. Look at that car payment and see where you are in relation to your income. Are you at that 10% mark? Are you over it? If you’re over it, maybe, let’s look into getting something that is a little less so that you can loosen up that budget. Alright.

And the final area is minimum debt payments. Have you ever added up how much all of your minimum debt payments are? Because I’ve seen situations where people are paying thousands of dollars to minimum debt payments. I’ve been in the situation where we were paying thousands of dollars to minimum debt payments.

And it doesn’t feel like that much individually, right? If you’re just thinking about, oh, this payment, this credit card, that loan, whatever. But when you add it all up, it can be thousands of dollars, and I’m talking about aside from your mortgage, if you have one, or aside from your car payment. Just payments on credit cards and loans and stuff like that can really add up.

Like I was just saying for many of my clients, for me in the past, it’s thousands of dollars. And that is thousands of dollars that you could have for your goals, that you could have for your own spending. It was being paid out to Citibank and Chase and whoever else.

If you’re living paycheck to paycheck and you have a lot of loan payments or credit card payments or stuff like that, that could be the problem. Or it could be a combination of the minimum debt payments and some of the other stuff that we were talking about.

But either way, you want to address it, so you want to get the debt paid off so that you can lower those payments. You’re lowering the amount of money that you have to pay out each month, and there are a few ways that you can do that.

First, you can just call and ask if there are ways to get lower payments. Sometimes the creditors will extend your loan terms so that the payments are lower. Sometimes they’ll lower the interest rates, like you just never know, unless you ask. So I would call and ask if there are ways to get a lower payment so that you can just give yourself a little bit of breathing room.

Another option is to get a personal loan with better terms, or to move, like if you have a credit card, to put it on one of those 0% interest credit cards. You might have gotten some of those balance transfer offers and stuff like that, right? These can be really good strategies to help, but I have seen them burn people.

You want to make sure that you actually make plans to address the debt. You’re not just moving it to a personal loan or to the 0% interest credit card. If you use one of those options, that’s not the end. You have not fixed the problem. You still have to make plans to pay that debt off. These options just help you lower the amount that you’re having to pay out in minimum debt payments each month, and that can help you to create some breathing room in your budget. Ultimately, the goal is to get rid of the debt, but if we can just lower those minimum payments, that can help if you’re living paycheck to paycheck.

So those are my tips for problem areas to look at if you’re in a paycheck-to-paycheck situation. And I find that typically it’s a combination of multiple of these, right? But you want to check your housing, your food costs, your car, whatever other transportation, typically it’s the car, and your minimum debt payments, and try some of the tips that we just talked about to see if you can get those costs lowered.

****

Alright, I hope you found that episode helpful. Hopefully, you can apply some of those tips to start cleaning up that paycheck-to-paycheck situation, giving yourself some breathing room so that you can keep yourself moving forward with your finances.

And if you would like some help with that, please reach out to me at rhothomas.com/call. We can get on a call, talk about what’s going on and how we can work together to fix it.

Alright, that is it for this week’s episode. Please take a second and share this episode with a friend or two who you think could use this information. Sharing is how we get this information in the hands of more lawyers, and as always, I appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth and live the life of freedom and choice you deserve. Talk to you later you.