Breaking the Paycheck to Paycheck Cycle in the Military | Military Money Manual Podcast Episode 47

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Living paycheck to paycheck can be extremely stressful. It can negatively affect your mental, physical, spiritual, and financial health.

Learn how to stop living paycheck to paycheck and to get out of the cycle of never having extra cash in your checking account.

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Breaking the Paycheck to Paycheck Cycle in the Military | Military Money Manual Podcast Episode #47

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Military Money Manual Podcast Episode #47 Transcript

[00:00:00] James: I don't have any money. How am I ever going to get ahead? How do people go on vacation? How do people save and invest? There's no buffer here. 

[00:00:28] Spencer: Hey everyone, Spencer Reese here from MilitaryMoneyManual.com and author of the book, The Military Money Manual. Today, my co host Jamie and I want to share advice and ideas about how to break the paycheck to paycheck cycle.

This is a very common, but stressful and unnecessary way to live, especially for military members. But unfortunately it's not unique to young people. It's sadly become common across all demographics and all generations. Jamie and I have both been through periods of wanting and feeling behind with our money.

I have a couple stories to share about living paycheck to paycheck, we all start somewhere and remember that if you are living paycheck to paycheck, it is a cycle that you can break. It's a habit that you can break and it doesn't require extra willpower. It doesn't require any kind of magical solution, really, so much of it can just be automated and set up and you can remove yourself from the equation and you can just let your systems carry the load.

So today we're going to talk about three main ideas.

Number one, how to get organized. Number two, protect your four walls and we'll explain what we mean by. The four walls, and then number three, cut costs or raise your income to turn things around. 

So without further ado, Jamie, welcome to the podcast.

[00:01:54] James: Hey, Spencer.

Good to talk to you again. It can seem simple on paper, but can feel really overwhelming when you're behind and looking to break the paycheck to paycheck cycle. And A lot of times it's bigger than money because it can be emotional for you and your family, and it may affect one partner more than the other if you're married or in some kind of significant relationship.

Money stress can lead to stress in your relationships, at work, it can prevent you from sleeping well. There's all kinds of issues that money can spread into other areas of your life. We know how bad it can be both from our experiences, like you mentioned, and from data. But what I want to reiterate one more time is we all started somewhere.

You're not less of a human and you can get through this. And hopefully this podcast today will help you. Let me go over a little bit of data I found on. Military families, financial readiness. I found a December, 2021 report from the congressional research service that was titled military families and financial readiness.

And so here's some highlights that I found in that report. In 2014, they found, it's a little bit dated, but still interesting, they found that the DoD estimated that 80 percent of security clearance revocations and up to 4, 700 separations each year are related to financial difficulties. So at the extreme, it can cause issues with your job.

More personal, according to one study's finding, financial problems among military service members are shaped by spending patterns and management skills rather than by income itself. So it doesn't necessarily tie into being a young soldier or marine or airman or being a young officer. It's not necessarily tied to how much money you make, but just about your habits and what you do with your money and how you plan for it.

In terms of overall financial condition of the military forces, the survey from 2019 indicates that 72 percent of active component personnel and 69 percent of reserve component personnel were “very comfortable and secure” or able to make ends meet without much difficulty. So I'm going to flip that around and note.

For you, this means that 30 percent of your coworkers are not secure in their finances. So next time you're in a staff meeting or looking around the commander's conference room or in the auditorium or something like that, look around and think about the fact that one third basically of the people sitting next to you or on your row are not very comfortable or secure in their finances.

And so think about the stress that comes with that a little over one third of service members report having zero or less than one month of emergency savings and nearly one fifth of service members spend all of their income on a monthly basis. So 20 percent of your coworkers have no extra money and they spend it all every month.

And if you look at the reserve component, it can be even worse for them because of the financial irregular income flow and lack of access or inconsistent access to the same resources that active duty component members have. A couple more here just to hit home how important this is. 58 percent of Americans live paycheck to paycheck according to CNBC.

And that includes 30 percent of Americans making over $250,000 a year. So again, just to prove it isn't just a young military member problem. You can mismanage money even when you have a high income. But 58 percent of Americans live paycheck to paycheck. In the past year, this was in 2022, I read this article on Fox business, that 50 percent of Americans were unable to consistently pay their bills on time and less than a third, about 32 percent of respondents were able to save money consistently and just over a quarter, about 26 percent were able to invest. More than 84 percent of enlisted members and their spouses, according to debt.org said that they have worries about personal finance and many expect to put life decisions like buying a house or going back to school on hold until they can sort things out financially. 

And then last one, another problem the military families have in common with civilians is operating without a monthly budget.

And we'll talk about this in a future episode, but less than half of service members keep a budget. 46 percent of service members keep a budget. And that causes issues, which like I said, we'll hit in a future episode. 

So let me break it down a few key steps about where we think it might help to to move for you if you're in the cycle of paycheck to paycheck and stress. 

First of all, you need to know the details of your situation, all incomes and bills and debts, a big return on your investment when you can take the time to get organized and become more aware of what's coming in and what's going out. And then once you have awareness, you can make the decision to cut expenses and or raise your income, like you mentioned.

[00:06:36] Spencer: Attacking it from both sides. At least initially attacking it from the side of cutting expenses, because those are usually things that you can do immediately. And that's if you think of it like first aid, right? Like you assess the situations and then you take the first step, right?

Airway, Breathing, Circulation. I think that it goes something like that.

[00:06:55] James: And you must have really had that good self aid buddy care training.

[00:06:58] Spencer: Oh, a hundred percent every year, but every two years, however much we had to do it. But I think cutting the expenses, that's something that, if you use a credit card or a debit card, one thing you can do straight away, if you're in credit card debt, is. For as much as I knock Dave Ramsey, he does have good methods and tactics for getting out of credit card debt and for helping people who are bad with money. That's what everybody always says is that Dave Ramsey is good for people who are bad with money. But I started with him and I would definitely not be the person I was today if I had not read The Total Money Makeover and had at the time, I think I, I closed, I can't remember if it was all my credit cards or I went down to one and now today I'm the guy who has, 30 plus credit cards open. So all that to say, though, is that if you're using a credit card or a debit card, do you have a record of every expense that you've accumulated over the past six months or a year.

Just do, you can even just do it year to date, or you can look at the last 12 months because usually people, we're creatures of habit, right? How you spend in the past is probably going to reflect a little bit of how you're going to spend in the future, at least for the short term, one, three, six, 12 months.

And there's tons of, we'll get into some of the apps out there, but. For instance, we'll just use mint.com as an example, which is one that I used a lot when I was getting started in my journey to financial independence. And you can go into Mint and you can connect your bank accounts, your credit cards to it.

It's safe. It's secure. They don't store your passwords in plain text. At least they claim they don't. I haven't heard of a mint in a while. But what it allows you to do is you can, let's say you have a USAA account and you have an American Express credit card and you have a Chase credit card where you can connect all your accounts and you can see all your transactions in one place.

So it allows you to stop, hiding things from yourself, right? Because you might have an American Express Gold card and you're like, Oh, it was only $200 to pay that off last month. But then you're completely ignoring the Chase Sapphire Reserve that you've got an $1,800 bill on. And that's coming due in a week or two.

And so you're debt by a thousand cuts if you're spread that thin, all that to say with cutting expenses, you, that's your emergency action. And that's something that you can do right now, right? You could pause this podcast, go sign up for mint.com or any of those kinds of apps, or even just log into the website. If you only have a single financial services provider like USAA or Navy Federal. Log in there and take a look at how you spent over the last six months over the last 12 months and notice, sometimes it can be shocking, right?

I remember when I first started that exercise, it's man, I'm spending, I can't remember what it was, but let's say $300 a month on going out to eat. Is that something I'm getting value from maybe, but is that an area where maybe I can cut back a little bit and cook some meals at home or try to, and it can be temporary too, right?

Like so many of these cutting expenses, things like, trust me, if you asked me to go out to eat today, I am not going to say no, that is not an area that I  optimize anymore and but it was an area when I was getting started on the journey to financial independence, I was that guy who was like, Hey, why don't we come over to my house and we'll make some fajitas or something and we'll have some beers over here and that can still be a great night.

It can say instead of spending, maybe if you go out with a group of like 10 people, you could go out to Chili's and spend $1,000 easily, by the time you add up all the drinks and the apps and all the food, or you could go over to someone's house and you could probably have, an even better experience for $300 bucks just, buying the booze and the beer and the groceries yourself and then making it at home.

That's a very niche example, but it shows that. Yeah. Your emergency action can be cutting the expenses and then you can focus on the raising the income part and we'll talk a little bit more about those two tactics and later in the episode, some other things you might want to do is if you're the kind of person who likes having, a helping hand or, just likes having someone explain it to you.

Every single base has an Airman and Family Readiness Center. Or I think what do they call them in the army? The, just the soldiers readiness center, soldier and family readiness. I think it's the same concept. In the Navy it's the Family and Fleet Support Center, but all of these organizations on military bases or near military bases are government sponsored. They hire good people. A lot of these people have master's degrees, have CFP designations, certified financial planners and almost all of them work for free and their fiduciaries right there. They're going to give you, you can come in and say, this is my situation.

I'm living paycheck to paycheck. How, how do I get out of this? And they're going to help you. They'll go through, building a budget with you or looking at your statements or seeing where you've got leaks and where you're losing money and they can really help you to assess that.

So they have, every base is going to have financial counselors. They're also going to have family counselors too, because a lot of times, a lot of these problems go hand in hand. 

Jamie was saying, financial stress leads to, can lead to family stress. And so sometimes and vice versa.

Sometimes family stress leads to financial stress. So while you're taking care of the financial aspects of your life, don't neglect the even more important relationships and the family. Part of your life. And so if you're going to make one stop at the Airmen and Family Readiness Center to fix your finances, Hey, maybe stop by the family counselors as well.

If you need to have a chat with someone over there, another great organization. And again, every military base is going to have access to some of these is the M flick or military and family life counselors. I think that you can get 10 sessions for free. With these guys and they again, it's DOD paid for and sponsored, but the great thing about them is they use contractors off base. And so there's no paperwork that goes back to your unit medical records. Medical records. No. Yeah, there's nothing like that. And they're really interesting because they're not a fix all, but maybe a jack of all trades and they're going to be able to whatever situation you bring to them, they've probably heard it before.

They've probably heard a lot worse and a lot better, but they're going to be able to possibly give you some resources to address some of the issues that you're dealing with. And while they themselves might not be able to fix what's going on, they're probably going to be able to point you to someone who can be of further assistance.

Or maybe, after a couple, meetings with them and the other great thing about them is that you can meet them off base. And I think they can meet pretty much in any public space. Sometimes I think they have offices as well where you can meet with them, but that's another great program that's offered by the Military One Source is the best place to learn about that. 

And then finally, if you are struggling to meet to make ends meet. There are assistant loans out there. For instance, the Air Force Falcon loan. There's a Navy one as well. I can't remember the exact name of it, but every service organization, Army, Marines, Navy, Coast Guard, Air Force, all have organizations that have loan programs that are set up to help you basically bridge to a place, get your, buy yourself some time. And like for the Falcon Loan, for instance, I think last time I checked it's $2,500. It's 0%. And I think you have 12 months or so to pay it off.

So about $225 a month, whatever that adds up to. And again, 0 percent doesn't go in your credit report. It's airmen or soldiers helping soldiers, airmen, helping airmen. And it's a loan from the organization to you that just basically helps you get some cash to get to a better situation.

They're going as part of it. I think you have to go to some counseling. You have to prove that you're like setting up a budget. And so again, like if you are at rock bottom, this is a great program to get you to a place and just buy you some time so that you can set up your finances so that you can get into a better position and stop living paycheck to paycheck.

Jamie, did you ever, were you ever living paycheck to paycheck when you were coming up in the military?

[00:15:47] James: I definitely remember periods of anxiety, and at the time, I don't think I thought of it as paycheck to paycheck, but just looking at my spending and what I needed to do to get out of debt, even just the minimum payments on the USAA Cadet Loan and all those things that we talked about in our debt episodes that you and I both overcame, and thinking, I don't have any money.

How am I ever going to get ahead? How do people go on vacation? How do people save and invest? There's no buffer here. So I definitely remember thinking that for a while. And if your house is a one income home, it can feel like it's going to be an impossible battle to ever achieve financial independence.

You may have listened to the podcast and almost given up on us, or maybe you gave up and you're coming back for this episode, but maybe you gave up because you're, I'm so far behind. I had. I have no, no way I can ever achieve financial independence or even consider retiring early. So that's what I remember from living paycheck to paycheck, just the feeling of having no buffer or no margin of safety in my life at all.

[00:16:53] Spencer: Yeah. For my wife and I I think 30 percent of my paycheck, a thousand dollars a month. And my second lieutenant paycheck was like $3,000 a month at the time. So a third of my paycheck was going to student loan payments. At the time I was living In the dorms, but when we moved out of the dorms and after I got married, basically the rent took all of our BAH.

So we were like right back to, to where we started. I remember the first couple weeks after we got married, my wife, I don't think we really talked about money too much other than going, like we'd go grocery shopping, and try to save money and stuff. But I remember one day she went to look at the checking account, which was now a joint checking account.

And she was like, Oh, we've got $1,000 in here. And I was like, Oh no. But there's money on a credit card that, that $1,000 is going to go pay off the money, the credit card. So really there's only like a hundred dollars in there. And she was like what are you going to do? How's that going to work?

And so basically, I was getting paid and I would have paid off the credit card. And then I would be right back to zero until the next paycheck and I always take my quote at the time and we still joke about this is, Oh, just wait till next paycheck. Just wait till the next page. And that's what I was always saying.

That's what I was always, and after I thought of one or two paychecks, she got to the point where she was like, No, I'm not waiting till next paycheck. Essentially, what we ended up doing was we set up a YNAB or you need a budget style budgeting where before we even got the paycheck, we knew where every single dollar was going to go.

And at the time, we just set it up in a spreadsheet and we can actually go, but we still have the spreadsheets because we set it up on Google Sheets and it goes all the way back to 2011, 2012. You can see, like I was getting paid, whatever it was, $1,200, every paycheck and every single dollar of that $1,200 was allocated to some purpose.

And one of the purposes was first of all, building some savings, building an emergency fund. And there was also, but there was also money in there that we set aside and we called it, we had read this marriage book. The name of it is slipping my mind. I'll have to look it up later and put it in the show notes, but the book argued that just like you make a Insurance payment or you pay a premium for your insurance You should also pay a premium for your marriage and so the concept of the marriage premium was something that we were pretty familiar with right after we got married.

And at the time though, we didn't have, like every single dollar was essentially allocated to something, whether it was groceries, gas, rent saving, trying to build, a hundred dollars every two weeks of an emergency fund. And, but we look, we're like, look we can find $40 in here.

And so we did. That meant that every two weeks we got $20 and that could be in a $20 note from the ATM, or it could just be $20 of debit card transactions, but we kept track of it. And then the internal debate became, okay, what comes out of joint money and what comes out of marriage premium money, but the $20 was yours to spend however you wanted it, wanted to, and however you saw fit. And, but it was tough. And it sucked and we didn't have that margin of safety that we talked about in the Morgan Housel episode and that you mentioned a little bit earlier where You're anxious. You're anxious all the time.

And when you log into your banking app, it can be scary because you're like, oh, did I miss a payment? Did I forget something? And you look at your checking account and it's three or four days until you get paid and you've got $2.75 cents in there. And you're like, Oh my gosh, I just need to make it to the next paycheck.

And that is a stressful and terrible way to live. And I don't want any of our listeners to be in that situation. That's why we're doing this episode today. 

Jamie, you were going to say something a little bit earlier, but I cut you off. Do you remember what you're going to say?

[00:21:08] James: Yeah, I was just going to share that I had a period of cycling zero percent interest rate promotions on credit cards.

To help with, without that lack of a buffer, where that was the best option that we had at the time of six months of zero percent interest, transfer the balance to the next card, 12 percent, or I'm sorry, 12 months of zero percent interest and things like that, just to catch up and pay the bills.

I also remember. Feeling guilty about when friends asked us to go out to eat or if there was a get together and everyone's Oh, what should we bring? And I was like, please don't assign me to alcohol because I can bring like a dessert or something because a box of brownies will cost $1.98 or what or whatever. So there were definitely periods of feeling anxious, but Spencers, we look towards making progress and moving away from this. 

Hopefully we, throughout the podcast, we've talked about different themes of making progress on your financial independence journey. So one term or one saying that people may have heard before is saying pay yourself first.

And as you get to the point where you're starting to list your expenses and get to the budget, which we're going to cover in a future episode. What does that mean? Pay yourself first. And how did you explain that theme in your book?

[00:22:27] Spencer: Yeah. So pay yourself first, I obviously didn't invent this.

This is something that I learned on my own journey to personal finance Nirvana, which I'm certainly not there yet, but getting closer to enlightenment. But the pay yourself first concept. It's when you think about your expenses and you think about your income, whether it's $1,000 a paycheck or $10,000 a paycheck or $100,000.

I don't think anybody listening to this podcast makes $100,000 a paycheck, but if you do, please message us. We'd be very interested in your story. Yeah, but it's allocating your money. So the money that you have comes into yourself and that could be your present self or it could be your future self, but most usually it's paying your future self by putting your money into investments that are going to grow and generate income.

And so that could be, for the right person who's into real estate investing, that could be a rental property investment property. But for most people, it's going to be putting most military service members. It's going to be putting your money into the TSP, into your Roth IRA, and maybe into a taxable brokerage account.

In my book, I talk about the LADs principle of Low Cost Automatic Diversified and simple investing. And the easiest way for a military service member to do it, to pay themselves first is to contribute to your TSP. And that's so simple. It's so easy to go into my pay or I think the Marines use a different software.

Sorry, I've never. Had a Marine reach out to me, so I'll just assume it's my pay and you can set up a contribution to your TSP and for most service members coming in now, I think it starts at one or 3%, initially, and then that's, really, you should be cranking that up to five or 10%, uh, especially after you've been in for two years, you're going to start getting that 5 percent match and that's free money that the, you're leaving on the table if you're not putting at least 5 percent into there.

And then, or it could be, paying yourself first could be an auto contribution to your Vanguard Roth IRA or Fidelity or Schwab, wherever you want to hold your Roth IRA. And a lot of those companies allow you to set up an automatic debit from your checking account on your payday.

So the 1st for military service members and they'll withdraw, if it's 6, 000 every. Or 6, 000 a year to max out a Roth IRA. You can set it. So withdraw,$250 every two weeks or $500 a month, or you can do the contributions yourself. In my book, I like talking about automated systems and if you can automate paying yourself first, then what you have left over can go to everybody else. But if you've paid yourself first, then you're going to get ahead. And if you're not paying yourself first, if you're waiting until you've paid the credit card bill, you've paid the utility bill, you've paid, you've bought your groceries, you made your car payment, and at the very end, you see what's left over, It can be disheartening when you're only making a couple hundred or thousand dollars a paycheck.

And when you've already paid off what past you has done, right? Because that's what bills are. It's things that the past you has done and that you're paying the piper. You have to pay for the actions of past you and you're not investing. And future you.

So if you wait until you're until everything's left over you're not going to be in a good situation. And, speaking of paying yourself first, this is a great quote actually included in it. I think I'm pretty sure included in my book from David Copperfield written by Charles Dickens, where he's talking about his annual income is 20 pounds and his annual expenditure is 19 pounds and six, right?

So it's like 19.5 and his result is happiness. And then annual income, 20 pounds, annual expenditure, 20 pounds, 0.6 result misery. And it's just showing the difference between happiness and misery for most people. Is spending just a little bit less than they make. And so if you can, if you could spend less than you're pulling in and you can save the difference and invest it, not only are you going to be happy, but you're going to, your present self is going to be happy because you're not stressed about creditors.

You're not spending beyond your limits, beyond your income, but you're also going to have this money set aside. That's going to be growing. That's going to be throwing off dividends. That's eventually going to grow to the point. Where you don't have to trade your time for money anymore, and you get to choose what you do with your time.

So Jamie, if someone hasn't budgeted before or tried and gave up or feels like it's not working, do you have any suggestions for what they can do to get organized and start turning the ship around?

[00:27:14] James: Yeah, absolutely. I would recommend to list out all of your monthly income so you can do it on a sheet of paper on a spreadsheet Google sheets or whatever on one, maybe left side of the page, right?

All your income is at the top of the page and then on the other column on the right side of the page, list out all your expenses, whether it's a monthly expense like the water bill, the power bill. Groceries, or it's a regular expense, like our Amazon Prime that comes up once a year, car insurance that's every six months the kids soccer dues are quarterly or whatever it is.

This isn't to guilt or to shame or to overwhelm you, it's just to become aware. The first step of the process is becoming aware of what you have coming in and what you have coming out. If there are any expenses you're not sure about, take your best guess. For example, your power bill may fluctuate now that it's summertime right now, as we're recording this and it's a little bit hotter.

Take your best guess and it'll level out after a couple months. Your first take at budgeting will not be perfect. You will not get every expense. You will not estimate your grocery, your gas, your power bill. None of that will be correct. It'll take several months, about three months or so, probably to figure out exactly what the proper average is for you.

The goal here is to figure out where your money is going. And if you have debt collectors threatening to foreclose on your house or evict you from your apartment, and you have a brand new F-150 Raptor outside, then that might be something we should talk about. And the beginning of being able to talk about it is becoming aware of that dichotomy or that conundrum there.

If you're paying 28 percent interest on a credit card balance that you. Keep rolling over every month and you can't pay off, but you're making payments on a boat, then maybe it's time to reconsider whether right now is the right time to own a boat. But again, becoming aware of the difference is the first step in trying to realize the priorities that you have.

You don't have to act yet. You don't have to make any decisions right now. Just start by writing it down. 

Spencer, you mentioned earlier, there's lots of budgeting apps like Mint.com. There's several that are free as well as Mint. Every Dollar is another one. That's the Ramsey app. There's a free version of that and a paid version.

It could be on a notepad. It could be on a steno pad. It could be on a Google Sheet or you could be old school like me and use Microsoft Excel. Or it could be paid apps. Like you mentioned, you need a budget. YNAB. That's what I use personally. And it's just under a hundred dollars a year. And I can almost guarantee you that if you use an app like YNAB consistently and properly, you will make more than a hundred dollars of progress towards financial independence after using it. 

So I think it's a good investment to use a paid app, but there's plenty of free options out there. So awareness is helpful as well. And that comes with some of these paid apps. I went back and looked at my YNAB reports and in 2021, I'll be a little vulnerable here. On average I'm not gonna share some of the more embarrassing ones, but I can go back and see How much we spend at Chick fil a or at Chipotle or Target or Costco or wherever, but we spent over 1, 000 a month total in 2021 on groceries and eating out for my family of two plus three kids.

Our average was $290 a month in gas for our cars. So is that right? Is that wrong? Is it too high? I don't know. But that's what we spent. So now we can plan on that. So as you build awareness, you start to see trends like that. You'll also see that some of the monthly bills just can really add up.

So I went through my monthly budget and listed some of the ones that I currently pay on. And not all of them I love paying on, but this is what I pay right now. Again not right or wrong or saying that you should have all these services. Google drive, $10 a month, Spotify and Hulu, $18 a month, cell phone bill, $130 a month, Netflix $15 a month, Peloton membership, $44 a month, Amazon prime, $15 a month, high speed internet, $75 a month, lawn mowing service, $100 a month.

Ring doorbell, $5 a month. Peacock, $5 a month. Audible, I'm almost done. Audible, $16 a month. Disney plus, $13 a month. So total all those up, $440 in really non essential bills. I could live without any of these except maybe the cell phone nowadays. I could cut costs there for sure. So you can see that just by listing those out, it brings awareness to where your money's going.

We'll talk more about some solutions, but you might think, do we really need Netflix and Amazon Prime video and Peacock and Disney plus, or could we cut down to maybe two of those streaming apps or whatever the kid's favorite is? And you guys use it the most. Maybe you cut down from four to one. And so that's where starting to list it out really starts the process of getting caught up, I would say.

[00:31:53] Spencer: That's a great list, Jamie. I love that. Right there, $440, and that's per month. And there's cheaper cell phone plans too. I know we have a good friend who I'm pretty sure he finally added data, but until 2021. Him and his wife had it like 300 minutes plus like unlimited texting or something?

[00:32:17] James: Yeah, they could. I think they could text but no, no images unless they were on WiFi, not even like pictures and stuff. Yeah, but they paid $18 a month or something like that for their cell phone bill.

[00:32:26] Spencer: $18, yeah, exactly. And they could use Wi Fi, right? There's Wi Fi, like basic, there's so many places that have WiFi now.

And if you're home most of the time, or you're a stay at home parent, having Wi Fi means that, at home means that you're going to have all the full features. You can have a smartphone, right? And have all the full features without paying whatever it is, per month for the data.

One thing that, as you were listing all those streaming apps too, that I was thinking about the other day is how many times you get onto any of these streaming apps and you're like, what do we want to watch? And you're like, man, None of these movies came out recently. I don't want to watch any of these movies.

And so one thing my wife and I've been doing, we still have all the streaming apps, but we go to Amazon and we just rent the movie for, for 6. And a lot of times it's either just came out of theaters or sometimes they're even still in theater style. Sometimes they're like 20 bucks if they're still in theaters, but one of the positives that came out of the coronavirus pandemic was that we get to see movies when they're still in theaters.

For a reasonable price and you don't have to bootleg it anymore, or download it,

[00:33:30] James: But even spending $20 for a rental from Amazon prime or wherever compared to taking your family to the movie theater, you're, you might pay $12 a cheap ticket in some parts of the country might be $12 each plus another $60 or $70 on food and snacks.

So that might be a good cost cutting measure to just rent it for $20.

[00:33:50] Spencer: So the $440 that. That you just mentioned from your budget, that's per month. So over a year, that's 5,280. So if you're a young airman soldier, Marine coast guardian, and you're probably making $30,000 a year.

We could be talking about a 10 to 20 percent pay bump. If now, granted, you probably don't have Peacock service. Sorry. Ring doorbell service if you're in the dorms, but if you have all those streaming apps, maybe it's time to get out and do something.

Find a cheaper hobby. But it's yeah, no that's great. I love how you detail all that. I should go look at my budget and see if I can pull any juicy data out of there. 

Jamie, what did I see recently on NerdWallet? Experian had some data from the first quarter of 2022 and it talked about car loans and they said the average.

Payment per month, $648, almost $650 loan amount, just under $40,000 with a 4 percent rate and a 70 month term. And that's the average, which means that somebody out there probably has an 80 or 90 month. Like I don't even know how they can offer terms that long, but it's going to be a mortgage soon, pretty soon you're going to be, you're going to be taking out a 30 year mortgage on a car.

Used cars average payment was $500 with $28,000 financed and 8.62 percent rate for 68 months. So that, man, that rate sucks 8.6%. That's a lot of car. I still think I know I'm a little, I'm a little out of touch cause I haven't had to buy a new car in a long time. But I was pretty sure you can still get like a Mazda if you're young and single, you can get a new Mazda three, a Kia, whatever a Nissan or a Toyota for 20, And if you're not a car person, there's not a You don't have to get all the upgrade packages and everything.

You can just, and right there, if, even if you finance that, which I don't think you should, but I understand that, especially if you're getting started, right? If you finance that, you do a five year term, you pay it off in five years, drive it for another five years. And in that five, in that, over that 10 years, you could save the money.

So your next car, you're paying in cash. It's not too difficult to think about doing.

[00:36:17] James: It may seem overwhelming to think about paying for your next car in cash, but what I want you to think about from the big takeaway from the numbers, from that Experian data from early 2022 is think about if you're feeling behind with money, what could you do with an extra $650 or $500?

If you did not have that car payment, the average car payment from 2022 data from Experian, if you are paying $650 a month on your car and you're feeling stressed about money, then that is probably the easiest way to turn things around immediately. That would be. The second you sell your car, pay it off and get a cheaper used car that can still be just as reliable and just as safe and just as professional looking it, if you're worried about being an NCO or an officer and having a hoopty or something, it doesn't have to be a piece of junk, but that's a lot of money you can free up in your budget very quickly.

[00:37:14] Spencer: There's this great blog out there, Afford Anything. Paula Pant is the author behind it. And she has this great line that you can afford anything you want, but you can't afford everything. And I know for me having less anxiety about money and ha and setting myself up to be on the path to financial independence was worth way more than the car I drove.

And so I drove a crappy used car at Saturn L300, 2002 from 2000, whenever 12, 2011 to 2015. And then, pinned on captain and, bought the Mazda three for 20, 000 and drove that for the next seven years. And the next car I bought paid cash for it. It was a used car, but, it's just if you can, it's like getting back to Morgan Housel and The Psychology of Money.

If you can lower or increase your humility and recognize that no one cares what we actually didn't talk about this part of the book, but he talks about seeing people driving Lamborghinis and Ferraris and everybody always looks at that and thinks, man, if I was driving a Lamborghini or a Ferrari, everybody would think I was so cool.

But the trick is once you're inside the Lamborghini and Ferrari, you think you're cool, but no one else thinks about you, they're just looking at the car and all they can think about is, man, if I had that car, I would be so cool and people would respect me. And everybody would think I was so cool, but then you get in the car and you realize, Oh, wait, nobody cares about me.

They just care about the car. So I thought that was really funny. That's another great psychology of money reference there.

[00:38:57] James: So maybe a couple days after you list out all your expenses. That's the time to come back to your list and see what you might want to cut. It sometimes feels like everyone has Amazon prime and in fact, 150 million Americans do, but maybe you could do something like use a free target debit card that gives you free two day shipping or use the Amex Platinum card that gives you free Walmart Plus, which gives you free two day shipping and free delivery near your local store instead of paying a hundred and I think it's $120 or $130 a year. Now for Amazon Prime, maybe instead of Netflix, you guys temporarily cancel one or two of your subscriptions.

You could go as far as getting DVDs from the library if you still have a DVD player in your home. Not even computers have 'em most of the time anymore. You don't have to go that extreme. It's okay to go. If you're, if you go all in, sure, go for it, but there you'll, after a couple of days, like I said, come back and see, like we mentioned before in the financial independence episodes, it doesn't have to be all about cutting costs and living miserable.

So cutting costs is one side of the equation. The next thing I want you to come back to and think about is what can you do to earn more money? Now, if you're active duty military, you have to be careful about this. There's certain things you may need to do. If you actually get an extra job, look up the rules on that, talk to your leadership or your commander may have to approve actual extra jobs, but maybe this phase in your life, you're listening to this and you're a military spouse.

It's a stay at home dad and you have really enjoy woodworking as a skill and maybe you could make some woodworking projects and sell them on Etsy or facebook marketplace or post them in your neighborhood facebook group or something like that maybe you have a lawnmower and you don't have kids but and you have some extra time and you're willing to go get paid to mow people's lawns like me that don't enjoy doing it.

And then lastly, write down all the options you can think of for finding extra money. And then the last thing to come back to when you come back, I'm sorry, the last thing to do when you come back to your list is inventory extra stuff in your house. So maybe you can sell one of the three laptops in your home or one of your set of wireless earbuds, some old clothes or kids toys they don't use anymore.

You'd be surprised how. $10 for this shirt or $5 for this pair of jeans, $5 for this toy, $20 for this picture. And that can really add up when you're behind an extra $100 a month in stuff that you sold can be really beneficial and help to give you that momentum and some of those small emotional victories that will take away some of that stress and anxiety.

[00:41:35] Spencer: Jamie, if this process discussion is starting to make the listener feel even more overwhelmed or scared, you've mentioned before the concept of protecting the most important things first, or the four walls concept. Can you tell us more about that?

[00:41:50] James: Yeah, hopefully you're not feeling more overwhelmed than you were when you started listening to this podcast, because then I would say that Spencer and I may be need to work on our communication skills and convincing is not our strong suit today, but I understand that it may feel like that because we've given you some do outs, if you will, and some projects to work on.

But basically the four walls principle is something that Dave Ramsey came up with, and I think it's a great concept, you have to prioritize what money you have coming in when you have competing interests, which everyone does, but when it's tight, there's even more competition. When you're behind, you have to let some stuff go or you'll continue to stay behind.

But you always want to make sure your four walls are protected and stay current. You never want to get behind on these bills as much as possible. 

The four walls are housing, number one. Number two, reasonable transportation. Number three, groceries. And number four, reasonable clothing, you have to have clothes on to go to work.

You have to have a car that can drive you to work. It doesn't have to be a Tesla, but it has to be able to get you to work. You have to have food on the table and you have to have a place to live. So those are the four walls. So with those in mind you want to protect those at all costs. So then you may be forced to look at what can be reduced or cut. Like we mentioned earlier. So Spencer wrote in his book quote, create breathing space in your budget. Consider what you can live without. This gets back to the first principle of spending less than you earn is one of the principles he talks about in his book.

And like Spencer mentioned earlier, it's a temporary sacrifice for emotional wellbeing and health. It doesn't mean you can never have Netflix again, or you can never have Amazon prime, or you can never. Your kids can't get their own meal every time you go out to dinner. It's just temporary. Just until you get caught up and you start getting some momentum.

Maybe your cell phone bill with Verizon, it feels like a lot of pressure and it's tough to pay every month. Maybe you switch to Google Fi or T-Mobile or Metro or Mint Wireless or Oh, there's so many of them out there that are going to be cheaper than Verizon or even T Mobile. Maybe you. Cut the cord with cable and you switch to just Hulu, maybe you have Netflix, four screens and you cut to one screen.

I was looking at my internet the other day because my internet plan, my 12 month promotion ended because we've lived in our house for a year now and it went up $20. So I was looking at options and I have one gig speed at my house and switching to 500 meg speed, which five years ago would have been amazing to have in your house would have saved $40 a month.

So you have options like that. Maybe 500 or I'm sorry, 500 megabyte speed is enough for you. You could reduce your eating out. You may need to be so intense. You cancel Amazon Prime. You don't eat out at all. You don't use Netflix, cancel HBO Max, etc. for a couple months. But then as you get caught up, you can bring it back.

Speaking from experience, there's also periods of my life where we cut coupons. We use cash back rebate sites, Rakuten, I bought upside, stuff like that. Just every little dollar seemed to help. And like you mentioned before, Spencer you may want to balance that with finding extra income sources with your time you're not going to get a great time on investment from cutting coupons, but if you're home anyway with your kids and there's no way for you to get an extra job, maybe saving a extra dollar here or there might be meaningful if you're that desperate or that far behind.

[00:45:14] Spencer: Yeah, it can be tough sometimes. I think the most important things, like you said, are just to build that breathing space back into your budget and give yourself that margin of safety.

If you're budgeting down to your last dollar, as soon as the price of milk goes up a dollar. Then, and you're still buying a gallon of milk at the grocery store, man you're stuck. So it's and it can be hard because sometimes you're looking at your peers to see what their spending habits are and they don't have good spending habits.

And sometimes you're looking at people who are less wealthy than you. And sometimes you're looking at people who are more wealthy than you. And neither of those might be the spending habits or the financial habits that you need at that moment. So like someone who has a multi million dollar portfolio and is financially independent, they might not keep a budget, right?

They might just spend how they do naturally. And it all works out in the end. And if you have, you know, and they might have their annual expenses. They might have 50 times their annual expenses saved up in a stock and bond investment portfolio. And so they know they're only withdrawing 2 percent a year.

And so they're fine. Like they can spend, they can basically spend whatever they want within reason. And they're going to be fine. And if You apply that same habit to your life when you're making $30,000 a year and you don't have significant savings and you don't have an emergency fund, you're gonna have trouble really quick and usually looks like credit card debt or payday loans.

Or some other kind of financial hardship and it's going to be a terrible situation to be in. When you're attacking this problem of living paycheck to paycheck you're going to have a lot of people, you always have people clambering to get their hands on your dollars. And it's your responsibility as a good steward of your money to make sure that You're covering what you need to first, and then you're dealing with the other things on top of that, if you're in a position where you're in debt and whether that's, credit card debt or payday loans.

You need to make sure that you focus on those four walls like Jamie talked about. So if you've got a housing situation or if you're behind on your rent, you've got to catch up on that. You've got to make sure that you have a place to live because now in the military that should be something that, you know, either living on base or living in the dorms.

I mean there should be enough housing security there. You should be able to cover that power and water. Got to pay those bills. Got to keep up on those. You can't have those cutoffs, especially when it's a heat wave in the American South, or if you're up in Alaska during the winter and then other things.

Besides those four walls, like Jimmy talks about, you can wait on them a little bit. So if that's like a Wells Fargo credit card that can wait, but your mortgage can't because you don't want to get kicked out of your home, your city GTC that can wait a little bit, have them put you in a mission critical status.

Talk to your commander, talk to your first sergeant, talk to your senior enlisted member in your organization and explain that, Hey, you've gotten yourself into a bad spot, but you're taking the proactive steps to get out of it. And you need just a little reprieve before you, let's say you put some transactions on your Citibank account while you're, or your city cart, government TDY.

And you just need a couple more weeks or months to get caught back up before you can pay it off. Keep current, keep your four walls intact and then fund everything after that with your remaining money, some things to do. So once you've taken care of all of your expenses that you have to like we talked about the housing, start building an emergency fund of $1,000, at least initially, check out if you want to take Dave Ramsey's baby steps and then start acting.

If you've got debt, start attacking your debt. If you are in a fortunate situation where you don't have debt, make sure that you're investing in your TSP and getting your 5 percent match, then start working on your full emergency fund, whatever that can be comfortable for you. I argue in my book, a three month fund is probably a good place to start.

If you're spending a thousand, sorry, if you're spending like $2,000 a month, that might be like $6,000 in there. If you're spending a little bit more, it might be $10,000, $12,000. Maybe you want more than that. Maybe you're getting ready to separate from the military and you want to have six to 12 months of expenses saved up just to cover you in case you have to look for a job.

That's something that you want to consider too. So if that seems completely insurmountable, you're like, man I'm getting out in three months. There's no way I can save 12 months of expenses in that time or just anything, just having any amount of money set aside, it's going to be better than none.

Like Jamie has said in a couple episodes, just do something and you'll be better off than, and doing nothing. Once you've gotten to the point where you're out of the paycheck to paycheck cycle, then you can start. We're talking about first aid steps right here. Now you can do the long term rehabilitation and healthy eating and care to continue the medical metaphor, but your savings rate is going to be your biggest impact.

On whatever future wealth you have, so if you can start cranking that savings rate from, once, once you break out of the paycheck to paycheck cycle, a lot of people do get there and a lot of people have money left over at the end of every month, but a lot of people don't know what to do with it and, I'll see stories online of people like, Hey, I've been in the military for four years.

I have $60,000 sitting in my checking account. What should I do? And it's Oh my gosh, dude, like you need to put that money to work. You need to start investing that money. Well done. You're clearly spending less than you earn. That's great. But now you need to start putting that money to work.

And usually that means investing in what I would argue for is a low cost passive index fund of stocks and bonds. And you can start with the TSP. So you can crank up your contributions there until you're maxing it out, or you can open up a Roth IRA, or you can put the money into a taxable brokerage account.

But if you can, stop living paycheck to paycheck so that you have. Money left over your checking account after, before the next paycheck arrives, then you can start thinking about, okay, what goals do I have? What do I want to do with my money? What do I want my money to do for me?

Do I want to work until I'm 65 or 70? Do I want to wait until I do a 20 year military career and then be done working or move into some other career? Do I want to achieve financial independence faster than anybody really thinks is possible? I argue in my book that if you're serious about it, you're probably only 10 to 15 years away from financial independence.

And how you define that though, how you define that lifestyle is completely up to you. That's the point of breaking the paycheck to paycheck cycle is that now you have time. Now you have breathing space. Now you have that margin of safety. First of all, congratulate yourself because getting out of that paycheck to paycheck cycle can be difficult but the interesting thing is, sometimes going through that experience builds the habits that allow you to eventually become financially independent.

And if you were the kind of person who always just saved a little bit and didn't live paycheck to paycheck, then you might never have that experience of being anxious and being poor and being behind. And that can sometimes, when you have that experience, it can light a fire in you. And make you desire.

Hey, I don't ever want to experience that again. I want to be financially independent. I have money set aside such that if I don't want to work, I don't have to work. And if I want to work, then I have the flexibility that I can move across the country and move across the world and do something and it's somewhere else and it's okay.

I'll have the flexibility and I'll have the time that I can do that.

[00:54:00] James: That's good. That's good stuff. Thanks again for listening to the podcast each week for all the listeners and joining us today as we discussed ways to get caught up and break the paycheck to paycheck cycle. We hope today's discussion will help you get started towards financial independence or keep you on your way to achieving financial independence while in the military and maybe help you maximize your military benefits.

And remember, like I said before. Even if this doesn't apply to you, you're not in the paycheck to paycheck cycle or don't feel behind on your bills, 30 percent of your coworkers statistically do. And so if you're a supervisor of any kind or just a genuine good person that wants to help other humans, you can take these principles that we talked about today and help out your friends and your coworkers.

Remember our three main ideas from today, get organized, start making a list of what you have coming in and then after a couple days come back and see what you might be able to cut or where you might be able to make some more money with either an extra job, maybe the spouse goes back to work if they're not working maybe selling extra stuff around the house that you've never used in your closet for the last five years things like that.

And then number three, cut costs and or raise income to turn things around.

[00:55:10] Spencer: Before we let you go, listeners, I just want to share this story from Derek Sivers. He's a pretty interesting guy. He's written a couple books that I've really enjoyed. He's at Sivers.com. You can, or you can just Google Derek Sivers and his website will pop up.

But he's done a lot of things. He's been on the Tim Ferriss show. He's been a circus clown. He's been a musician and he started a company called CD Baby and I think ended up selling it for 10 or five, 10, 20 million, something like that, enough money that he doesn't have to work anymore and.

He's friend asked him. So he's got this great story here. It's how I got rich on the other hand and I think it has some application to living paycheck to paycheck. So here I'll just read the story and then I'll comment on it. I don't usually talk about money, but a friend asked me what it was like to get rich and he wanted to know specifics.

So I told him my story. I had a day job in midtown Manhattan paying $20,000 per year, about minimum wage on weekends. I would earn $150 per day performing circus shows for kids. And then I'd spend about $50 in bus fare to get to the gigs. I was sharing a three bedroom apartment with two other roommates in Queens, and our rent was about $333 per month each.

I made peanut butter sandwiches for three meals a day, and at night, maybe some eggs. I never ate out, and I never took a taxi. My cost of living was about $1,000 per month, and I was earning $1,800 per month. I did this for two years, and I saved up $12,000. I was 22 years old. Once I had $12,000, I could quit my job and become a full time musician.

I knew I could get a few gigs per month to pay my cost of living. So I was free. I quit my job a month later and I never had a job again. When I finished telling my story, my friend, he asked me for more. I said, no, that was it. He said, no. What about when you sold your company? I said, no, that didn't make a big difference in my life.

That was just more money in the bank. The difference happened when I was 22. It's not how much you have, it's the difference between what you have and what you spend. If you have more than you spend, you're rich. If you spend more than you have, you're not. If you live cheaply, it's easy to be free. And that was Derek Sivers and his story, How I Got Rich on the Other Hand.

And that's something that you can achieve if you can break the paycheck to paycheck cycle. Hey, as always, if you have any questions or feedback, message us on Instagram @militarymoneymanual, or email me info@militarymoneymanual. com. We appreciate you joining us today. We're grateful for all of you.

Keep sharing the podcast with your friends, family, co-workers, and we'll catch you on the next episode of the Military Money Manual podcast.