If You’re Living Paycheck to Paycheck…Watch This

I know what you've heard. 78% of Americans are living paycheck to paycheck. And yes, housing is historically unaffordable, health care costs have skyrocketed, and food prices are higher than they were five years ago. But you guys gotta stop repeating these bull statistics like 78% of Americans are living paycheck to paycheck. This is not true. The survey was commissioned by payroll.org if you try to find the survey, it's almost impossible to find. But. And in the question where they talk about living paycheck to paycheck, the best we can find is that they actually worded it like this. How difficult would it be to meet your current financial obligations if your next paycheck was delayed for a week? 49% said very difficult, 29% said somewhat difficult. And as far as we can tell, they literally just added those two numbers together and said 70% of Americans are living paycheck to paycheck. Now, I have a few comments on this godforsaken survey. First of all, why would we take economyadvice from payroll.org that's like me deciding where I'm going to go on my honeymoon from a sheep farmer. Makes no freaking sense. Second, let's look at some actual data. Did you know that 82% of Americans rate their financial situation as good or very good? Yes. You don't hear that that often, do you? But that's actual data. Did you know that the median American household is not living paycheck to paycheck? The median American household has a net worth of $193,000. Did you also know that the median American household holds $8,000 in their checking or savings account? Guys, it's time to get real and stop listening to these bull. Commission surveys just to drive marketing feelings are not reliable data. And because people's feelings are totally uncorrelated with their own personal finances, much less the economy, they are subject to being manipulated to stupid marketing data like this. So in this video, I'm going to break down four common mistakes I see a lot of you making with your money which make you feel like you're living paycheck to paycheck. I'm also going to show you the exact steps you can take to avoid these mistakes. Mistake number one, lying to yourself. I talked to six figure earners who describe themselves as living paycheck to paycheck. It just turns out that they are paycheck to paycheck after they contribute $23,000 a year to to their 401k. They go, Ramit, where's all our money going? We're basically living check to check. No, you are not. There's a difference between truly not having enough money and making decisions such as investing a lot, saving a lot, sending your kids to private school, buying a new car every four years. That's like saying, oh my gosh, it takes so long to fly from LA to New York. I go, really? That's so interesting. Usually it's about five to six hours. They go, oh well, we have to stop and refuel the jet, motherfucker. You have to remember that most people's feelings about money do not match up with how they actually spend it. There are a lot of people who save and invest a lot of money and still feel like they don't have enough. And they believe that some magical day far off in the future, they will finally feel better about money. Wrong. Most of them will never change the way they feel about money. You see, once your identity is focused on saving as much as possible, for example, you, it's difficult to change. You may have enough money, but your mind will still be operating as if you don't. You'll be able to easily afford all the blueberries you ever want. But when you see a $7 organic blueberries, you'll create a matrix in your freaking head and go, oh, can't do that. Maybe in 2064. So how do you actually change the way you feel about money? My action step here Create a guilt free Spending account. My mission is to show you how to live a rich life to today and a richer life tomorrow. That's why I recommend using my conscious spending template. It's a free download. I'll link it in the description below. In this conscious spending plan, you'll find four categories for your money and it will automatically get allocated fixed costs, investments, savings, and guilt free spending, which is your fun money. It's meant to be enjoyed. After your fixed cost investments and savings, you should have roughly 20 to 35% of your paycheck to spend on any anything you want every single month. This is the money that lets you live your rich life today. So whether it's an international vacation, luxury clothes, going out to dinner, this is where you decide what your rich life is and you get to use your money to live it. The trick here is to get crystal clear on what you love so you can spend extravagantly on the things that matter to you. But what if a lot of things matter to you? How do you afford to do all of it? For example, what if your kid's education is important to you? If you and you want to be able to send to the best school, but you also want to be generous and donate to charity and you want to take a dream vacation every year, can you still do it and still retire comfortably? Most of us can figure that out with a back of the napkin calculation. But if you want to be able to run a couple of scenarios to understand what you can afford and how that's going to affect you long term, then working with a financial planning team like the ones at our partner Facet could be a great option. We actually had Fassit do this for one of the couples on my podcast. We we showed them what if you retire five years early? What if you want to be generous and help pay for your niece's college? What if you want to take an overseas trip every year? We help them understand the trade offs of all of these decisions. With Facet, you get flexible access to a team of financial planners, CFP professionals, and a team of professionals providing guidance across retirement planning, tax strategy, estate planning and more. And instead of taking a percentage of your portfolio, which is a big no no, they charge an affordable flat membership fee. FASTT does not charge you to invest with them. Check out their new membership options@facet.com ramit or click the link in the description below. Alright, now let's move on to mistake number two. You don't have a financial moat. What would happen if you got laid off tomorrow? How long would you be able to make it? A week? A month? A year? A lot of people do not have a financial moat protecting them. And any number of things can happen that would be financially devastating. Most people never think about this until they are in trouble. Now maybe you're one of the people who doesn't have any money saved. Maybe if you got laid off, you got sick, something happened, you would suddenly go into emergency mode. You'd take a loan from your 401k, you'd stop paying your debt. Well, instead I want you to build a system where your back is never against the financial wall. That means having enough savings so even if something bad happens like a job loss or an emergency expense, you can cover it. And I really think of this as a moat. If something comes, I am strong enough to protect myself against, for example a job loss, or needing to get on a flight for a sick parent, or having emergency childcare. So here's the action step. Build your financial moat. I recommend three to six months of an emergency fund. For example, if I spend $3,000 a month in my fixed costs, meaning just to keep the lights on. I would target saving about 9 to $18,000 for my emergency fund now. Might take a while to save it. Don't worry about that. But what you want to be able to do is access that money quickly in case something happens. Like if one of your parents gets sick, you can go straight to the airport. You don't care what it costs. You get on the first flight. Now importantly, you want to keep your emergency fund separate from all other checking and even all other savings account. It just sits there now. Yes, saving three to six months can take a while. But here's my philosophy. Start saving any amount you can. Right now. I recommend $100 a month to get started. Over time, you will build that emergency fund up. And once you fill that emergency fund up, you can redirect that cash to places like investing and grow that even faster. All right, before I share mistake number three, do me a favor and hit that subscribe button and turn on notifications so we can send you new videos every single week. Now onto mistake number three. Treating luxury items as investments. How many times have you heard someone call their personal trainer an investment? Their face cream and investment. Their mattress and investment guys. These are not investments, okay? I love nice clothes. I have a personal trainer. They are not investments. Here are examples of actual investments. Target date funds, index funds, individual stocks, bonds, even a real estate property that you rent out to someone else. But let's get real. Lotions, espresso machines, trucks, sheets. They're not investments. They are luxuries. In America, we are so afraid of admitting we actually want to spend money on a luxury that we slap the word in investments on everything. The bottom line is this. I define an investment as something that has the potential to produce financial roi, but people have taken it too far. They go, if I put lotion on my arm, that will moisturize me, which makes me more confident, which will make me close a $500,000 deal. Do you see how absurd that is? That's not a true investment. You must narrow the scope of an investment or you'll just use the word to justify anything. Be honest with yourself. If you want a luxury, if you love it and you can afford it, it's okay. Not everything has to be justified as an investment, but you have to be able to afford it. And you have to be real about what is a luxury and what is an investment. Here's the action step. Run the numbers before buying. So you want to buy a $2,000 mattress or a brand new SUV. Fantastic. But when I ask you, how do you know if you can afford it? Your answer better have a number in it. A lot of people going, well, it's going to make me so happy. And happiness is important. Oh, my back pain is going to go away. And back pain is going to mean that I can be more productive at work. And if I'm more. Come on. You need to know if you can afford it. First of all, to know if you can afford something, you absolutely, positively must use real numbers. You got to use your income, debt, savings, net worth, all of it. And to see if you can afford a bigger luxury purchase like a car, I have a really helpful trick. Work backwards. Let me show you how. Use my CSP template. Fill out everything in your fixed costs besides the car section. Now, what's left over is how much you can spend total on a car. So, for example, if you take home $8,000, here's what your fixed cost might look like before adding in your car. This means to keep your fixed costs at no more than 60%, you have $1,200 to spend on your car. Total, per month, total. That's car payment, gas, insurance, parking maintenance, parking tickets, registration, all of it. Working backwards like this is really helpful because it shows you what you can actually afford instead of just relying on your feelings. Now listen, I like feelings. Okay, let's give each other a hug. I feel so happy right now. But. But what I also like is using cold, hard numbers when we're talking about spending hundreds of thousands of dollars. That brings me to mistake number four. You guys can't say no. What's wrong with America? Nobody can say no. You know how many couples I've talked to? They walked into a timeshare presentation. They were like, okay, we're not going to buy anything. Then the timeshare person made their pitch and they were like, all right, that's a good deal. I'm inside. I go, why did you sign up for a timeshare knowing that they are the worst things you can possibly buy? They go, we just couldn't say no. Couldn't say no. That's my favorite word. I'm creating a no as a service. Nass. Send me your questions. CC me. You have. You can't say no to your kids. CC your kids. And I will reply with just one word. No. 49.95amonth. Terms and conditions apply. I talked to a couple who was making almost a quarter million dollars, but they were spending $84,000 a year on Travel and shopping. They were showing up to multiple destination weddings, fancy dinners, a lot of times with friends who earned more than them. There was definitely a sense that they wanted to keep up, but they constantly felt stressed they were spending more than they made every single month. They did not use the word no. And after talking to so many parents on my podcast, I can tell you something interesting. 100% of people who are in credit card debt also struggle to say no to their kids. Now listen, I don't mind if you like nice things. I like them too. But I don't want you to get into a situation where you are essentially spending more than you make simply because you can't say no. It's actually a miserable way to live when all of your spending is simply determined by the people around you rather than your own vision of a rich life. Now, in that vision, you have to be realistic about how much you can afford today on your current income and net worth. You should certainly have a vision for where you want to go. But we've also got to be realistic with where we are today. And that means saying no. So ask yourself what's important to you, what is not important to you? Have that vision. And I want you to be strong, like the wind is coming and you can handle it. There's going to be pressure, there's going to be invitations, there's going to be things you see on Instagram and at Target. But you are strong because you have your rich life vision. Now that we know the problem, what should you do to fix it? The action step here is to create your money dials. Yes, you actually can spend more on the things you love guilt free if you get crystal clear about what that thing is. Now, everybody has something they love to spend money on. And I call these money dials because you can turn that dialogue dial up. Let me give you 10 of the most common money dials I see. Food is the most common, travel is next, health and fitness, convenience, experiences, freedom, relationships, generosity, social status and self improvement. Now look at your own spending. Which one excites you most? Which one? If I said, hey, where would you like to spend more money? You instantly know that is your money dial. And when I say you can spend extravagantly on the things you love, as long as you cut costs mercilessly on the things you don't, we are focusing on the first one, spending extravagantly. Now, by making small changes to how you think about money, you can go from being in a better financial position and actually feeling good about your money no matter what your income level is. If you want to start feeling better about your money, check out this video right here.