Stop the Madness! Ditch Paycheck-to-Paycheck Overwhelm

This post is going to usher in a new era for posts to TSA.

No more in-depth tutorials (mostly), unless you specifically request them.

Instead, I’m going to focus on how you can use spreadsheets to help you manage some area of your life.

Today, let’s talk about paycheck-to-paycheck budgeting, a topic that’s very close to my…pocketbook.

As an economist by education, I’m supposed to act intelligently with my finances because, for starters, I know how compounding works.

As a present-moment-embracing gal, however, I must admit that I’ve failed miserably in this area.

While I’m working hard to change this with side hustling and habit-changing, I’m now bearing the fruits of both my old behaviors and some unfortunate new circumstances.

Friends, I’m living paycheck-to-paycheck.

While I’m fabulous with crunching numbers and creating wicked spreadsheets, I don’t always apply this fabulousness to my own life.

But there are times when I create spreadsheets for myself, tweak them over the months as my needs evolve, and come to rely on them wholeheartedly.

That is the case with a spreadsheet I’ve taken to calling Stop the Madness! (STM for short).

If you want to buy it, you are awesome and I hope that you love it as much as I do. But if you just want to understand the gist of how it works so that you can create something similar, read on! This post is for you.

Let’s talk about the challenges of paycheck-to-paycheck budgeting.

First, I’m an economist by education and not a finance guru. Please do not construe anything in this post as being financial advice. I’m going to share with you only what I do to manage my own finances using spreadsheets. And, for the record, when I say “manage”, what I really mean is to make sure that I can always pay my bills without resorting to weird shenanigans that my former self has been known to do, e.g., using credit and juggling bills.

Second, If you’d like to read about paycheck-to-paycheck budgeting from an actual financial blogger who is seriously amazing, go to The Budget Mom. I promise you that Kumiko’s posts won’t disappoint!

Disclaimers and suggestions aside, let’s talk about the challenges of paycheck-to-paycheck budgeting. Ready?

The challenge of paycheck-to-paycheck budgeting is that you must plan ahead. It’s as simple as that.

Seriously.

It’s not rocket science, but it becomes that complex when you claim to be:

  • An under-earner
  • Someone who lives beyond her/his means
  • A compulsive spender
  • A snob when it comes to brands, stores, second-hand purchases, etc.
  • A person with a high discount rate (econ jargon for someone who greatly prefers spending money today over saving for a rainy day)

Consider the following scenario:

You get paid bi-weekly, which means two months out of the year you receive three paychecks. This month happens to be one of them. After barely scraping together rent that was due on the 1st (and living on rice and beans because you couldn’t afford to go grocery shopping), you got paid on the 2nd. Yay! Now you are loaded. Your rent is paid, most of your bills aren’t due until mid-month – after you receive your 2nd of three paychecks – and you basically have $1,500 to spend on whatever.

Maybe you consider renewing your website hosting three months early since you’ll be struggling to find $350 when it’s due, but then you don’t. Same with your vehicle registration renewal, Christmas shopping, and the emergency car repairs you sense are lurking in the shadows.

So then you think about all of the things you’ve been absolutely needing to buy but have been too broke to get. You know, that new Erin Condren planner, Lucky handbag, and a replacement bottle of something or other from Sephora. It’s also been a while since you’ve swung by Starbucks, snagged a $15 bottle of wine (hey, that boxed stuff isn’t so bad…), or bought the $35 shampoo your stylist recommends instead of the cheap 365 stuff.

And what happens next?

That extra paycheck disappears, and you are in the same bind – if not worse – as you were in before. Except that now your hair smells divine (thanks, Aveda!).

Your end-of-month paycheck covers next month’s rent, but you have a couple of bills due before your first paycheck hits on the 12th. And then you’ll need to buy groceries. Oh wait – rent is $1,300! That means that only $200 remains to pay $350 worth of bills AND buy groceries.

Fuck.

So, you evaluate your bills to determine which you’re going to have to pay late. Again. You live on beans and rice for five days straight as you tell your daughter that no, you can’t swing by the grocery store to buy bananas until Friday. And you feel like the biggest loser.

Not that I would know…

Are you ready to try something different? Good.

Here’s how you can create your own stop-the-madness! paycheck-to-paycheck system.

Step 1: Find out how much money you actually have available (hint: you must do more than check your balance online).

This is both an extremely important and yet an often overlooked step. YOU. MUST. RECONCILE. YOUR. ACCOUNTS.

Doing so will allow you to know exactly to the penny how much money you actually have…after the check you wrote to your kiddo’s school three months ago clears, the power bill hits, etc. Old schoolers will remember cross-checking their checkbook registers against their bank statements each month. Did I just date myself?!

These days, you can track all of your transactions in a simple spreadsheet. STM has a snazzy way of simplifying the process, but all you really need to do is:

  1. Enter down your starting balance; then
  2. Enter every transaction you’ve made that is not accounted for in this starting balance. This should be a small list if you use your debit card for everything. Also from here on out, record every transaction you ever make; then
  3. Make a note when your transactions clear your account; and
  4. Subtract your cleared transactions from your starting balance to get your available balance. This should match your bank account’s available balance; then
  5. Subtract ALL of your transactions – cleared or not – from your starting balance to find out how much money you have left over.

If you don’t like using spreadsheets or are feeling overwhelmed, guess what? There’s an app for that! My favorites are YNAB (software that includes an app) and Balance My Checkbook (iOS only).

While I’ve used all three and love them each for their own reasons, they fall short for paycheck-to-paycheck money management because they can only show you your present day balances. They cannot show you how much money you will have available in your account on a future date. When it comes to paycheck-to-paycheck budgeting, knowing how much money remains available after future transactions clear is crucial!

Step 2: Put your economist hat on and forecast next month’s financial snapshot…by date!

“Normal”, e.g., monthly budgets are great for showing you how much net income you’ll have to play with during any given month.

But, as paycheck-to-paycheck budgeters know all too well if you don’t have a reserve to hold you over and your bills are due before payday, you can’t pay them. So, you do what I used to do – you do the time-consuming and tedious math on scrap pieces of paper to see how much money you can/can’t spend on necessities in order to make your bill payments. Maybe you even map out several different scenarios when you can’t get the numbers to work…yep, I’ve been guilty of doing this.

Step 2 makes it easier for you to figure out how much of your current spending money you’ll need to not spend so that you can pay your bills and budget for necessities as far out into the future as you like. No paper involved. Note that manually forecasting your expenses this way can get very time-consuming. Sorry, but I need to plug STM one more time, as it does this heavy-lifting for you.

Here is how to forecast your future financial snapshot:

  1. Make sure that you’ve completed Step 1; then
  2. Enter all of your expenses – bills, groceries, etc. – for the next full month; then
  3. Enter all of your expected income for the next full month; then
  4. Sort your entries by date; then
  5. Subtract the first expense from the starting balance to get your new balance…then subtract the second expense from the first’s balance…rinse and repeat, but make sure you add (don’t subtract!) your income; then
  6. Evaluate this column. Are any of these balances negative? If so, you don’t have enough money to meet your needs and will have to get creative, e.g., spend less than you planned or bring in additional income.

That’s it! Of course, it would behoove you to build up a reserve so that you can escape this paycheck-to-paycheck mentality. So, view this only as a Band-Aid sort of fix to the troubles inherent when funds are tight.

Final thoughts

Are you a paycheck-to-paycheck budgeter? Do you have an alternative system or app recommendation that works well for you? If you’ve escaped this style of budgeting or continue to use it despite growing an ample reserve, I’d love to hear from you!

Also, if you would like to become an affiliate for The Spreadsheet Alchemist, I’d love to have you on board! Please create a Gumroad account (it’s free, and if you’ve bought any of my spreadsheets, you probably already have one) and then drop me a line. Also, make sure to tell me what email address you used to sign up with Gumroad. Thanks!

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