The Savings Habits of the New Rich: Why You Should Be Living Paycheck to Paycheck

Marisa Torrieri
Posted

“One thing I really miss is being able to go shopping as frequently as I would like,” says Hinds. “It’s very, very hard for me to look at what’s actually in my bank account and what I need and to be intelligent with the way I spend my money. It’s been quite a long time since I’ve purchased clothing for myself.”

The Hinds also don’t eat out very often, a certainly frugal—yet sometimes painful—new habit.

“We certainly have had to say no to dinner invitations, which means you’re not only not getting something great for dinner, but you’re missing out on time with friends as well,” says Hinds. “We try to come up with more creative solutions, where we can have people over or go out for something cheaper.”

RELATED: 8 Ideas for a Big Night Out—All Under $100

The Sappers, too, have just said no to restaurants, for the most part, since they began focusing on growing their net worth—and they used to spend upward of $3,000 a month on eating out.

Their relatively modest, 1,600-square-foot home, which they purchased for $126,000, pales in comparison to the sprawling, million-dollar homes some of their friends dwell in. But while they were the odd couple when they decided to stop keeping up with the Joneses, today many of their friends are now starting to want to jump on the paycheck-to-paycheck bandwagon.

“It went from our friends busting our chops about it to … our friends’ lives are changing to mimic ours,” says Sapper.

Making the Lifestyle Switch

“Opting to live on what’s left over after your savings is allocated won’t happen overnight,” says Brewer. ”Usually when somebody has something in their checking account they tend to spend until it’s gone.”

But dumping what you earn into your checking is the opposite of what she counsels clients to do. Instead, Brewer helps them set realistic budgets that allow them to put at least 20% toward their long-term goals. She also suggests individuals and couples start by setting a specific percentage of their income aside—preferably through automatic deposits to a savings account—as a rule. And it’s important to be open to a new way of living.

“As long as you are open to making adjustments where you might not have been adjusting before, and as long as you’re willing to see where everything is going, you’ll address two the biggest hurdles to allocating your paycheck,” she says. “I have a lot of clients who say they don’t know where their paycheck goes, they just know it disappears.”

Sapper suggests making cuts in baby steps. When he and Tina first made a lifestyle change, they cut back to spending $500 a month on eating out. These days it’s less than $200 a month.

“You can’t go cold turkey overnight,” he says.

RELATED: 7 Steps to Have More Money This Year

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.

  • ana

    I’ve been doing this for years, I thought it was just called living below your means and paying yourself first.

  • erica

    kudos to these couples! That’s great inspiration to save like you mean it! Thanks for sharing :)

  • Jamie Voorhies

    Also important to note that you can do this even if you don’t make $500k a year. Sure, it’s hard. But way easier than having to dig your way out of an unrecoverable amount of debt someday.

  • DC

    $500k would put them in the 1% and I can’t even relate.

    Maybe they should just spend their money a bit more. They can’t take it with them and are ripe for a lawsuit or divorce to quickly remove those liquid assets.

  • Sara

    My husband and I make considerably less than $500,000 a year and still do this. We are currently saving almost 40% of our income and have no debt other than our mortgage. This is something that is manageable even with a more modest income, but the key is really taking a look at your spending.

  • KT

    They make $500k but it took them 7 years to save $50k? That doesn’t add up, where else did it all go?

    • Maritorri

      they needed to save money to open up a car dealership — that’s where some of it went.

    • mlk

      they also paid off their house, maxed out their IRAs, and hit other financial milestones…

    • Maureen Mimi Jung

      They paid off their house it says.

    • kevin

      I’m with you. Assuming they pay 40% in effective taxes, that leaves $300k a year, That leaves $5700 a week after taxes. If they budget on $2500 a week (which is plenty more than you need for groupon shopping and leftovers 3 nights a week), they should have an extra $170,000 a year!!!

    • Scott_D

      Read the article. It’s just $50k in emergency savings, which doesn’t factor paying off their house, starting a business, maxing out their retirement accounts, and probably having some taxable accounts too.

  • Karen

    how sad to make that much money and live so unglamorously! I think its wrong. What about the actual people who HAVE to use groupons and shop at Ross. This isnt wisdom. its greed. Im ALL for savings and investing but putting yourself first also includes ENJOYING your money and living beautifully and NOT in fear.

    • CrankyFranky

      if you are not a troll (I’m not sure) then fear is more likely what people experience when they contemplate retirement with insufficient savings BECAUSE they put themselves first enjoying their money and – oh – didn’t save enough.

      I have lived frugally for 50 years – I enjoy saving money, not wasting it on rubbish – I seek out free pleasures and enjoy the beautiful cloudless blue sky and gentle cool breeze today – no money could buy that.

      Now considering retirement, friends call me frugal – they also call me rich – because I have enough savings for a comfortable retirement with all the overseas travel I want, and they don’t – because they spent their money and didn’t save it.

      If you imagine having money requires spending on glamour – then you are perfect fodder for the marketers of hedonistic pleasures and consumer goods – how’s your credit card debt – maxed out ? – I pay mine in full each month – no consumer debt, only carefully monitored growth investments which are doing very well indeed, as they have done for the last 35 years.

    • GK

      I believe they are ENJOYING their money and not buying into the trap of a “glamorous” lifestyle. In fact, they have redefined the “glamorous” lifestyle. That term is all relative anyway. It’s far more glamorous to have a paid for house, maxed out retirement, maxed out savings, and your own business. Having financial peace of mind is more glamorous any day. Now their friends are realizing this and are trying to be more like them. This is wisdom that I wish more people would welcome. It’s never to late to learn a lesson. When you know better, you do better.

  • anon.

    God this article makes me depressed. My take home check every month is $2200. That’s not my budget – that’s my actual paycheck! And I do actual work with a lab trying to find treatments and a better quality of life for people with terminal illnesses – not something like selling CARS. My budget is around $1650 per month and I am STILL able me to max out my IRA. Sheesh! $500,000 a year? I wish I were that financially stable – I make less than 10% of that!

  • Guest

    It sounds crazy at first but it acsolutely can be done with relative ease. It didn’t happen overnight. We started with small changes that became normal over time. We drive old cars and have jobs and make over 100K combined. We don’t dine out much but we do have some luxuries. Good beer, nice wardrobe, cable, iPhones, etc. My family lives on 30% of our take home. We will pay off our house this year on our 5th anniversary. All it takes is a paradigm shift. Do you really like how you are spending 8 or more hours a day and do you want to sell your life to a company for 40-50 years? We are saving for our freedom.

  • ksgirl73

    It’s not that I don’t appreciate what these people have accomplished, but sometimes I wish Learnvest would publish articles about people that are a little more relatable. I doubt many of the readers here are making $500,000 a year and although going to extremes like this is interesting, it’s just not possible for a lot of us.

    • Lilith Rayne

      Agreed… we make less than $20,000 a year in our house. Considering the way we live, $500K a year would probably mean no trouble at all for us.

      • tokenadult

        Because Learnvest wants to be a position to sell this site/brand to people with that kind of income.

  • Rosa Caldwell

    You cannot take your money with you when you die. Although they are young, I am wondering what they are doing to prepare for catastrophes. They may find theirselves unable to work and bring in those terrific incomes. I don’t believe this is a realistic sampling of the average consumer.

    • Scott_D

      Huh? Did you even read the article? It sounds like they’ll easily be able to recover from a catastrophe with their frugal living and massive savings rate.

  • Katie Wong

    If you are living paycheck to paycheck then you are poor regardless. It doesn’t matter how much income you have coming in. Wealth is about assets you actually have not what you make. It’s not the rate you accumulate income it’s how much you retain. See that’s why you have so many high earners in this country that are not financially independent. They could save a huge portion of cash if they lived significantly below their means but the American way encourages you to spend it all keeping you dependent and living paycheck to paycheck.

    I graduated with my MBA last year and got a job making 55k . I drive a 1996 Maxima with over 200k miles, I get bare minimum $25/month insurance (from Insurance Panda), I carry my lunch to work, have 0 credit card debt, invested heavily in my 401K, over 20k in my personal trading account and over 25K in my savings. All because I only buy what I NEED and not want. Everybody wants, wants, wants…then they still want more. What’s wrong with just the basics? I go out to eat occasionally, go to bars with friends, vacations, etc. people just don’t have respect for their finances, they just swipe the card and keep walking. Everytime I got a check when I was younger I’d always go and put 10% into my savings account. I guess working hard all my life and growing up on a farm helped me appreciated the simple things in life rather than the materialistic.

    • BrandonesJazzy

      I also lived on a farm I’m 29 and basically starting all over again from nothing… I only make about 1500 take home from both of my jobs (causal restaurants), I rode a bicycle for the first three months and Im about to close in on a deal on a 91 Honda Civic CRX (I’ll work on it turn it to my new hobby) which is really good on gas mileage is under 200k and both of my jobs are very close to my apartment. I cook my own food getting used to shop for my groceries around my slow-cooker and healthy sandwiches. One of my jobs I get free meals both I can get those expensive meals discounted. I’m working very hard to maintain saving 50% of my paycheck every month.
      I’m new to the town I live in so I don’t know anyone so I don’t go out at all, single, no children, DVDs, one pc game, gym, walk down the park, and home cook meals are good for me as far as entertainment is concerned. Later this year I hope to either finish my BA or go to this tech school I’m looking at.

      Many people around me can’t even do what I do because they go out all the time and ride an expensive car, expensive phone plan, expensive clothes. Heck I have clothes that I’ve own for 10 years and still fit. But living on the farm I acquired some nice cheap clothes. I dress simple and country.