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Stop living paycheck to paycheck! Put an end to the cycle and enjoy financial freedom.


IF YOUR PAYCHECK IS BEING STRETCHED to its limit and you're feeling the pinch, you're not alone. In fact, you're in the majority. According to the American Payroll Association, 67% of Americans would find it difficult to meet their current financial obligations if their next paycheck was delayed for one week.

We talked to financial experts and people just like you and discovered that employees across all income levels feverishly count down the days until they get paid. We also talked to people who were once hanging precariously over a canyon of debt but who have done a complete turnaround and have regained firm footing. Whether you're earning minimum wage or six figures, you can learn not only to live within your means but to also begin saving for your future. Here, BLACK ENTERPRISE shows you how to stop living paycheck to paycheck.


For many couples, debt is the elephant in the room, until an unexpected event occurs. Lisa and Wade Norwood, both 43, are a successful married couple with two children--Chris, 17, and Julia, 9--who live in Rochester, New York. Lisa is an assistant dean at the University of Rochester and Wade is a health planner at Finger Lakes Health Systems Agency. The couple brings in approximately $120,000 each year, but their total debt load is more than $90,000. About $25,000 of that is credit card debt, which is spread across six cards with an average interest rate of 18%. Another large bill is the annual $13,200 elementary school tuition for Julia. The Norwoods admit to not managing their money well in the past and are making an effort to spend less, but the recovery process has been slow, and they still find themselves strapped for cash each month.

"Our problems started when we began living beyond our means on credit cards," Lisa says. She recalls the days when money wasn't an object. A family night out could easily cost $200, and their Christmas shopping bill would be more than $300. In addition, the Norwoods occasionally assisted Wades family members, who came to them when they needed money to rent a car or purchase an airline ticket. Lisa and Wade helped out despite having their own financial obligations, including the $43,000 balance on their mortgage and more than $14,000 annually for household expenses such as groceries, clothes, and gasoline.

Lisa and Wade's altruism proved costly when they experienced an unexpected hardship. The couple's finances took a terrible hit in 2000, when their 8-year-old daughter Tiffany, who was developmentally disabled, died. "Because she was uninsured, the funeral cost us $10,000," Lisa recalls. "We're just now paying off the last $700."

Five years later, Wade left his employer to run for mayor of their town. Consequently, the family's finances really began to suffer. Wade received several months of unused vacation pay, but after losing the election, it took him a while to find a new job. The family lived on Lisa's salary, which was $48,000 at the time, for a little more than a year. Things continued to go from bad to worse. "Our car broke down, which created another expense," Lisa says. "We began bouncing checks because our expenses didn't change, even though our income did." In addition, the couple was unable to pay the minimum on their credit cards, and the interest rate on one card increased from 12% to 30%.

Today, Wade is working full time, and the couple is trying to whittle down their debt by spending less. However, their next financial challenge is right around the corner: sending Chris to college next year. "We don't have much of a college fund for him," Lisa frets. "We're hoping he'll get a good financial aid plan." So far, they've managed to save $10,000.


A team of financial experts weighed in on Lisa and Wade's situation. This is what they had to say:

Consolidate Debt The Norwoods should consider joining a credit union and taking out a personal debt-consolidation loan to lower their monthly fees, says Herb White, a certified financial planner and managing director of Colorado-based Life Certain Wealth Strategies. Although debt consolidation seems like a cure-all, there can be drawbacks. Borrowers with very high debt may not qualify for the lowest interest rates, which are usually given to those with excellent credit. However, this option will work for the Norwoods because they have paid their cards in full and on time for more than a year. And if they take out the loan through a credit union, they can benefit from lower rates. The average interest rate on an unsecured personal loan taken out through a credit union is 10.99%, 1.75 percentage points lower than a traditional bank, according to the National Association of Federal Credit Unions. The Norwoods should be able to locate a union through the National Credit Union Administration ( Furthermore, the couple should stop using their credit cards and convert to a cash-only lifestyle.


Tap Home Equity "Another option is for them to get a home equity loan through a credit union to pay down credit card debt and finance part of Chris' college education," White says. This would also free up cash so that Lisa and Wade could sock away money in an emergency savings fund, as they have no savings. However, borrowers considering a home equity loan must proceed with caution; defaulting on the loan could result in the loss of your home.

Stop Lending Money One cause of Lisa and Wades monthly money drain was their habit of lending money to family members. Former financial planner Kelvin Boston, host of Moneywise with Kelvin Boston, suggests that couples think about who or what is setting the financial agenda in their household. "Ask yourself: Is it your children? Are you sending money to family members?" Boston says. Lisa says she and Wade have cut back on lending and now give money only on rare occasions.

Learn Your Money Style The Norwoods must also get to the bottom of why they handle money the way they do. "We all carry messages about money we learn as children," says Daisy Reese, a director at California-based Insight Financial Group and co-author of True Self, True Wealth: A Pathway to Prosperity (Atria Books/Beyond Words; $16.95). Reese and co-author Peter Cole, a chartered financial consultant and founder of Insight Financial, say most people act out one of 10 money scripts: co-dependent, coupon clipper, craver, gambler, hoarder, masquerader, power player, prince or princess, procrastinator, or victim. Reese says the Norwoods were operating under the co-dependent and the masquerader scripts. Co-dependents tend to put others first, while masqueraders typically desire to win admiration.


"I've spent the past eight or nine years digging out of debt," says Florida lawyer Veraunda Jackson. She remembers a time when payday couldn't come fast enough, as threatening letters from credit card companies poured in and she began to fall behind on mortgage payments. On the outside, she seemed to have it together. She was married, had just graduated law school, drove a new car, and was preparing to move into a new home. "It was 1995, and I had a retirement plan, an investment plan, and I was saving money," says Jackson, 38. "But I was also living above my means." A newly minted lawyer at the time, Jackson was making about $36,000 annually; her husband earned an equivalent salary. But living in a two-income household gave Veraunda a false sense of security. As a result, she began to overspend. I spent more than $400 a month on clothes, purses, shoes, and eating out," she recalls.

Shortly after Jackson and her husband moved into their home, she decided to redecorate, depleting her savings of $3,000. This proved to be a costly mistake. It wasn't long before she and her husband separated, and Jackson was left with the couple's $32,000 debt, composed mostly of $20,000 in credit card charges. "After we separated he refused to pay for anything, and I couldn't get money from him because I couldn't afford to file for a divorce. By the time we went to court, I settled for him just signing over the deed to the house, and I assumed the mortgage," she says. Jackson had to shoulder an $850 monthly mortgage payment and a mound of credit card bills.


The divorcee was determined to get back on her feet and out of debt. She saved enough money to start her own business in 1998, Everything Has a Price, a personal- and professional-development company, to supplement her income. But that wasn't going to be enough. "I was making money, but I was used to living at a certain level. Trying to maintain my former lifestyle on one income was impossible," she says. Jackson took action by working with an accountant and setting up a budget.

In 2000, Jackson left her job as a lawyer to run her business time. Temping brought in an additional $1,000 each month, allowing her to keep her company running. In addition, she rented out a room in her home to a college student, which helped ease the burden of her mortgage payments. As new sources of revenue began to flow, Jackson addressed her credit card debt. "I cut up all my major credit cards, except the one I opened in college." Jackson says she wanted to maintain a long-standing line of credit, because she knew it would help her FICO score. She then worked with Consumer Credit Counseling, which helped her consolidate her debt into one lump sum, resulting in her paying off her debt in five years. Once Jackson paid her debt, she made a promise that she hasn't broken: Never accrue unsecured debt. She now pays cash for everything.

Jackson makes a homemade lunch three days a week, works with a financial adviser, and stashes extra cash in a money market account and two IRAs. She also pays more than the minimum on her student loans. "My goal is to live below my means." she says. The rewards for sticking to a budget and paying her bills on time have been sweet. After saving diligently for one year, Jackson was able to treat herself to a trip to Spain. "I used to have anxiety about how I was going to pay my bills," she says. "These days, I feel stable. It's a blessing to not feel all that anxiety."

Give Yourself A RAISE

You may not be able to secure a pay increase from your employer this year, but there are ways to make your paycheck work for you:

* Adjust your withholdings. If you receive a tax refund every year, you're essentially handing the IRS an interest-free loan, says Deborah Owens, a 20-year veteran in the financial services industry and author of Nickel and Dime Your Way to Wealth (Caledonia Hill Press; $14.95). The amount of taxes withheld helps determine whether a refund is issued to the taxpayer (more tax was withheld than necessary) or whether the taxpayer owes more in tax (less tax was withheld than necessary). Adjusting your withholdings will give you more income throughout the year.

* Pay with cash instead of a credit or debit card. This will make you aware of how much you spend, keeping more money in your pocket.

* Keep track of your spending. Ideally, 45% of your gross income should go toward needs and 15% should go toward wants. The rest should be set aside for saving and investing as well as income tax strategizing, says Manisha Thakor, a chartered financial analyst and co-author of On My Own Two Feet: A Modern Girl's Guide to Personal Finance (Adams Business; $12.95). "Unfortunately, most people are spending at least 10% more than they think they are," Thakor says.

* Use direct deposit. Open a separate savings account and have money automatically deposited each pay period. Before you know it, you'll have a nice nest egg. Also, enroll in online bill payment through your direct deposit account to help you get in the habit of paying your bills as soon as you receive them.--S.L.
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Author:Leftwich, Siobhan
Publication:Black Enterprise
Geographic Code:1USA
Date:Mar 1, 2008
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