Two of my favorite personal finance bloggers recently discussed breaking the cycle of living paycheck to paycheck. Paid Twice revealed her 2009 goal of working one paycheck ahead – this seems to mean having enough in savings to cover expenses for the next two weeks without needing the next paycheck to do so. NCN at No Credit Needed explained how he became debt free and “escaped” the paycheck to paycheck cycle.
These articles got me thinking about how best to manage cash flow when you’re not living paycheck to paycheck, because it’s not something I’ve ever really thought of before. We built up a nice emergency fund early in our marriage, so we haven’t lived “paycheck to paycheck” – meaning we need the next paycheck to pay our bills – in a long time.
But I manage my money as if I do need the next check. By that, I mean that our paychecks are deposited and distributions are made from there to the savings, emergency fund and infrequent bills accounts. Under this system, bills are paid with the money that was direct deposited by our employers. In fact, I’ll hold off on paying certain bills each cycle until after payday because I don’t want to transfer money out of savings.
Now I am wondering if it would be best to have our paychecks deposited right into our savings account. Then at some point each month, I would transfer the money needed to pay the bills into our checking account – without regard to our paychecks. For us, that would truly be breaking the paycheck to paycheck cycle.
I’m trying to work out what kind of impact this would have on our overall finances and money management, but I am leaning toward doing this. I think it could work out quite nicely for us. And give us a whole new mentality on how we manage our money.
What do you do? (Or would you do?)