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Why We Live Paycheck to Paycheck – Statistics And Solutions

One of the problems many people and families face is making ends meet, relying on their next set of wages, and essentially living payslip to payslip.

First some stats…

A UK survey (by the Independent), stated that 1 in 4 adult have no savings. Per the Evening Standard, 70% of Brits are broke or just getting by.

An analysis, based on an RSA/Populus survey of more than 2,000 workers, found that the vast majority of UK workers don’t have sufficient savings to cope with a financial shock. In fact, the average savings in the UK is around £4k – for people that do actually save.

When it came to savings, 32% of respondents had less than £500 while 41 per cent had under £1,000.

In the US, a September 2018 Fox News survey revealed that 26% of registered voters said they were falling behind (income vs expenses), compared to around half who said they were holding steady and 22% who said they were getting ahead.

In fact, even the fairly moderate to high earners live paycheck to paycheck. One in 10 workers earning $100,000 or more yearly say they live paycheck to paycheck. This graphic by Financial Samurai shows how people making $500k a year can still feel like they’ve saved little in comparison;

High earner but struggling!
Why even people earning $500k a year still struggle to save much

So it seems that despite their incomes – many people still feel like they’re trapped in a rat race.

Why?

There are a variety of factors as to why most people are living paycheck to paycheck. Some reasons are external, but a lot of the reasons are to do with mindset and financial discipline.

Little financial education

School teaches us a lot of theory, but there tends to be little, if any emphasis on life lessons and financial education in particular. The basics financial principles are not taught in our schools whether it be primary or higher education institutions. This includes budgeting, seeking value, investments, debt and the financial system. So while people get out of school and earn money, they have little knowledge of how to use it properly.

Living beyond your means

Why do people line up for the latest phone while their current phone is working perfectly? The need for instant gratification can be addictive especially when trying to keep up with the Jones’s. If you continuously buy things you can’t afford, it only leads to seeking more ways to fund the habit, i.e. taking out credit cards and loans (more debt) to keep the habit going.

This kind of borrowing is known as ‘bad debt’, because you’re borrowing to buy things that don’t really appreciate or provide any sort of return (as opposed to taking out a sensible mortgage for a buy-to-let investment property which generates rental and capital appreciation in the long run).

Budgeting and allocation

Many people fail to budget and end up spending more than they earn. You should always have a plan of how you will use your monthly salary. This is helped by knowing what your monthly, regular expenses will be, i.e. mortgage, child-care (nursery, etc), car payment, groceries, phone and amount to be saved. This way you can see what residual amount is left over – for ad-hoc expenditure.

Cost of living?

Let’s assess wage growth compared to the change in the cost of items over time. Could this be an important reason for why many people struggle to meet their expenses? Has wage growth been sufficient to counter the annual inflation? (Using ‘CPIH’ which includes housing costs – which is a more realistic measure considering housing makes up a major chunk of expenses)

20 year period comparing inflation and wage growth

You can see that wage growth in the UK largely surpasses inflation (which includes house price growth). Therefore, it’s not entirely conclusive that cost of living has been unmanageable – although certain parts of the UK, i.e. London have had surges in house prices over time which translated to higher mortgage costs for many homeowners.

How to break free

Change your mentality

Do.you really need to buy that thing? There’s absolutely nothing wrong with desiring nice things, but when you’re struggling to save (and maybe knee-deep in debt) you really need consider your spending each time you pull out your card.

You should try and cultivate a feeling of abundance in your life. In other words, that you are grateful for what you have and have everything you need to be happy at this present time.

Start allocating

Take these 3 steps:

  1. Make a list of your regular, monthly expenses;
  2. Reduce or eliminate any unnecessary expenses, so that your monthly income is greater than your total monthly expenses;
  3. Whatever is left, save X% and invest Y%

Save X% of your salary for unexpected expenses or to pay off your debts/loans.

The investment portion should come out of your account automatically and straight away, i.e as soon as your wage goes in. That way its not something you can deliberate about.

The investment itself can be in a dividend reinvestment fund that delivers compounding returns. Consider that a 20yr old who saves and invests £50 per week will accumulate £2,600 per year. If he does this until age 65 and averages a 10% annual return (about the S&P 500 average return over the last 80 years), he will have over £2.1m at age 65!

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Look for ways to make more money!

With work and commitments, it may seem unattainable. but if you really want something you make time for it. Ideas for extra income include driing an Uber, freelancing and consulting work, sell your stuff and renting your room out in Air BnB.

Another great option is Affiliate Marketing where you can sell other peoples’ products and services online for a commission. It’s a great form of passive income as you don’t to own a product, seek storage space, undertake fulfillment or hire staff. You just need a laptop and an internet connection!

If you like the idea of affiliate marketing and want to explore how it can provide a great side income, click here to learn more.

Freedom is the goal

Living in a paycheck-to-paycheck cycle is not freedom. It’s enslavement. For alot of people, there’s no money at the end of the month and they wonder why.

It does not have to be that way. You can break the paycheck-to-paycheck cycle and have financial freedom. It won’t happen overnight, but you can do it if you start taking steps today. Click here to learn how I started my journey towards self discovery, earning money online and seeking freedom from the 9-to-5.

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Why An Employee Struggles To Buy Their Dream House….Even An Investment Banker!

After working in the corporate finance sector for over 13 years, I’ve had some realizations when it comes to money and wealth. An employee, even a fairy well-paid employee may struggle to truly create the life that he or she desires from their employment alone. You see, I define financial wealth as having the capacity to acquire those dream assets, like the house or the car or the holiday home abroad with just cash and no loans or mortgage.

When I was a kid, I always viewed owning the £1m house as being the benchmark for being truly wealthy. Of course, with inflation a £1m house today may be worth £5m in the future – and in that same future, £1m doesn’t buy you alot. But essentially everybody’s dream home and desires are different. I just use a home as an example because it is almost always the biggest ticket item people want to purchase.

beautiful bedroom overlooking beach and sea
My dream view

And I specifically selected the salaries of a UK and US Investment Banker as they are the highest paid professions in Finance, and I want to illustrate that despite their earnings and status – it’s harder to acquire that £1m (or $1.5m) house with CASH ONLY – no mortgage.

I’ve put together 2 tables – one for the UK Banker, and one for the US Banker. The tables show how with age, the banker’s savings accumlate alongside the change in house prices.

This is only a model, and I have inserted my assumptions below each table – the key being that both bankers save away 20% of their annual salary;

UK Investment Banker financial path:

Assumptions: Salary & bonus growth at 15% annually, UK tax rates for 18/19, Personal savings rates of 20%, No interest on savings, UK inflation at 2%, Annualized house price growth is 3.7%. No other investments or sources of income.

US Investment Banker financial path:


Assumptions: Salary & bonus growth at 15% annually, US effective tax rates for 2018, Personal savings rates of 20%, No interest on savings, US inflation at 3.22%, Annualized house price growth is 5.4%. No other investments or sources of income.

From the UK table, it would take the employee (starting at a £40k salary) 34 years before they have acquired enough savings (£3.49m) before they can afford that same £1m house – which is now valued at £3.316m after 34 years.

From the US table, it would take the employee (starting at a $60k salary) 42 years before they have acquired enough savings (£13.12m) before they can afford that same $1.5m house – which is now valued at £12.958m after 42 years.

This line graph summarizes how the accumulated savings largely lag the house value over time;

You may look at my total compensation figures and find them to be conservative. But you gotta bear in mind the economic cycles, burnout and structural changes to the industry. Again, this is purely a model with my own researched assumptions. Even, the savings rate of 20% is an average. Some people save almost nothing and purely rely on living pay check to pay check.

Of course, after 34 or 42 years, and with that kind of savings, the banker may choose to buy a property elsewhere where there is more value for money or even downsize. But, the point is that, upon seeing their dream house (valued at £1m or $1.5m) when the budding banker was 21, it would take them a helluva time before they can pay for it outright in cash.

Sure, the banker can still take out a mortgage to make up the shortfall at any time during his career to buy the dream house. But it would just mean continuing to work for another 10 or 15 year to meet the mortgage payments.

Entrepreneurship

The above data illustrates that an employee (with no other investments or income sources), will struggle to purchase their dream asset if they were paying for it in cash. However, being an Entrepreneur and owning several businesses and sources of income can help you achieve this goal.

Sure, the business owner may not pay himself much in comparison to the earnings of a top ranking Investment Banker, however the benefits of having multiple sources of income are as follows;

  1. Not subject to economic downturns as much as an employee, who may lose their job. The Entrepreneur can rely on other sources of income if one or two take a hit;
  2. Not working for anyone else. Be your own boss. As a result, take as much time as you need off;
  3. As a business owner, you have controlling ownership in your company which leads to my next defining point…
  4. More chance of huge cashflow or liquidity events. What this means is that one of your businesses could eventually be sold or partially sold for seven-figures if it’s a successful venture and has been creating huge value for customers. Alternatively, a minority stake in your overall portfolio company can be sold to investors. These events create huge windfalls and allow the Entrepreneur to purchase those dream assets much earlier. And they don’t have to one-offs either.
  5. Another benefit of entrepreneurship is the incredible satisfaction you gain from creating something out of nothing. Having the freedom to do whatever you want provides for tremendous happiness as well.

I highly recommend that everyone should start their own business, and in particular – an internet business to leverage the lucrative digital economy. There are so many ways to make money online (refer to my post to ‘4 Realistic Ways To Make Money Online‘) as well as;

  • Blogging (written and video)
  • E-book
  • Online training courses
  • Downloadable templates
  • Video subscription

You definitely need to start by creating your own website, create a blog and build your brand and potentially access over three billion people online. And you can do this so easily and cheaply these days.

If you would like to make the first step to creating your online business, and learn how to market effectively online, click here to access a free video series workshop that will really open your eyes to the possibilities for making money. You will wonder why you didn’t start this process earlier! In fact, that’s something I always ask myself, especially having gone through the traditional route of academics and employment.

Take the first step to your freedom friend.

Best of luck

Why I Fu*&king Hate The Corporate Job

AFTER WORKING IN THE CORPORATE FINANCE WORLD for 13 years, I wanted to list out those pain points which has drove me mad and encouraged me to look for an alternative way of working. I’m sure some or all of these will resonate with you!

uncomfortable mn adjusting his tie.

The Daily Grind

Having to conform to working hours just doesn’t stick with me. You have to arrange your life around the 9am-5pm workday and sometimes longer. Each day feels like groundhog day with your only respite being a vacation or a sick day. Even after that you’re back into the usual grove – or should I say rut!

Don’t get me wrong, it’s good to have a schedule and a certain amount of predictability in your life, but wouldn’t you rather work flexibly, waking up as you choose and during hours that suit you?

No winning with bosses

I’ve had my fair share of bosses during my time! Some are complete assholes, some are smiley but assholes and others are just a drip. I’ve had bosses that say one thing, but then change tack later and expect you to have known what they’re thinking and adapt. You can either speak out and get ear-marked for no progression, or stay silent and suffer.

Don’t get me wrong – I’ve had some wonderful bosses too. Men and women that see your value and let you run with projects, and let you work your own way in your own style. The key is that they trust me and know that i’ll keep them informed of my progress.

But. Wouldn’t you rather be your own boss? Making your own decisions for the direction of your enterprise and not answer to anyone but you?

Don’t see the value in my work

This is a particular pain point for me. I feel that it is very important that your work has an end goal, i.e. to provide value to a client, assist a colleague or to represent the progress your company has made. When I can’t make the connection between my work and how it benefits the business, clients and wider community – then I am very demotivated to perform that piece of work.

Of course there will always be administrative tasks that you can’t avoid, but my gripe is with the core purpose of your job.

An example of this was when I worked an Internal Auditor at a big 4 accountancy firm when I first graduated. We used to produce report after report for banks, investment firms, asset managers concluding on their risks and business controls. However we hardly scratched the surface of their business, and the recommendations we provided were just laughable! I felt so embarrassed during the closing meetings when my seniors were sharing our findings and recommendations with the client.

The way I saw it was that this client has paid the firm thousands for a recommendation that says ‘must sign this document’. I couldn’t see the value we (the accountancy firm) was providing!

This is why it is so important for me to be working on projects that I find fulfilling and will add value. For me, clean water is a problem for many countries around the world. I hope to one day provide a solution or product that can allow people to drink and wash with clean water.

Long ass commute

Another thing that sucks the life out of me is a long commute. Especially on the London tube network! It just eats up alot of time, not to mention rude people with no concept of personal space. I now make sure that when commuting (2 hrs door to door), that I’m making use of that time either by listening to developmental podcasts, jotting my thoughts, reading useful articles.

But there’s so much more to be achieved in those 4 hours. This is another core reason why I’ve sought an online business where I can work from home and avoid that dreaded commute. The commute just takes away time from what is important to me, i.e. family, friends, fitness and my business.

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Lack of learning and developing

Working in a traditional economy as I have teaches you many things. What is doesn’t teach you is the skills needed for the digital economy. More and more products and services are marketed and sold on the internet, and there are so many tools and skills that I feel I was missing out on by working as a Auditor/Risk Manager/Trader/Consultant.

With the digital economy surpassing the traditional economy for some sectors, it’s a matter of time before most business will be facilitated online.

AND some of the skills to be learned are;

  • Website building
  • Marketing
  • Video creation
  • E-commerce
  • Developing and servicing leads
  • SEO (search engine optimization)
  • Social media platforms for business

Having joined the online community – SFM (Six Figure Mentors), I have already developed so many of the above skills and am still learning. I was taken through a step-by-step process to set up my online business and I am excited by the possibilities ahead, one which will include quitting my job for the reasons given above!

And by the way, as an Entrepreneur you learn so much about yourself and your mindset, like how you react to adversity, pressure, what motivates you, etc. Stuff that you wouldn’t identify as an employee.

If you’re also struggling with the mundane corporate world and resonate with my reasons above, I highly recommend that you join me on the path I have taken – by clicking here.

I will gladly introduce you to my mentors who provide a free video series to get you up and running with your own online, profitable business.

It’s an opportunity you CANNOT afford to miss out on.

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