Low Income Rich Life
Welcome to "Low Income, Rich Life," the podcast that helps you prepare for a secure and fulfilling retirement, even on a limited income. I'm your host, Kevin Bass. Each week, we'll explore practical tips and strategies for getting out of debt, lowering expenses, living a simpler life, and finding true contentment.
Low Income Rich Life
Breaking the Debt Cycle: How Emergency Funds and Aging Your Money Can Set You Free
But there's more: we introduce the transformative concept of aging your money. Learn how using last month’s income to pay for this month’s expenses can revolutionize your financial stability, reduce stress, and set the stage for debt elimination. Whether it's tackling debts using the snowball method for a psychological boost or the avalanche method to save on interest, this episode is packed with actionable strategies and real-life success stories. Our mission is to empower you to take control of your finances and embark on the journey to financial freedom and peace of mind.
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Hey there and welcome back to Low Income Rich Life. I'm your host, kevin, and today we're tackling a topic that's close to my heart how building an emergency fund and aging your money can be the game changer. You need to finally break free from the debt cycle, so stick around, I think it's going to be a good one. Welcome to Low Income Rich Life, the podcast that helps you prepare for a secure and fulfilling retirement, even on a limited income. Each week, we will explore practical tips and strategies for getting out of debt, lowering expenses, living a simpler life and finding true contentment. Whether you're nearing retirement or just starting to plan, join us as we navigate the journey to a brighter future. Let's dive in and discover how to make the most of your golden years without breaking the bank. If you've ever felt stuck, living paycheck to paycheck, or like you can't get ahead because debt keeps piling up, today's episode is for you. We'll be going over practical strategies you can start using right now and, trust me, it doesn't take a massive income or extreme budgeting. Small steps can make a huge difference. So let's start with the basics.
Speaker 1:What exactly is an emergency fund? An emergency fund is simply money set aside to cover those surprise expenses that life likes to throw at you. Think of it like this it's not a matter of if an emergency will happen, but when. Whether it's a car repair, medical bill or a sudden job loss, having an emergency fund gives you a cushion so you don't have to rely on credit cards or loans. In fact, I was reading recently that around 37% of Americans can't cover a $400 emergency without borrowing money or selling something. That's staggering, and it's exactly why an emergency fund is so important. I remember a time a couple years ago when I had a sudden car repair come up. Now, old me would have slapped that on a credit card and dealt with the high interest payments later, but this time I had my emergency fund in place and was able to pay for it without taking on new debt. That moment felt like such a win because it reinforced that small savings efforts will pay off in big ways if you give it time. I get it, though.
Speaker 1:Saving for an emergency fund can seem impossible when you're living paycheck to paycheck, but here's the thing you don't have to save a massive amount overnight. Start with a goal of $500 to $1,000 and build from there. Even small contributions add up over time, and if saving is tough, consider these tips. First of all, automate your savings. Set up a transfer of just $10 or $20 each week into a separate savings account. I suggest a savings account that is not tied to your checking account. I've had struggles in the past with that. It makes it too tempting to do a quick transfer when the old checking account gets a little low and before you know it you've knocked a dent in your emergency fund.
Speaker 1:If you have to have that extra safety net of a savings account being tied to your checking account, be sure it is on top of your separate emergency fund. Look for the easy wins. You can cancel any unnecessary subscriptions, cook your meals at home, stop eating fast food like I did, or even pick up a side gig for extra cash. Anything you can do to bring in a few extra bucks a month can really add up over time. And let's avoid temptation. Like I just mentioned, keep your emergency fund in a separate account, preferably a high interest savings account, so it's out of sight and out of mind. This helps keep you from dipping into it for non-emergencies. Speaking of which, now is a great time to sit down and come up with some ground rules on what constitutes an actual emergency, and for more in-depth advice on building your emergency fund, check out episode 6, building an Emergency Fund your Financial Safety Net.
Speaker 1:Alright, now let's dive into one of my favorite strategies aging your money. This is a concept that is pure gold. The idea of aging your money simply means that you hang on to it as long as you can before letting it go. In other words, in our situation, when you age your money, you use last month's income to pay this month's expenses. This means you're not living paycheck to paycheck anymore because you have a financial buffer that keeps you ahead of the game when that paycheck comes in, you're not sending it right back out as soon as you get it. Tell me if this sounds familiar.
Speaker 1:Today is payday. You get off work, head home and sit down with your bills and your cell phone, your tablet, your checkbook or whatever you like to pay your bills with, and you get to work. You look through the bills and decide which ones you have to take care of before you get paid again, and you pay those bills. If you're lucky, you have enough left over for food and gas to get back and forth to work until next payday. Aging your money will make the whole process of paying bills much less stressful, and, before you know it, you will be heading in the right direction with your debt as well. The key is that you're not scrambling to cover this month's bills with this month's income. Instead, you've got a cushion that allows you to pay bills stress-free and avoid falling behind. It may take a little time to get there, but the beauty of aging your money is that once you have even a small buffer, say enough to cover one or two bills, you're no longer living in a constant state of panic. You're not worried about whether this week's paycheck will cover rent, because you already have next month's rent saved.
Speaker 1:Let me give you a quick example. Say you earn $3,000 in a month and your monthly expenses are about $2,800. The goal of aging your money is to start slowly saving a portion of that extra $200 each month until you've built up enough to cover next month's expenses in full. Let's take another example a freelance writer. Freelancers often have income that fluctuates from month to month, making it difficult to predict when they'll be able to pay their bills, so aging your money can be a lifesaver in this scenario. Let's say our freelance writer earns $2,000 one month and $4,000 the next. Instead of spending that higher income immediately, they can stash away some of that surplus so when they have a low income month, they can pull from their buffer rather than relying on credit cards or loans. Over time you'll eventually get to the point where you're using last month's income for this month's bills, and let me tell you, that takes a huge load off your shoulders.
Speaker 1:So here's some practical steps to start aging your money. Begin by tracking your spending. You need to know exactly where your money is going before you can create a buffer. Next, create a budget. Start small if you need to. Even if you can only save $50 a month, that's still progress. Once you have a bit of a buffer, aim to build it to one month's worth of expenses. That's the sweet spot where you'll really start feeling in control.
Speaker 1:Now let me briefly tell you how I personally go about aging my money. I don't leave that surplus money in the bank. I sit down and the first thing I do is pay all of my bills that are due between this payday and next payday. Once that is taken care of, I budget for the variable expenses that I'll have to pay between now and next payday. That's food and gas for our cars and any special things coming up like birthdays, etc. Then whatever is left is what I have to work with. This is where I have to use wisdom and make good choices. I could go blow that money or I can put it to work. I choose to put it to work and maybe blow a little.
Speaker 1:I will take that surplus and first put it towards my emergency fund. I believe you should put 100% of it towards an emergency fund until you have at least $500 minimum of it towards an emergency fund. Until you have at least $500 minimum, then I'll cut that down to say 25% of the surplus until I reach $1,000 in my emergency fund and I'm okay with having $1,000 in an emergency fund for now, since that will cover the majority of small emergencies. The other 75% of that surplus I'll use to start aging my money. How do I do that? I look at my bills due. Now remember, I've already paid all the bills due up until next payday. So I will look at the next bill due after payday and pay that one. If I still have surplus left, I pay another, and so on and so on until I'm out of the surplus money. Next payday I will do the same thing. I will look at my bills and pay as much as I can, as far ahead as I can. I will follow this method until I have $1,000 in my emergency fund and all my bills are paid at least a month ahead.
Speaker 1:Next I start hitting my debt. Now here's the real kicker, where it can really start changing your life. By having an emergency fund and aging your money, you create a system that helps you avoid falling back into the debt cycle. Debt can feel like a never-ending loop. You're using credit cards to cover emergencies, taking out loans to pay off previous debts and suddenly you're drowning in interest payments. But here's the thing debt thrives on financial instability. Without a buffer, it's easy to rely on debt for even the smallest hiccups. Financial instability Without a buffer it's easy to rely on debt for even the smallest hiccups. But when you have that emergency fund, you don't need to rely on credit cards for those unexpected expenses, and when you aid your money, you're ahead of your bills, so you're not scrambling to cover rent or utility payments, which often leads people to rely on credit.
Speaker 1:I know that being in debt can feel overwhelming and isolating. There's anxiety, there's stress and, honestly, sometimes you feel hopeless. But by starting small with an emergency fund and aging your money, you can break that cycle. Now I know for some of you, the idea of building an emergency fund or aging your money can seem impossible. Life is unpredictable and sometimes it feels like there's no room in your budget for anything extra.
Speaker 1:So let's talk about some common challenges people face when trying to save or get ahead and what you can do to tackle those hurdles head on. One challenge I hear a lot, and probably the most common, is I don't have enough money left at the end of the month to save, and I totally get it. When the bills are piling up, the last thing on your mind is putting aside savings. But here's the key you don't need to save huge amounts to get started. Even if you're putting aside $5 or $10 a week, that's still progress. The real magic happens when you automate your savings. Set up an automatic transfer from your checking to your savings account. Over time, those small amounts will add up and you'll be amazed at how quickly your emergency fund grows.
Speaker 1:Another challenge I hear is I don't trust myself not to dip into my emergency fund. This is a real issue for many people, including myself. One way to avoid this temptation is to keep your emergency fund in a separate savings account, preferably one that isn't linked to your debit card, so that you can't you know easily access it. You could even use a high-yield savings account to make sure that your money is working for you by earning some interest while it sits there. The reason these two strategies work so well is because they give you control. When you control your money, instead of your money controlling you, debt doesn't stand a chance.
Speaker 1:So let's talk about some actionable steps to break the debt cycle. One start with your emergency fund. This is your safety net that will prevent you from taking on new debt in the future. Even if you can only save $10 a week, that's something. Number two age your money. Once you have that buffer, focus on aging your money by saving for next month's bills, or do it like I do and actually pay that month's bills in advance. Saving for next month's bills, or do it like I do and actually pay that month's bills in advance. The goal here is to create enough space between your income and expenses so you can avoid needing debt to get by. Number three is then you get to tackle your existing debt. Use the snowball or the avalanche method. Whichever one works for you. With the snowball method, you pay off your smallest debts first, creating momentum as you go, and with the avalanche method, you pay off your debts with the highest interest rate first to save more in the long run.
Speaker 1:Debt can take an emotional toll that many people don't talk about. It's not just about the numbers. It's about the stress that comes with it. A study by the American Psychological Association found that 72% of Americans feel stressed about money and for many, that stress is due to debt. The anxiety of debt can affect your mental health, relationships and even your job performance. That's why having a plan to break the debt cycle is so crucial. By building an emergency fund and aging your money, you can stop the debt cycle from continuing. You won't need to rely on credit cards for emergencies, and that gives you the freedom to focus on paying down the debt you already have.
Speaker 1:One listener shared with me how she used the debt snowball method. She started by paying off her smallest debt. It was a $500 medical bill first. That small win gave her the momentum to tackle her larger debts and within two years she was completely debt-free. What made the difference? She stopped using her credit card for emergencies because she had an emergency fund in place. Small changes add up. Speaking of listeners, I want to share a quick story from a listener, sarah, who started building her emergency fund just a few months ago. She started small just $25 a week and before she knew it, she had enough saved to cover a car repair without using her credit card. She's also aging her money now and for the first time in years, she's a month ahead on her bills. Sarah's story is proof that these strategies work, even if you're just getting started. If Sarah can do it, so can you Now.
Speaker 1:If you've been tuning in regularly, you'll know that I'm passionate about giving you actionable steps to take control of your finances, especially when resources are tight, and today I'm excited to share something I've been working on behind the scenes a workbook that will guide you through this process step by step. It's called Financial Security Through Aging your Money a step-by-step guide to financial independence on a low income, and it's designed with you in mind, whether you're just getting started on your financial journey or you've been managing on a tight budget for a while now. What's great about this workbook is that it's not just theoretical. It includes real, actionable steps that help you understand where your money is going and how to make it work harder for you. It has sections dedicated to budgeting, saving for retirement, cutting unnecessary expenses and aging your money a key concept I've discussed on this podcast before. The goal is to give you a hands-on tool that you can use to organize your finances, make informed decisions and ultimately build a sustainable path toward financial independence. I've included worksheets that help you track your spending, break down your debt repayment strategies and plan for emergencies. Plus, if you're already part of our Facebook group, you know how important it is to have a supportive community. To turn to the new workbook, financial Security Through Aging your Money, a step-by-step guide to financial independence on a low income, should be ready for release sometime by the end of October. I'm about to release the first draft to a few folks in my Facebook group that has volunteered to be beta testers and give me feedback. If you're interested in being a beta tester, simply join by going to lowincomerichlifecom slash, join the group and look for the post calling for beta testers pinned at the top of the group.
Speaker 1:This workbook isn't going to be about setting lofty goals. It's about creating smart financial goals, goals that are specific, measurable, achievable, relevant and time-bound. This concept may sound familiar to many of you, especially if you listened to my recent episode where we dug deep into smart goals and how crucial they are to long-term success. In case you missed it, feel free to check out Episode 9, mastering SMART Goals your Roadmap to Financial Success. I've packed that episode full of tips and strategies to get you on track, and this workbook builds directly on that framework. In the meantime, if you want to get started with your own SMART financial goals, check out the link to my workbook Mastering Smart Goals at lowincomerichlifecom slash smart. I'd love for you to take a look, try it out and let me know what works for you. I'm confident that this tool will make a real difference in how you approach your finances. So let's recap what we've covered today Build your emergency fund, start small.
Speaker 1:Automate your savings and protect it for true emergencies. Aid your money. Create a financial buffer by saving for next month's bills and, last but not least, break the debt cycle. Use these two strategies to stop relying on credit and finally gain control of your money. Remember, this is a marathon, not a sprint. Small steps will lead to big wins over time.
Speaker 1:And before I go, remember to join our low-income rich life community on Facebook. It's a thriving group of like-minded individuals who are navigating the road to financial freedom together. Whether you're looking for accountability, inspiration or just a space to share your wins and struggles, we've got your back. You can find the group and connect with others working toward their goals right here at Facebookcom. Slash groups slash low income rich life. And, of course, if you have any questions or stories to share about how you're breaking free from the debt cycle, I'd love to hear from you. You can leave me a voice message on SpeakPipe at wwwspeakpipecom. Slash low income rich life. Wwwspeakpipecom. Slash lowincomerichlife. That's speakpipe. S-p-e-a-k-p-i-p-e dot com. Slash lowincomerichlife. Or send a message in the group. Your stories inspire not only me, but everyone else who's on this journey with us. Remember small steps, consistent progress and having the right tools and mindset will set you free. I believe in you and can't wait to see you take the next step toward building your financial future. Until next time, stay focused and keep moving forward, and I'll see you in the next episode.
Speaker 1:Thank you for joining us on this episode of Low Income Rich Life. I hope you found today's tips and strategies helpful. If you enjoyed the show, please subscribe, rate and leave us a review on your favorite podcast platform. Your feedback helps us reach more listeners and improve the content we bring to you. Don't forget to visit our website at lowincomerichlifecom for additional resources, show notes and links to everything we discussed today. You can also join the conversation in our Facebook group at facebookcom slash groups slash low income rich life for more updates and retirement tips. Remember a truly rich life is not about how you spend your money, but how you spend your time. Remember, a truly rich life is not about how you spend your money, but how you spend your time. I'm Kevin Bass, wishing you a prosperous and joyful retirement journey, stay well and stay inspired.
