CNN’s got a great article about why building their net worth is hard for young adults in their 20s and 30s. One theory – that the piles of student loans, credit cards, car loans, and other regular debt payments have got most people all tapped out. They call this “paycheck paralysis”.
As someone that has crawled out of debt – and grown my net worth in the years since – I can tell you that this idea is right on.
A few years ago, as a young Ensign in the Navy, my take-home pay was about $800 twice per month.
That sounds like a lot of money, especially when you’re in college. But when you take that $1600 and realize that:
1. My small one-bedroom apartment in Orlando was about $550
2. My car payment was $300
3. My insurance was $150
4. My phone, cable, and internet bills totaled $100
I was left with $500 before I ever spent money on gas, food, electricity, water, cell phone – or any leisure expenses, for that matter. Things were tight – especially because I was 22 years old. I was spending money like water, and had not yet learned better habits.
Is that paycheck paralysis? You bet. And a lot of people have to deal with it. You work your butt off all week – sometimes 40 hours, sometimes much more. But by the time you get that check, most of it is already spoken for.
One reason it was so hard for me – getting started on your own is not easy. You need first month’s rent, security deposit, deposits for some utilities, and your own furniture. And, yes, you have to buy your own can opener.
But most concerning is that those expenses were routine. Every month I had to pay minimums on my credit cards, and give a piece of my check to every bill collector around.
To help give yourself a boost when crawling out of debt, try the following:
1. Minimize your monthly expenses. Move into a small apartment. Sell your 2008 Lexus and buy a ten year old Honda. Don’t commit to spending $100 per month for a cell phone you don’t use. Each of us has some extra expenses we can shave, and it can add up quickly. Remember, $10 per month isn’t just $10 – you could save $120 per year with that one cut.
2. Don’t buy everything all at once. When you move into a new apartment, resist the urge to get a line of credit to buy furniture. You’ll spend a lot more than you need to, and you might not get everything you really need anyway.
3. Pay your bills on time. With $39 late fees, your credit cards can add up real quick. And they’ll ruin your credit too. Don’t try to skip a payment.
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