Asked by Shannon  |  Submitted November 10, 2015

What are the best ways to save when you are living paycheck to paycheck? We already do our 401(k) at the max the company matches.

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  Answers  |  2

November 10, 2015

Let’s first start by making sure you know that you are doing the right thing by funding your 401(k) at the max the company matches as this is “free” money. It’s like getting paid more for your work even though you do not get to spend this money now.

So the question is… what are the best ways to save when you are living paycheck-to-paycheck? Your first priority is to set aside at least 6 to 9 months of your monthly expenses in cash. So if your monthly expenses are $1,500 – then you need to have at least $9,000 in a cash account. This is the bare minimum that you need in CASH (or in a money market account) before you start saving additional amounts for your retirement.

If you have the 6 to 9 months of cash reserves set aside, then you are not technically living paycheck-to-paycheck as that implies one lost month of income puts you “on the streets.” If you are in fact living paycheck-to-paycheck, having this money set aside will provide you with a little better financial stability to invest and take the higher risks of investing.

I must ask… do you have any high interest credit card debt? If so, paying this off as fast as possible should also be a top priority. What is first? Paying off the debt is more important than having the cash reserves set aside as your credit card’s available balances can be considered an additional way to access cash to pay your monthly bills. More importantly, once the debt is paid off you will have additional monthly income to invest.

Once you have any credit card or other debt (not including a mortgage) paid off and you have the necessary cash reserves set aside… you may want to consider using equity index universal life insurance (or EIUL.) Yes, life insurance can be used as an investment. What are the benefits? You get market-like returns with no risk of losing your principal and the income during retirement will be tax-free. Also, you can access the money at any time for any reason.

I recently co-authored a best-selling book with success expert Brian Tracy and can send you a Special Report from this book that details using life insurance as a retirement investment. The chapter is entitled “Do The Math: When is $1,000,000 is Worth More Than $4,000,000?” and compares using EIUL to the traditional methods of saving for retirement.

I hope this helps. I would be happy to answer any follow up questions you may have or to send you a copy of that Special Report.
Brad Creger

$commenter.renderDisplayableName() | 05.18.21 @ 07:53


November 10, 2015

Bradford offers some fantastic advice. But since you are living paycheck to paycheck, I would suggest looking at where you are already spending money to see if there are areas where you can be more efficient with what you are spending. By simply being more efficient, and then redirecting the money into better vehicles, you may be able to dramatically improve your financial position without impacting your current lifestyle.

$commenter.renderDisplayableName() | 05.18.21 @ 07:53