Rachel Cruze Schools This Family Living Paycheck to Paycheck on $190,000 a Year

©Rachel Cruze

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If you’re living paycheck to paycheck, you’re not alone. With the high cost of housing, groceries, utilities and more — as well as a host of other factors — many people struggle to make ends meet. Oftentimes, the issue lies in external factors rather than the individual or household.

However, if you’re barely managing to keep up with your expenses and are living paycheck to paycheck when you’re making over six figures, the problem might lie in you and your money habits. This was evidenced in a somewhat recent episode of “The Ramsey Show,” where Rachel Cruze spoke with a caller, Preston, who’s living paycheck to paycheck on a $190,000 yearly income.

In this episode, Cruze schools Preston in his family’s money habits and what they can do to improve their financial situation. Here’s the lowdown.

Understanding Preston’s Situation

Before getting into the different ways to get a better handle on your finances and stop living paycheck to paycheck, it’s important to understand Preston’s situation.

To begin with, theirs is a household of five that includes Preston, his spouse and their three children. As a family, they earn $190,000 annually and live paycheck to paycheck.

They have a total debt load of just over $222,000, broken down into the following categories:

• $12,000 car loan
• $4,500 student debt
• $6,000 debt for their new child
• $200,000 mortgage loan
• Undisclosed amount of medical debt

In the call, Preston noted that he’s an accountant and that his household maintains a very detailed budget. Despite having this budget, the household still essentially spends everything it earns. At one point, Preston even noted that their food budget is around $1,500 to $2,000 a month — but it often ends up being closer to $3,000.

Living Paycheck to Paycheck: Changing the Narrative

After listening to Preston’s situation, Cruze noted that a large part of the problem comes from a lack of discipline and mindset. She then proceeded to give advice on what to do to turn things around financially. Here’s the gist of what she said.

Be Aware of Lifestyle Creep

Lifestyle creep, or lifestyle inflation, occurs when someone experiences an increase in income and, in turn, begins to spend more money.

Here’s an example. Say someone spends $1,500 a month on groceries. Occasionally, the person also splurges on a nice meal. Now, say that same person gets a raise at work. This could lead to increased spending in the food budget. Instead of being content to eat out only once every, say, two weeks, the person starts going out once or twice a week.

This is quite possibly what happened with Preston’s family. As income increases, so too does spending. And little by little, what was once a luxury becomes the norm or even a necessity.

Discipline is Key

Although Preston said he’s an accountant and that his family has a well-defined budget, they also seem to frequently go over their budget. Cruze responded by saying that even if someone has 20% “head knowledge” for budgeting, personal finance is still 80% “behavior.” In other words, it’s a matter of discipline more than it is knowledge.

Once you’ve gotten the discipline in order, it’s time to make strategic cutbacks to your expenses. This can be difficult initially, especially if you’re budgeting for a family and everyone’s used to a certain way of living. But this challenge is temporary and can lead to improved finances.

Act Like You’re Earning Less

Disciplining your behavior around finances and making major cutbacks can be tough, particularly if you’re making a significant amount of money. In Preston’s case, it sounds like his family has a lot of wiggle room financially since they’re bringing in $190,000 a year. But the issue isn’t the annual income — it’s staying on track.

This is where Cruze suggested living like they earn, say, just $80,000 a year. Setting a lower income amount requires the individual to adjust the budget based on the supposed rather than the actual earnings. This shift also requires cutting back on things, but it can help reset the budget and cut down on spending.

Pay Off Debts

Cruze also recommended that Preston and his family use any extra money they save from budgeting with a lower income amount to pay off their debts. Given the family’s situation, Cruze advised that they focus on the lowest debt first and go from there. In Preston’s case, that would mean taking care of the student loan debt first, followed by the child-related debt and then the car loan.

Paying off these debts can free up more money and make it easier to stop living paycheck to paycheck.

Make Other Changes

Finally, Cruze and her co-host recommended taking several steps to change the overall financial situation. One option for Preston specifically is to do freelance work to further boost his income. Another option would be to sell their car, which, Preston noted, costs between $2,000 and $2,500 a month. Even seemingly minor changes like these can start freeing up cash and bettering the family’s finances.

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