My first job after college was working in a bank, but right from the start I had no confidence in the money I was earning. I remember seeing every paycheck disappear almost as soon as I got it, to cover student loan payments and reduce the $4,000 credit card debt I accumulated over the my last year at school.
It was really scary on a daily basis, but there was another emotional layer involved, because I was also constantly reminded of how I watched my immigrant parents work two jobs each to support our family, and I still have very little left. more.
Over time, I realized it wasn’t just standard financial stress. There are even studies that have shown that operating from a place of scarcity can have a substantial impact on how your brain works.
At some point, I realized that I was so focused on running away from this feeling of scarcity, and the money I didn’t have, that I was making choices that only patched things up.
Today, I’ve saved $150,000 over five years, built a diverse investment portfolio, and started a financial coaching business that has become my full-time job.
Here are the three steps I took to get out of my paycheck cycle and start really building my wealth.
I changed my mental approach to money
One of the key things that helped me change my approach to finance was learning something called the Bandwidth Tax. It’s a concept that was introduced to me in the last semester of my economics degree, but which I had forgotten about until I was in the real world, feeling limited with my money. Essentially, when you get frustrated and overwhelmed with the process of having to make ends meet, your cognitive abilities to make rational financial decisions can suffer.
Using the majority of my paycheck to pay my debt meant I was left with very little discretionary income. I was so sick of having nothing to show for my work in my bank account, and that I couldn’t even do little things like go out with my friends for dinner or buy makeup, let alone save for something more substantial.
But rather than reframe my budget or do something to materially change my situation, I would get frustrated, spend money on things I didn’t need, and rack up more credit card debt. For me, having the choice to say yes or no was the most important thing. If I felt like I had no choice, that’s when my scarcity mindset kicked in.
Even though I knew I couldn’t technically afford to buy that random haul from Amazon or UberEats sushi, everything else seemed so restricted and I felt like I couldn’t resist. But then any momentary relief would give way to guilt and shame once I saw my credit card bill, and the cycle would begin again.
What I know now is that because I was focusing all of my mental energy, not to mention the majority of my paycheck, on my debt, my ability to rationally step back and say no to things like impulse buying was weakened, because I was already pushed to my cognitive limit. But understanding that helped me find a way forward.
I prioritized my savings
Initially, I was so focused on paying off the debt first because that meant I wouldn’t be paying as much interest over time. But as well-meaning as it was, I was always racking up more debt anyway because I felt so limited in how I could use my paychecks.
It was when I couldn’t go on a trip with my girlfriends who had all graduated and were working full time that I knew I had to change direction. Instead of throwing my entire paycheck on my debt, I started by sending some to a separate high-yield savings account, before doing anything else with it. At the time, I didn’t have a specific purpose for the savings I’m making now, like an emergency fund. I just knew I had to save.
Seeing money remaining in my bank account for six months consistently gave me the leeway I needed to feel like I wasn’t always stuck in survival mode.
The first time I felt like I was no longer living paycheck to paycheck, it wasn’t what I thought. I had a dental emergency and my work benefits were not enough to cover it. But I had saved enough to be able to catch up on the rest without having to use my credit card, and I still had a good amount left in my bank account.
Although not an ideal situation, being able to tap into existing funds to help with this problem has helped me continue to build my confidence in my money.
I created a ‘joy fund’ to allow me to splurge without guilt
A coffee run, an order at Sephora, or brunch with my girlfriends were some of the happy little pockets of spending I felt deprived of while being restrictive with my finances. These were purchases I enjoyed, and I knew that to stay out of the impulse spending cycle and rack up more debt, I needed a budget that allowed me to spend without guilt.
Now that I felt like I was on a stronger financial footing, I created a separate checking account and labeled it my “joy fund,” and would move over $100 per paycheck. Since I had already transferred money into my savings, paid debts and other bills, I knew that $100 of my salary was allocated and I could spend it however I wanted.
Giving me an allowance like this eased the scarcity mentality. I could now make an intentional spending decision to buy that coffee, go to brunch, or any other happy purchase without feeling like I couldn’t afford it.
I felt like I was failing in my early twenties because I kept on impulse buying and increasing my debt, but when I look back, it’s very clear that I was battling deeper psychological factors that prevented me from moving forward.
My background informs much of the work I do today as a millennial financial coach with my company, Wealthy Wolfe. I think it’s so important to keep space and provide safe spaces to talk about these issues without judgment, because that’s how we break the cycles of stress and shame so we can thrive financially.
Parween Mander is a Millennial Financial Coach, Money Trauma Facilitator, and Founder of the Rich Wolfea digital financial coaching and education platform for immigrant women of color specifically.
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