The single most important change we made to our finances when we set out to pay off six figures of student loan debt was to get a month ahead in our budget. We knew that living on last month’s income would help us, but we had no idea that it would be completely revolutionary. Getting a month ahead allowed us to be laser focused on our goals and brought us immeasurable peace in our financial journey.
Even now that we’re debt-free (besides the mortgage), I can’t imagine budgeting any other way.
For the past 5+ years I’ve been sharing our real family budget each month. Every month I mention that the money we spent during that month all money that we earned in the previous month. I also describe how the income we earned in one month will not be touched until the beginning of the new month. It sounds pretty peachy.
It wasn’t always like this though.
Our financial life used to be much more stressful! Today I want to share with you the brief story of how we went from living paycheck to paycheck to being a month ahead.
Frugal Life to Deeply in Debt
We’ve always been generally frugal and lived within our income. Early in our marriage, when we were debt-free and had low expenses, we even set aside a regular 20% to get a head start on our retirement.
Then my husband decided to leave his job in a software company and return to school for graduate degrees in law and business. After four years of school we were six figures in debt. Our family had grown, our expenses had grown, and my husband’s starting income was less than what he had been making before getting his JD/MBA.
Despite our habits of frugal living, finances started to get more overwhelming. Thankfully, we were sure to pay off our credit cards each month so we didn’t add any consumer debt to our student loan debt.
Still, the timing of paychecks and bills was a constant stress, as it is for anyone living paycheck to paycheck.
Working Hard to Pay Off Debt
We knew that eliminating the looming burden of debt would ultimately bring us financial peace, even though at the time we didn’t have to make any debt payments (thanks to Income Based Repayment and our low income).
We set an ambitious goal for paying off our debt, but I felt the stress of timing paychecks to bills, particularly credit card bills. We were used to living on little and making financial sacrifices, but the paycheck-to-paycheck cycle was wearing on me.
How We Got a Month Ahead
When some friends introduced us to YNAB and we learned the YNAB methodology, I knew that living on last month’s income was just the change we needed! Put simply, you don’t spend any of the money you earn in the month you earn it. You save up all your income during the month and then budget and spend that money during the next month.
So all of July’s paychecks are saved to use in August. On August 1st you know exactly how much money you have to budget and spend. All of the money for the month is already in your hands so there is no worrying about timing.
The hard part would be getting started. I knew that meant putting our serious debt repayment on hold for a few months. I have been transparently sharing all the details of our finances each month, so you can go back and see those early months of our journey, when we were saving to get a month ahead and in our first month of officially living on last month’s income.
Two Parts of Getting a Month Ahead
1. Save up a month’s worth of income
The first part of getting a month ahead is the most obvious. We had to get an extra month’s worth of income. This took a combination of efforts.
We were already living super frugally so that we could pay off our huge debt in a hurry, but we decided to bring our extra debt payments to a halt for a couple of months.
We expedited the process of saving a month’s worth of income by using our tax refund. Since our income was a fraction of what it is now, our tax refund covered a large portion of what we needed to get a month ahead.
If a tax refund isn’t in the near future, don’t fret. There are lots of other ways to save up a month’s worth of income. Here are some ideas:
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- Use your tax return, any bonuses, or any other windfall income
- Sell furniture, appliances, toys, and clutter locally or online
- Sacrifice something out of your budget until you get a month ahead (think cable, eating out, gym membership, subscriptions, etc)
- Lower your bills (get a cheaper cell phone plan- mine is $25/month! Go through each of your monthly bills, do some research, make some calls and see where you can reduce those bills)
- Have a no-spend month (you can learn about that here) and set aside the money you save
Use whatever combination is necessary to save up a month’s worth of income, or at least a month’s worth of non-discretionary expenses. If you just save up enough for necessary expenses, you’ll have one lean month where you have no extra cash, but during which you’ll earn a full month of income, so the next month you’ll be back to your normal budget, only you’ll be living on the income from a month before!
2. Stop the credit card float
We not only had to save up a month’s worth of income, but we also had to get our credit cards up to date. We always paid them off on-time; that’s not what I’m talking about. I’m talking about getting out of the credit card float cycle.
As an example, our credit card statement is on a calendar month, but our credit card bill comes on the 24th of each month. If I buy something on the 1st of June, I don’t actually have to pay the bill that includes that purchase until the 24th of July. Because we’ve already received July income by then, I can pay the June 1 purchase with July money.
Using the credit card float may sound like a good idea, but it’s not. The MUCH better way is to buy something with the credit card on June 1 and immediately record that amount as SPENT from the June budget. Even though the money is still sitting in my checking account, I need to look at my account balance as if that money is GONE. Then, when the statement closes on July 1, we pay the credit card bill immediately from the funds that were waiting in the checking account for that purpose, and we never have to think about when the credit card bill is due, or whether some unexpected expense will make it hard to pay off, or if we’ll be on vacation without Internet access during that time. It’s just done. No worries. No timing. Just done.
I used to feel proud of getting a rolling 24-day interest free loan on our credit cards during the float period each month, like we were playing the credit card game against the companies that wrote the rules, and we were still winning! We didn’t even realize this particular tactic was actually causing us stress. The game isn’t worth playing. It felt amazing when we stopped, and we’ve never looked back.
For more detail about using credit cards with a zero-based budget, you should definitely read this post. Seriously, I think this system is the safest way to use credit cards and I love it!
We did it!
In March of 2014 we started living on last month’s income. It is fantastic.
If you’ve been reading Six Figures Under for a while, then you know how passionate I am about budgeting like this. You also have probably heard me share how being a month ahead has saved our bacon on more than one occasion or how being a month ahead has given us opportunities we otherwise wouldn’t have been able to handle financially.
A Detailed Explanation of Getting a Month Ahead
I have a new video where I’m sharing the ins and outs of getting a month ahead. Check it out for details on what it means to be a month ahead, how to track being a month ahead, and how to get to the point where you can start living on last month’s income. This video is for you!
If you prefer your explanation written out, join my email list and get my Guide to Getting a Month Ahead Financially.
One of the biggest questions I get about being a month ahead is this:
Should I pay off my debt before getting a month ahead?
In most cases I would say no. If you are working hard to pay off debt right now, then getting a month ahead of your expenses will help you pay off debt even faster.
One of my frustrations before getting a month ahead was that I never really knew how much we could “afford” to put toward our debt. Not only were we living paycheck to paycheck (living on THIS month’s income), we were using credit cards, so essentially living on NEXT month’s income.
Once we were living on last month’s income, we knew at the beginning of the month exactly how much money we had at our disposal to use for our expenses and to pay off debt. We could direct every extra penny to our debt.
But personal finance is personal, so you can do what works best for you!
What other questions do you have on being a month ahead?
I am happy to do more posts and more videos on this topic! Like I said, I’m pretty passionate about it, so ask away! 🙂
I’m battling with living a month ahead and another thing that I’ve observed is that I spend lot of money on gambling as a result that worsens my situation. Please help as I want to be financially free and live on last months income.
Oh, that’s hard David. Neither of us have any personal experience with gambling, so we’re really not in a position to help. I know that every state has a problem gambling assistance program. I encourage you to see what you can find in your area. As you certainly know, just deciding to stop isn’t enough for some behaviors. They keep coming back when you’re most vulnerable. There are people who know more and can help. https://www.ncpgambling.org/help-treatment/help-by-state/
Wow! I hadn’t thought of saving money on things like the phone bill. I’m sure there’s somewhere there I could trim for sure. That would help us save a lot. Thanks Stephanie for always sharing your honest personal experience! It gives me hope.
What do you do for big spending months, like November or December with the holiday season? All my family’s birthdays fall in the same month, which also makes things difficult.
Getting out of the credit card float cycle was hands down the most challenging part of getting started paying off debt for us. We became SO used to living like that, it just felt normal. Granted, we still use credit cards today but we look at it like debit — we spend what we have (and use the credit card to get the cash back).
Anyway, I love the idea of getting ahead a month. I think it would have been particularly useful for us when hubby’s work was a little less steady. Now that we’re both on salary with predictable pays, it’s a lot easier to determine how much is coming in every month (and thus, how much we can afford to send to debt — seriously, our budget is usually so boring haha) but I could see this being particularly helpful for those with variable income!
A few years ago, I switched from using my debit card for all my regular purchases to using a credit card – after one of the first security breaches, and realizing that if my debit card was compromised, I could be waiting months for my funds to be replaced into my account – whereas if my credit card was compromised, I was not out any of my own money while disputing the charges.
But ever since, I’ve had this low level stress of being “behind” – having to come up with a chunk of cash at a particular point in the month, to pay the bill. I much preferred spending the money that was already in my account – basically spending *last* month’s income.
I’ve tried a couple of times to get back *ahead* – but it’s hard to get ahead of the cycle! Fortunately, within the next year or so, my expenses will be cut in half, as our mortgage will be paid off, and my last car payment is next month – at which point, I think I will be able to save up that month’s worth of income to get ahead of the cycle for good – before I start stashing away that extra income in savings.
Thanks for the timely reminder that there *is* a better way!
Thanks for the thoughtful response spiffi. There are real benefits to using a credit card versus a debit card, if you can do it responsibly.
I suspect if you really decided to, you could get a month ahead before the next year. I have a lot of confidence in the power of a focused goal. But maybe there’s not a hurry with your nearly complete car payment and nearly complete mortgage. Good job with those! It will be so exciting to have them paid off!
I prepay my credit card! I put all shopping and bills on my credit card and at the beginning of the month, I just put the amount I’ve budgeted for the card on there and treat it like a debit card, making sure to never go below $0. You can also get reloadable prepaid cards – I do this for Christmas shopping.
Great post. Your discussion of the credit card float has really hit home. How were you able to get your credit card due date to be on the first of the month?
Hi Amy. We’ve changed the due dates for several accounts just by calling and asking if we can choose a different date. Actually we didn’t do that with this card, though.
With this particular card, the statement period is the calendar month, so we get a full statement from June credit card use on July 1. The bill isn’t due until July 24, but we have autopay set to pay as soon as the statement closes, just to stay on top of everything.