Living Paycheck to Paycheck Sucks, Here’s How to Break the Cycle
Even though it’s been nearly a decade since The Great Recession, most of us are still feeling the effects of it, especially the lower and middle classes. Well over half of the US population can’t afford to have an emergency fund for 6 months of expenses and nearly 80% of workers in a study by CareerBuilder are living paycheck to paycheck.
That’s no way to live. I know because I’ve been there.
Worrying about which bill gets paid first and which one has to get pushed to the your next pay cycle. Dreading any irregular noise in your car because it may need repairs that you just can’t afford.
Living paycheck to paycheck sucks, but there is hope in breaking the cycle just like I did. All you have to do is follow these tips.
1. Create a budget
First thing’s first, you have to know where your money’s going. There’s only so much money coming in every month so you have to make every dollar count.
Tracking your money and putting it into a formal budget can be tedious, but there’s no better tool at getting your finances under control than a budget.
You can do make your budget on a piece of paper or in a spreadsheet (Excel or Google Sheets work great for this). I personally prefer a spreadsheet since you can make edits faster without making a mess of it.
You’ll want to put all of your income in one column and that includes your monthly pay, annuities, investments, and any other money that you earn on a monthly basis.
In the column right next to it, write down all of your expenses. Bonus points if you label or group these expenses together, i.e. bills, entertainment, etc. This includes your mortgage / rent, cable, electric, heating / AC, groceries, gas, everything. Even any trips you make to the gas station for a candy bar or a pack of gum.
Total both of those columns up to see what you actually have left over at the end of each month. Hopefully, you’re in the black, but if you’re struggling to get by, you’re most likely in the red which means you’re spending more than you’re making.
2. Cut back on your spending
It’s far easier to spend less money than it is to make more of it and the best part is that it’s 100% in your control.
Evaluate how much money you’re spending each month and what you’re spending it on. You can quickly identify where you can save money by spending less.
No matter who you are or how much you make, I guarantee that you’re overspending on SOMETHING and you can save money by knocking it off.
Maybe you’re spending a lot of money going out to eat. Go to the grocery store and cook your meals at home.
Maybe you’re spending a lot of money going to bars on the weekend with your friends. Have the party at your place instead and stop paying $5 a beer.
I guarantee you that no matter how much money you make, you’re spending money on some frivolous expense that could be put to better use.
3. Save something each month
Once you’ve cut your expenses, you should have some breathing room and you should be able to start putting money away into your savings account.
Saving is still an expense, so don’t forget to add it to your budget, but it’s put towards your financial security.
As your savings grow, you start to build a safety net. This net can be used to absorb the cost of unexpected car repairs, an emergency room visit, or even a surprise trip to visit family.
The point is that saving gives you options where as having no savings gives you zero options. When that unexpected bill comes along, you have to pay it, set up a payment plan (it it’s available), or let it go to collections and wreck your credit.
If you’re not used to saving, start small. Ten bucks here, five bucks there, it all adds up. It’s just important that you put something away each month.
4. Pay off debts
No matter what the debt is, you need to pay it off as quickly as possible. These debts are eating up your income and forcing you to barely scrape by. They need to go.
Odds are good that you have a credit card (or two), a car loan, a mortgage, and maybe one or two extra debts floating around that need to be paid off. Just paying the minimum payments is a great way to get nowhere. You’ll barely make any ground when it comes to paying these debts off and the lenders are going to make a ton of extra cash off of interest.
The best way to attack your debts, in our opinion, is to focus on one at a time and tackle your high interest ones first. These are typically your shorter term loans, financed furniture, credit cards, etc. and because of their high interest rates, they’ll cost you the most in the long run.
A great place to start is paying off your credit cards or any short term loan, if you have them. Try to make double payments on these accounts so you can pay them off in half the time. Keep paying your other debts so they don’t go to collections, but make one a priority until it’s paid off, then move onto the next one.
5. Be patient
This is not going to happen overnight. It may not even happen this year, but if you never start, you’ll never get to where you want to be.
Be patient and stay the course.
This may be difficult if you like to go shopping or you’re prone to frivolous spending. You’ll have to get that under control because that’ll just sabotage everything you’re trying to accomplish.
And when you start seeing your bank account grow, this is the most important time to be patient. That money isn’t for spending. It’s your security cushion.
If you want to have some extra money for discretionary spending, set up another account and put money there on a monthly basis so when you do see something you want, you can buy it without feeling guilty or sabotaging your efforts.