Do you find yourself waiting for the first of the month to come so you can get paid? Do you get anxious thinking what’ll happen if you lose your job? Will you be able to cover your expenses until you get a new gig? Not to mention that as soon as you get your income, it’s spent by the end of the month.
According to a survey in 2019, 59% of Americans live on their paycheck. So, it’s only natural to want to break the cycle and stop living paycheck to paycheck.
The good news is that you can free yourself from this financial prison. Though it can take a while, it is possible. Follow along with our article to learn about steps you can take to thrive financially.
Create a Financial Debt Free Plan
The first step on your journey to break the cycle of living paycheck to paycheck must be making a plan. While the thought of budgeting puts many people off, it’s really not as complicated as it seems. Being financially savvy and creating a ‘spending plan’ doesn’t entail denying yourself all purchases or burying yourself in spreadsheets. Instead, you can create a flexible budget for yourself that prioritizes your essential expenses and will undoubtedly help you in the long run.
Find out Where Your Money Goes
Tracking your purchases is vital when trying to pay off your debts and stop living paycheck to paycheck. But, realistically, it’s way easier to spend more money if you don’t track your spending. In turn, you’re setting yourself further back from your goal.
By identifying your spending habits and personal finance profile, you get a clear overview of your priorities and what you can do without.
Of course, you need to calculate your monthly income along with your essential living costs. These include your rent, utility bills, healthcare, and food. There are a plethora of ways you can go about tracking your spending.
One option is to dedicate 30 days where you write down every single purchase. Then, at the end of the month, you can analyze your research and implement changes. Alternatively, you can go back a month or two and look over your bank statements and spending history. Another option is to use a mobile app to add your expenses, and then it will analyze them for you.
Whichever method you choose, the result should be the same – figuring out which purchases matter and where you’re losing money.
Create a Payoff Plan to Get Rid of High-Interest Debt First
As we already mentioned, the spending plan is supposed to help you understand where your money is going. Usually, people notice that they spend most of their paycheck on covering their debt for the month. In fact, The Federal Reserve’s research showed that 77% of American households are in debt of some form. Whether it’s paying off a mortgage, student loans, car payments, or a credit card. Getting rid of the remaining debt is essential to break the cycle.
There are two main roads you can take when you’re trying to pay off high-interest debt. The first, known as the Snowball Method, proves that slow and steady pays off in the long run. In short, you need to figure out what your smallest debt is and increase your payments towards it. In the meantime, make sure to pay the minimum on your other debts. Though this method means you’ll end up paying more interest, you’ll be paying off debts a lot more often.
Alternatively, you can try out the Avalanche method, which entails focusing on your largest debt first. While you won’t be closing off debts as fast, you can end up saving thousands of dollars on interest rates. Sadly, your monthly paycheck won’t be enough to cover your large loans effectively. A good alternative solution for this situation would be looking into short-term loans or debt consolidation loans.
Put Your Monthly Budget in Action
Once you finalize your spending plan regarding your debts, it’s time to figure out how the rest of your budget will work. Simply said, every dollar in your budget needs to have a job. Meaning, every time you cash out your paycheck, you need a clear vision in mind on how and where you’ll spend it.
Many people live and swear by the 50/30/20 rule. This entails that the first 50% of your paycheck must go to your non-negotiables – food, rent, bills. Then, you should spread out your remaining funds appropriately. The 30% should be for your personal use and non-immediate expenses. Remember, you’re trying not to live paycheck to paycheck anymore, so you need to make smart investments. Instead of going on a shopping spree, invest a portion of this money into something that will help you in the long run. The last 20% should go to your savings account.
Yet, using the exact same percentages can be nearly impossible if you’re living paycheck to paycheck. So, try to figure out a percentage ratio that works for your situation.
Cut Down on Your Monthly Expenses
After you put your working budget into action, you need to spend less on your monthly expenses. What does this mean exactly? Well, thanks to tracking your spending, you now understand where your money goes each month.
Putting aside your essential expenses like housing and food, where can you cut back on spending? Paying several subscriptions for streaming services clearly isn’t the best idea if you’re trying to stop living on your paycheck. Sure, cash till payday financial products can help, but that’s not the point. Also, this isn’t the time to go out and spend a bunch every night or order in all the time.
Setting a goal in mind on how much money you want to stop spending for a certain time can be of great help. For instance, let’s say you want to save $50 a week. Then, make sure to look for cheaper groceries, buying generic instead of name brands, and cutting back on unnecessary luxuries.
Remember, the more you cut back on your non-essentials, the more your savings grow, and the closer you are to breaking the cycle.
Ask for Help
Though the steps above are very effective, you must remember that you can’t do everything alone. There’s nothing wrong with reaching out for help, whether from family members or external sources.
Family and Friends
In most situations, people reach out to their family and friends for help of any kind. Now, when it comes to financial help and money gets involved, things might get a little tricky. Still, it’s possible to work out an agreement with a loved one to help you stop living paycheck to paycheck.
The easiest thing you can do is ask for a small loan from them to insert into your budget plan. But it doesn’t have to boil down to you borrowing a sum of money from them. You could ask a friend to look over your budget and suggest where you can go without spending money or make smarter purchases. Alternatively, you can have somebody keep you accountable about your spending and help you stick to your goal.
Turn to Professional Services
If you don’t feel like taking the family and friends route, you still have some options left. Luckily, there are plenty of organizations and services that help Americans get some financial advice and help.
For instance, if you’re trying to acquire a new job position, you’ll need to enhance your skills. An excellent way to do this on the budget is by reaching out to community colleges, community centers, or senior centers. These establishments often offer low-cost, or even free, courses on a variety of professions. Since networking is the key to success, make sure to attend any events around you to expand your career.
If you’re in between jobs and in need of financial help, you can turn to government programs like subsidized housing and food stamps. Remember, even though you’re out of a job, you can still apply for unemployment if you receive government benefits. If you’re already unemployed, you can always focus on your future and intern at somewhere you want to work someday.
Gradually Increase Your Saving Contributions
Say you’ve followed all the steps so far correctly, and you already have some extra cash in your hands— you should have a sum of money left over at the end of the month since you aren’t repaying any more debts. Pair that with the amount you’ve been saving up with cutting costs, and your balance should be doing pretty well.
A recent study showed that 37% of Americans have between $1 and $100 in their savings. It’s safe to say that most of these people are stuck in the loop of living paycheck to paycheck. So, you need to follow your budget plan and put some of it away for savings.
The best way to stock up your savings is to get a small portion of your monthly income automatically transferred into your account. This way, you don’t get to see the money leave you. Then, you’ll probably be pleasantly surprised by your savings balance in a few months.
Build up Your Emergency Fund
Once you hit this step, odds are you’re almost at the end of the road. Building up an emergency fund is the exit from living your life paycheck to paycheck. Indeed, there’s nothing better than knowing you have a stocked emergency fund and enough to cover an unexpected expense. As long as you have enough money in it, you’ll be financially stable without fearing for your next paycheck.
In an ideal scenario, you would be able to have up to a years’ worth of money in the emergency fund. Yet, since you’re only getting started, you should have a more reasonable goal in mind. For instance, $1,000 is a safe and obtainable amount, which can surely cover minor emergencies.
Remember, these are emergency savings and have to be used for emergencies only. Of course, you can always get a 1000-dollar loan, but having the money and avoiding the fees and APRs is much better.
Get a Side Job
Even if you’re employed, getting a side gig is an excellent choice if you have the time. It doesn’t even have to be a literal job. More income means a faster way out of living paycheck to paycheck. So, you should use any ability you have to generate revenue.
First off, many side hustle apps allow you to make money from home. From answering surveys to watching short videos, these platforms can be a convenient way to make an extra buck for using your phone.
If not, you can try to monetize any other talents you have. For example, if you’re academically gifted, you can easily offer tutoring services to customers. Similarly, you can get a babysitting gig or two, depending on where you live. If you have a knack for the arts, you can turn to platforms like Etsy to sell your art. Alternatively, you always have the option of selling or pawning your items.
Continue to Track Your Spending
Say the budget you prepared initially proved to be the right for you, and you’ve gotten most of your finances in order. However, you still shouldn’t get too careless with your purchases, and you should continue to keep track of your spending.
Moreover, the budget you created to break the paycheck-to-paycheck cycle probably won’t work for you once you spring free. This way, you can regularly update your spending plan as your finances continue to blossom.
Get Rid of Your Credit Cards
It’s a well-known fact that credit card debt is possibly the worst kind of debt you can be in. If you’re consistently making purchases with credit cards, you’re only digging yourself a bigger hole. Though it’s difficult to function without a credit card in 2021, it’s in your best interest to minimize their use as much as possible.
You don’t need to close your bank account. Instead, try to stick to one or two credit cards and do your best to use them for emergencies only. Instead of swiping your credit card for everything, consider paying with cash only or even with a debit card.
Of course, don’t forget to do your best to pay any due amounts on time. But, on the other hand, you shouldn’t prioritize them over secured debts like a mortgage. Still, try to add money towards their repayment to avoid any late payments showing on your credit report.
Manage Your Financial Stress
Trying to break the paycheck-to-paycheck cycle, as all finances are, can be a stressful situation. In many cases, people find themselves feeling stuck in a loop with their money. Yet, it’s important to remember why you started your journey. Having a constant reminder and a goal in mind ensures your hope won’t die, and you’ll stick it out until the end.
Moreover, make sure that you’re not causing yourself even more stress by being overly strict with the finances. Sure, you need to keep yourself accountable and respect your spending plan. Yet, you mustn’t restrict yourself from all joys of life. So, maybe consider creating a reward system for each goal you hit.
Final Thoughts
The fact of the matter is surviving life paycheck to paycheck is no way to live. Deciding to get out of this loop and starting to live life without constant worrying is the best choice you can make. Yet, you need to keep in mind that this road isn’t an easy one to walk, and it’ll likely take a while.
Low hourly rates, unexpected emergencies, and just life, in general, can often act like setbacks. Still, don’t give up and stay determined. By implementing our advice, you should be able to improve your financial situation all around.
Nowadays we all leave from paycheck to paycheck. It is very difficult to save some money with all the expenses and unemployment. Even when you have good job the overall expenses and credit cards eat your savings. Maybe I am not that smart but whatever I try I definitely can’t save any serious amount of money.
Nice article thank you. I will use some of these tips.
I always try to save at least 10% of my income. Sometimes is more but 10% is the minimum. This way I am sure that I will have some cash in emergency or if I am laid off.
There are some useful phone applications that can track your expenses. I am using one and it helps me determine where I spend my money.
I am between jobs and it is very difficult to find a new one. All the savings that I had are gone. And now I am working side gigs but it is not enough to cover all the expenses
I am a full time freelancer and it is very difficult to stay solvent. Sometimes I earn enough, but some months are really awful. So I use the money to cover the bills and the food.
It was always difficult for me to stop impulse buying. So I usually end up buying things that I really don’t need. And I can’t find the way to change it.