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7 Steps To Stop Living Paycheck To Paycheck

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Written by Ryan Scribner
Updated on April 11, 2020

How To Stop Living Paycheck To Paycheck

It’s estimated that 78 percent, that’s eight in every 10 employees live paycheck-to-paycheck, says a new survey conducted by CareerBuilder in 2017, which is up from 75% in 2016. 

This trend applies even to those workers who make six-figure salaries with one in every 10 employees who make $100,000 or more saying that they live paycheck-to-paycheck. 

Many people will spend their entire paycheck as long as it’s available in their account, and it doesn’t matter whether their pay falls under the low, the middle, or the higher compensations.

On the other hand, many people who put away sufficient savings for their financial goals and maintain a healthy emergency fund or a cushion. 

However, the problem is that about a quarter of Americans don’t have money saved for an emergency financial situation, according to Bankrate.

Also, about 20% of American’s don’t have savings that will last over three months of living expenses.

As a general rule of thumb, everyone should have 6 months of living expenses in a liquid emergency fund like an online savings account.

Many people may think living in this kind of spending cycle is normal – but it isn’t. With 69% of Americans having less than $1,000 in savings, it shows that the situation is serious.

Breaking the cycle of living paycheck-to-paycheck takes discipline as proper planning is needed. We have certain steps that people can take towards gaining more control over their finances. 

1. Make A Budget

If you are like most people, you don’t know where your paycheck goes, and the reason could be that you don’t have a budget. 

A budget will tell you exactly where that hard-earned cash is going – there are no buts, ands, or ifs about it. You have to make a budget and adhere to it. 

Without a budget, it is easy to live paycheck-to-paycheck because there is no plan. Perhaps you even don’t know how much cash you have at hand to work with. A budget shows you areas where you need to cut back so that you can start saving.

So, how do you do a budget? To create a budget, you need to take your monthly income less your monthly expenses – to give you a figure of zero. This doesn’t mean you have spent everything, and no money is left in your bank; what you have done is allocated every dollar you make to a category. 

You will decide exactly where each dollar goes, including your savings. In this case, you make savings as part of your expenses, so when allocating money for grocery shopping as an expense, you also allocate money for saving as another expense.

Writing Out A Plan

In drawing up your budget, you jot down the income you earn every month – that’s your regular paycheck and other money that streams in. You can use the old-fashioned way of a notepad and pen, or you can get on your computer and use the spreadsheet. Alternatively, you can use your smartphone to access free budgeting apps such as EveryDollar.

On the app or the notepad, you list all the expenses for the month, including things like food, phone, internet, and of course, your amount for saving – yes even include savings as an expense. 

Expenses may change every month. In this case, you may need to have a new budget at the beginning of each month.

After you have listed all the expenses, you subtract them from your monthly income – the goal is to have a zero amount left to budget, not zero amount left in the bank. 

If there is something left, that should be your buffer.  So, the idea is to make sure that you budget for every dollar, so you can’t overspend.

Again, make a list of other things you need to tackle or pay in order of their importance. If you are left without any extra amount, it’s okay; you may consider things to be really tough. However, if you have something still left, you can direct that to the bank.

As long as you have the family fed and there is a roof over their heads, that’s okay – even if nothing was left for banking. Just keep hoping that things will get better – the sun will shine tomorrow. The next steps should help you with eventually having a surplus to save. 

This way, you are sure you don’t have to go for fast loans or payday loans to meet your regular financial needs. At least, you have control over your spending. What you want to do is see if you can get more money streaming in to allow for savings – and you should strive to achieve that.  This way, you will do away with living paycheck-to-paycheck.

2. Do Away With Debt

Playing around with debt can be a recipe for disaster – you have to stop living like this. You won’t get ahead that way. Whether you believe it or not, using debt or credit cards to fund short term needs is not a good thing. 

But debt doesn’t come just in the form of credit cards; it’s actually tricky – it’s packaged as car payments, mortgages, store credit cards, student loans, personal loans, payday loans, business loans, and even the “buy-now, pay-later” deals.

To shrink your debt and eventually do away with it, you need to stop taking on any more debt. You need to stop using your credit card as a way to make ends meet – you can’t just borrow from Patrick so that you can pay Greg. You have to stop living outside your means. 

It’s not easy, but you should start paying off the debts. Whether starting from the smallest to the largest or highest interest rate first, paying off your debts will help you stop living paycheck to paycheck. 

Over time, you may find that not all debt is bad. For example, mortgage debt for an investment property can actually allow you to make money. However, for now while you figure out your finances you should just avoid debt altogether. If you are paycheck-to-paycheck, you are in no position to purchase a rental property anyway.

3. Sell Unneeded Stuff

You want money to stream in, and one of the easiest things you can do to get you cash on your hands is to sell things you don’t need. 

It could be the jewelry, baby items, clothes, or that extra car sitting lying in your garage. The idea of selling is to get rid of things that you don’t need or won’t be using in the future. 

You could use Ebay to sell items that can easily be sold and shipped. You could also use Craigslist to sell larger items and to save on Ebay fees. 

Once you get good at selling your own items, you may be able to sell items for other people. You could find free stuff or even purchase items at garage sales and sell them online for a profit. 

What you may also find is that as you sell stuff, your stress level will go down as well. For me, there is nothing more stressful than overflowing closets full of clothes or a garage full of knick knacks. This means you are killing two birds with one stone!

4. Start A Side Hustle

If you find yourself living paycheck-to-paycheck, you want to consider having more income – and it should be consistent. You may want to go for salary increases and promotions within your job. 

However, you may want an additional income stream. You may want to start a side hustle.

A side hustle can help you meet those small expenses or add on to your budget so that you stop tapping into your credit card or going for a payday loan.

Some options to help you make extra cash include driving for Lyft or Uber, waiting tables, working at some call center, being a barista, or taking up the work of a substitute teacher. 

Of course, there are so many side jobs you can do – even work-from-home jobs that you can do on weekends or after the 9 to 5 job.

If you have other skills you don’t utilize like baking skills, sewing skills, or design skills, it's time you consider using them to get you some extra money. 

5. Strive To Live Below Your Means

Sometimes, solving the puzzle of living paycheck-to-paycheck doesn’t mean getting more money. 

You may be making more money, but you still have more problems cropping in. 

It doesn't matter if you earn $10,000 per year, $100,000 or even $1M! You can still live paycheck-to-paycheck if you do not live at or below your means. 

If you do not do this, even when you increase the income, you will not be able to manage it. You will spend it all. If you are not careful, increasing your income could easily get you into what is referred to as “lifestyle inflation” where you start spending more.

With lifestyle creep or lifestyle inflation, you adjust your spending on the higher side every moment you find yourself having more money. In the end, you find that you have nothing left which you could put in the bank or worse still, you continue using payday loans and credit cards to make things work for you. 

While it is tempting to be a big spender when you make more money, you shouldn’t do that. Make sure you pay attention and stay intentional - stick to your budget even when more money has come your way.

People will commonly go out and purchase new cars or new toys like boats and campers as soon as they get a raise. This keeps them financially trapped by increasing their monthly spending on these things that aren't really necessary. Not to mention, you won't have any time to use that boat if you are working a job and a side hustle to pay for it!

6. Cut Down On Unnecessary Things

When you’re living paycheck-to-paycheck, it is not time you should go to see the latest movies, visit your favorite restaurant, or buy T-bone steaks for your dinner. It is time to start cutting back on unnecessary expenses. 

You need to tighten up, so look for areas in your budget where you can trim the spending. At first, you may find that there is nowhere you can cut. So try looking again, and even again, you will ultimately see which items you should cut in the budget.

Probably, you have been making subscriptions for Hulu or Netflix, or meal delivery kits, or even specialty makeup boxes. These are things you can trim from the budget. You may even want to call your internet, cable, or cellular providers to see if you can downgrade your plan or maybe stop your service for some time.

These things aren’t within the Four Walls - so you can live without them. Here, you are trying to get things on track - it’s not like you will be there forever. Those temporary sacrifices you are making now will pay in the future. 

Check out the Trim app which is designed to do exactly that. It alerts you about subscriptions you may have forgotten about and even negotiates some of your bills on your behalf!

7. Set Up An Emergency Fund

You want to create a safety net under the feet. It may take some time to save for an emergency fund when things are tight. However, when they get better, then you should do it. Having an emergency fund creates peace of mind, and it can help you push yourself above the limit to get more money.

A proper emergency fund should have 3 to 6 months of living expenses. For someone who spends $2,000 per month, you should have $6,000 saved in an emergency fund. 

Often, people spend more when they are financially stressed out. So, when you have an emergency fund, you don’t have a lot of stress, so you will concentrate on things that can fetch you more cash.

You may ask yourself why you need to save now when you are trying hard to make ends meet. The answer is simple! That starter emergency fund will be your buddy when you are trying to get ahead. It will create a buffer in-between you and life so that you don’t heavily rely on the paycheck that is coming in. 

The emergency fund is there to keep you sailing the financial boat when you get into choppy waters. It allows you to resist the urge or need of tapping into your credit card.

Experts recommend parking this emergency fund in a completely separate savings account so you are not tempted to touch it. If you leave it in checking, you might end up spending it on a vacation, aka not an emergency!

Betterment has a great online savings account with higher than average APY. There is no minimum balance and no fees, so you could start your emergency fund right now to get the ball rolling!

Final Thoughts

These are some of the ways in which you can stop living paycheck-to-paycheck.

Some may feel an uphill battle to achieve; however, you have to push hard. It’s better to struggle now with these techniques to build a stronger foundation for your finances than wait for your financial boat to sink. 

These techniques will help you avoid unnecessary debt, keep yourself protected with a safety net, and reduce your expenses by living below or within your budget.

It will help you begin saving money. Remember that the small amount you add to the bank each week, makes a big difference over the long term!

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How to stop living paycheck to paycheck
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