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How to Stop Living Paycheck to Paycheck
Living paycheck to paycheck is terrible. It is stressful, doesn’t allow you to ever get ahead, and is a never ending cycle if you don’t take steps to stop it. It might not be quick or easy, but it can’t be done and think about how good it will feel to stop the cycle and to have money to buy things you need and any extras that you may want!
Track your spending
Before you can stop living paycheck to paycheck, you need to know where every dollar of each of those paychecks is going. If you primarily use a debit card for your purchases, you can easily do this with last month’s bank statement. If you use a combination of debit cards, cash, credit cards, etc., track everything you spend for the next month--a $2 coffee, groceries, $1 in the vending machine. Literally everything. This will give you an idea how much of your money is going to necessities (e.g. rent/mortgage, utilities, car payments, groceries, etc.) and how much is going to “wants” rather than needs (e.g., coffee, dinners out, shopping, drinks, etc.). You can’t cut back your spending, which is the next step, if you don’t know where your money is going.
Cut back on spending
Once you determine where your money is going, you need to figure out how to cut back on that spending. Can you cut cable, decrease your cell phone plan costs, or negotiate lower rates on insurance or other necessary services? Using coupons, money back apps, and the weekly sale papers for groceries is a great way to save. Apps like Ibotta and Checkout51 are easy and allow you to save AND earn cash back on grocery purchases. Cutting out “extras” can help you get on track as well. Think about how much money you can save if you make coffee at home, pack your lunch, or limit how often you eat out.
Make a budget and stick to it
Now that you know where your money is going and know where you are going to cut back, the next step to stop living paycheck to paycheck is to make a budget and STICK TO IT! There are a lot of ways to do this. Apps, like YNAB (You Need a Budget) and Mint are two that help you track your spending and stay within your budget. You can also do the cash envelope system or simply use Excel or a pen and paper to track your expenses.
Make extra money
If you have cut back on your spending and are still having trouble getting ahead, making extra money is another solution. There are tons of way to make extra money—figure out a side hustle, take a part time job, work extra hours, etc. The possibilities can be endless if you are flexible. You can also make extra money by selling your stuff you no longer need. Have a garage sale, sell items on buy/sell/trade sites on Facebook, or use Craigslist. Even if you find that you do have enough money to cover your expenses after you cut back on your spending and create a budget, making extra money will help you with three of the steps below, getting out of debt, building an emergency fund, and building a buffer in your bank account.
Get out of debt and stop using credit cards irresponsibly
This is huge. If you use credit cards to make up any lack of funds you may experience after your paycheck runs out, you are never going to get ahead, as you continue to rack up credit card debt, often plagued with high interest rates. There are many methods you can use to pay off debts. First, you need to figure out exactly how much you owe, to whom, and what the interest rate is (while you are at it, take a look at your credit report too, and make sure everything is accurate). Once you have a list of your debt amounts and the interest rate, how you proceed is your prerogative. Some advocate for the “debt snowball” method, starting with the smallest balance first while others advocate for starting with the debt with the higher interest rate first. Whichever method you choose, it is important to pay the minimum on ALL debts and put extra money towards ONE of them. If you are paying a small amount of extra on a number of debts, rather than concentrating all of your extra funds on your target debt, this step will take you much longer.
Identify your bad money habits
It is also important to identify your bad money habits. Living paycheck to paycheck is definitely one of them. Others may include viewing as credit as money available to you for any purchase, not paying your credit cards or other debts on time, racking up overdue fees, paying for memberships you don’t use. Once you identify your bad money habits, you can work to change them. It is important then to develop some GOOD money habits, detailed below.
Create an emergency fund
Emergency funds are necessary for many reasons. Unexpected medical expenses, a job loss or lay off, car expenses you were not anticipating. Many experts recommend at least $1,000 in your emergency fund, as this is enough to cover most insurance deductibles or large car repairs. Personally, I prefer to have a larger emergency fund, particularly if you have a lot of living expenses, like a mortgage, car payment, etc., but $1,000 is a good place to start. Set up an automatic transfer in your bank account each month (or each time you get paid) and you won’t even miss the money because you’ll never actually see it in your account. It will go straight into your emergency fund without you having to do a thing.
Build a buffer in your bank account
Build a buffer in your bank account so when you pay all of your bills each month, you have some left over. This can come in handy and prevent you from having to dip into your emergency fund, especially for a smaller expense. It is also nice to have that buffer in there for unexpected expenses, gifts, etc. I know many financial experts advocate to “budget to zero,” but I have always preferred having a buffer in my account at the end of each month for my own peace of mind.
Pay yourself first
You may have heard this before. It doesn’t mean to pay yourself for frivolous purchases or things you really want first. Nope. It means to put money in your savings account FIRST. Pay yourself first, even if it is only $5 to start, and then pay your bills and other expenses. As you start paying more debt, earning more money, and stop living paycheck to paycheck, you can increase this amount.
Getting out of this cycle is not going to be quick, nor is it going to be easy. You may have some setbacks, but you can do it! It will take focus and discipline, but, as my very wise mother-in-law always says “learn to love your money!” If you learn to love your money, you will be able to buy those things you really want and get out of the vicious cycle of waiting for pay day to do anything.
for pay day to do anything.