Living paycheck to paycheck is common for most individuals and families in our society. According to CNN Money, about 76% of Americans are living paycheck to paycheck.
It’s common to work hard each week, receive a paycheck and spend a good amount of the money on food, housing, bills and utilities, entertainment, outings and other things you want or need. Pretty soon, you check your account and realize it’s dangerously low and you impatiently wait for the next payday only to drain your account one again.
The vicious cycle continues on for some for years and years. It’s not just an issue with Americans who have a low or average income. Plenty of high earners are living paycheck to paycheck as well which tells me it’s less of an income problem and more behavior and habit-based.
Whether you sprinkle a little into savings or not each pay period, it’s still probably not enough to break the paycheck to paycheck cycle.
Living paycheck to paycheck can be scary because you can’t fully budget for income that you have yet to receive. Even if your job is stable and you expect to get paid every two weeks, if you get sick or have an emergency or miss a few days of work, you might not be able to cover all your expenses.
The best way to stop living paycheck to paycheck is make a conscious effort to get one month ahead financially and start living on last month’s income.
1. Start by Determining How Much you Need to Cover your Monthly Expenses
Calculate what your monthly expenses are and track your monthly spending in a spreadsheet or take a look at your previous bank statements to see how many times you went off budget and/or overspent.
Once you add up each and every expense and eliminate the unnecessary ones, the number you come up with is the amount of money you need to save up so you can get one month ahead.
2. Develop a Savings Strategy
You will need to develop a strategy in order to save the amount of money you calculated in the previous step. If you have some savings in an emergency fund, you should keep it separate to help protect your finances when unexpected expenses come up and start working toward this specific goal separately.
You’ll need to assess your situation and determine what is causing you to save less and live paycheck to paycheck. Most times, the cause lies in the fact that your expenses are too high and you spend too much or your income is quite low and it needs to be increased or a combination of both.
It’s important to find a way to free up some money so you can work toward your goal along with deciding how often you will save.
For example, if your monthly expenses equal $3,000 and you want to get one month ahead financially by 6 months from now, you’ll need to save an average of $500 per month.
That sounds like quite a bit of money to squeeze out of your budget. Some people might even argue, if you could save money like that each month, you wouldn’t be living paycheck to paycheck in the first place.
In all honestly, many people can save money like that but it’s not easy so they avoid it. It’s up to you to determine when you will reach your goal of saving up one months’ worth of expenses so you could take 6 months, 8 months or even a year to do it.
Save Gifts and Lump Sum Payments
If you receive any monetary gifts around the holidays or a tax return next year, you can move it straight to savings to get closer to your goal. For your birthday, you can even tell friends or family about your goal and see if they want to donate toward it as a gift.
Large lump sum payments are wonderful because when you save them, they allow you to see positive results quickly and it helps you stay motivated.
Start Slashing Expenses
Cutting expenses is one of my favorite and most effective ways to save money. Whether your expenses are fixed or variable, you can always make better life decisions in order to reduce them. The key is to find out which expenses are eating up so much of your money and start chipping away at them.
If a large expense like housing or food costs is busting your budget, there may not be a ton you can do, but you can always consider living in a less expensive home and trying to save money on food by implementing some of these tips and strategies.
Stop Spending and Shopping Each Day
Your income would stretch a lot further if you refrain from spending and shopping often. Having a couple of no spend weeks or weekends throughout the year will allow you to get comfortable with spending less and being content with what you have.
If you have a favorite store or expensive guilty pleasure that isn’t adding any value to your life, ban yourself from going there temporarily and pocket the money you save by changing that costly habit.
3. Increase Your Income
Saving might get you halfway there, but if you are not earning enough to waste extra money in the first place, you should focus most of your energy on increasing you income. Increasing your income will allow you to keep living and budgeting as normal, while saving the excess income you make to get closer to the amount you need to start living on last month’s income.
There are so many ways to increase your income without having to get a second job or work long hours so you should never be intimidated by earning extra.
Once you commit to following these steps and stay focused on setting extra money aside, you’ll be well on your way to saving up a months’ worth of expenses in no time so you can break the vicious paycheck to paycheck cycle and get back on track financially.
Do you live paycheck to paycheck? Are you doing anything to change it?