Paycheck to paycheck living can wear you down financially and emotionally.
Money comes in and, just as quickly, it goes back out again. You want to set something aside for savings or make a dent in your debt, but your income never seems to stretch as far as you need it to.
But, while living paycheck to paycheck may be “normal”, it’s sure not a good feeling or a good situation to be in!
It can leave you feeling:
- Anxious or worried about unexpected expenses
- Feeling a tad bit incompetent at managing your money (or life!)
- Embarrassed – especially when you compare yourself to those around you
You may also feel STUCK – stuck in a job you hate, in a living situation that’s less than ideal…maybe even in a relationship, you’d like to break free of.
If any of this sounds familiar, keep reading. I’m going to offer some practical strategies for helping you break free and become MORE confident, MORE competent, and in CHARGE of your financial situation once and for all!
1. Track Your Spending
The first step to taking control of your finances is to figure out exactly where all your money is going. Many families don’t realize they already have more than enough to cover their bills because their extra cash gets frittered away throughout the month. Your goal is to track down those hidden budget busters and eliminate them.
So, for the next month, keep track of every single penny you spend, from your monthly rent payment to that dollar for a cup of coffee. Jot down your expenses in a notebook or use personal finance software like Mint to keep track of your spending.
Make your list as detailed as possible. Instead of just writing, “Groceries: $60,” keep the receipt so you can see exactly what you bought and what it cost. This will help you later when you’re looking for expenses to cut. Make sure to include hidden expenses too, like bank fees or the interest you pay on credit card debt.
Simply seeing all your expenses written down in black and white can be a revelation. For instance, you might realize you’ve been blowing nearly $30 a month on ATM fees or $50 a month grabbing a snack at the convenience store on your way home from work. Seeing how much these nickel-and-dime expenses are costing you could be enough to shock you into changing your habits, freeing up cash in your budget at the end of each month.
However, if you look at your expense list at the end of the month and still feel like you have no idea how to save, don’t worry; your effort hasn’t been wasted. It will help you move on to the next step: serious budgeting.
2. Create a budget
In order to break the paycheck-to-paycheck cycle, you need to set financial priorities, eliminate excessive and unnecessary expenses, and stick to a plan, i.e., a budget. The first step to creating a budget is to identify your net income and compare it to your expenses. Break down your spending into non-discretionary and discretionary expenses.
Mortgage or rent, groceries, utilities, insurance, and transportation are typically non-discretionary. Discretionary expenses include eating out, entertainment, and clothing. Determine how much you can afford to spend in each category, and look for areas where you could cut back. Be realistic. Once you start following a budget you will see how it can boost your financial confidence.
3. Don’t shop for entertainment’s sake.
When you’re hanging out with friends, it can be tempting to go shopping for clothes or hit the electronics store. Don’t. Find anything else to do. Shopping for fun in a social environment is costly even if you don’t buy anything because you’re surrounded by temptation and the mental picture of stuff you want but don’t really need. It’s an excuse to talk to your friends about stuff you want and potentially talk yourself into purchases, either now or later. If you want to save money, just stay away.
4. Live within your means
It can become very tempting to buy new clothes or big tickets items like televisions when you see other people enjoying these things. It can be tempting, but you should also think of the ultimate cost in the long run. Will buying clothes that will be out of style next year really be worth that debt that you are getting into? Will the new car be as much fun to drive if you are barely affording to buy gas for the vehicle? The obvious answer is no so consumers should consider this before they go down the road that leads to this type of debt. If you don’t make enough to handle the monthly expense, you should consider cutting some of those frivolous expenses.
5. Increase your income
If you feel like your current income is not enough to make ends meet, then you should find ways to increase it. For example, you may want to take a part-time job on the weekends if you have the time. You can also use your talents online to bring in extra income.
Part-time jobs, even seasonally, can help people get ahead and become more financially stable. In some cases, people are left living paycheck to paycheck due to a certain set of outstanding bills. If this is the case, supplementing income with a part-time job on the weekends or several evenings a week could provide enough additional financial support to alleviate the debt.
Although some financial situations cannot be remedied with commitment alone, becoming more conscious of one’s debts and savings can lead to greater motivation and commitment. While finding a better paying job is a given, it’s more important to look inward and assess how one’s current budget can be optimized and spent more effectively. Reducing living costs, developing better spending habits, and seriously addressing debts are the best ways to start saving more each month.