How to Stop Living From Paycheck to Paycheck

If you’re living paycheck to paycheck and are struggling to make ends meet, you’re not alone. CareerBuilder released an eye-opening study that found 78 percent of U.S. workers are in the same boat. Not only does living paycheck to paycheck make paying bills at the end of the month more difficult, but money and finances continue to be the leading cause of stress for Americans. High stress levels can result in harmful health issues such as obesity, heart disease, and diabetes, which may further increase your financial burden down the line.

The same CareerBuilder study found that half of Americans in debt believe they will continue to be in debt for the rest of their lives. The good news? You don’t have to resign yourself to a life of debt. Sometimes all it takes to get back on your feet are a few lifestyle changes and a helpful loan calculator. To help you get started, we compiled a few tips on how to stop living paycheck to paycheck and save more money.

Take a look below to find out how:

• Create a Budget
• Get Out of Debt
• Spend Less
• Begin Saving Money
• Open an Emergency Fund
• The Bottom Line

Create a Budget

To stop living paycheck to paycheck, you must first create a budget. Learning how to budget effectively allows you to track your living expenses. To learn how to stay on a budget, start with these steps:

Step 1: Calculate Your Monthly Expenses

Start planning your budget by determining how much money you spend each month. To get an accurate representation of your average monthly expenses, it’s best to calculate your spending from the last six to 12 months. This includes every transaction made, including payments for insurance, food, household items, car payments, mortgage/rent, and so on.

Once you’ve calculated your expenses for each month and added them together, divide the total by the number of months you accounted for. For example, if you tracked the last twelve months, divide your yearly spending by twelve to find your monthly average. So, if you spent $24,000 throughout the year, divide that number by twelve, and your average monthly expenses will be $2,000.Additionally, it’s important to factor in unexpected expenses, such as a car repair or an expensive heat bill in the winter. To do this, add an extra 10 to 15 percent to your monthly spending average. If we continue with our average $2,000 monthly expense example, you’d add $200 to $300, for a total monthly expense between $2,200 and $2,300.

Step 2: Confirm Your Income

Now, determine your income. To do this, take into account your salary, as well as additional forms of income such as child support, money from online sales or yard sales, cash gifts, interest, tax returns, and so on.

Step 3: Determine Whether You’re Over or Under Your Budget

Now that you know how much money you spend and how much money you make, determine whether you’re spending under or over your budget. To calculate, subtract your monthly expenses from your monthly income. If you’re spending under, great! This means you have extra money that can be saved (not spent frivolously). However, if you’re spending over your budget, it’s time to make some financial decisions to get back on track.

Step 4: Set Financial Goals

To stay on track with your budget, it’s important to set goals. This means creating savings goals as well as debt goals. Once you’re in good standing and are taking in more money than you spend, you might choose to start setting aside around 15 percent of your income to your savings account or to pay off debts such as student loans, auto loans, and mortgages. In an era where the average cost of a single-family home is 4.2 times higher than the median household income, setting goals can make it easier to afford big purchases like a home or car.

Step 5: Make it a Habit to Track Spending

Once you’ve controlled your spending and created a realistic budget that matches your financial standing, start tracking your spending. There are numerous budgeting apps you can use to keep tabs on important expenses and decide which ones you can cut out of your life. Making purchase reporting a habit may force you to second guess each purchase, so you can save money and reach your financial goals.

Get Out of Debt

Another action you can take to stop living from paycheck to paycheck is to get out of debt. Debt comes in various forms, such as auto loans, student loans, mortgages, and credit card payments. As of 2019, the credit card debt in the United States is around 4 trillion U.S. dollars. With all debts combined, American consumers are about 13.67 trillion U.S. dollars in debt. That’s a huge deficit! To put that in perspective, it would take an average American household making $50,000 around 270.2 million years to pay off American consumer debt alone.

 

If you’re struggling with debt, there are a few things you can do. First and foremost, try to limit or cancel your credit cards. Massive credit card debt may be due to consumer overspending, which is why it’s important to consolidate your credit card debt where you can. Credit card debt can have serious repercussions for your fiscal future if your debt ever becomes insurmountable. Plus, a credit card utilization rate that is too high can cause damage to your credit score.

There are numerous avenues you might consider to consolidate your debt, including getting a personal loan, limiting your credit card utilization, and opting for credit card refinancing or a balance transfer. Once you begin to control and monitor your spending, it may be easier to dig yourself out of the hole, improve your credit score, and have a more stable financial future.

Other ways to climb out of debt include paying more than the minimum payment, picking up a side gig or a second job, negotiating bills and interest rates on credit cards, and creating a debt payoff plan.

Spend Less

With so many things in life to enjoy, from movies to vacations and fine dining and nice cars, it’s easy to get carried away and spend an entire paycheck all at once. However, the key to getting out of debt is by spending less. At first, it may be a hard habit to break, but over time you might find that you can save money in numerous areas of your life.

Here’s a list of ways you can cut back on your spending and begin saving money:

• Carpool or bike to work
• Sell your car for a more fuel-efficient car
• Cancel expensive gym and entertainment memberships, and opt for more affordable ones
• Cook meals at home and limit taking out food or going to restaurants
• Cut cable services and try streaming services, like Netflix, Hulu, or Amazon Prime
• Lower your cell phone bill
• Stop buying clothing you don’t need
• Sell unused items online, at yard sales, or at second-hand shops
• Move to a more affordable area
• Reduce habits such as smoking and drinking alcohol

Begin Saving Money

Now that you know how to create a budget, get out of debt, and spend less, it’s time to learn how to save money. Saving money requires setting aside portions of your income, typically in a savings account. When searching for a savings account, choose one that is separate from the bank with your checking account. This tactic reduces the temptation to easily transfer money from your savings to checking account. Additionally, there are great online and brick-and-mortar banks with great savings interest rates that add more money to your account over time.

You can also save by setting up an automatic deposit, where your employer or bank will automatically deposit funds from your checking account to your savings account weekly or monthly. Other ways to save money include:

• Keeping a change jar—you’ll be surprised at how quickly loose change can add up!
• Sign up for free customer rewards programs at your favorite stores
• Wait a few days or weeks before making a big purchase
• Negotiate rates with your credit card company
• Limit energy usage
• Always compare prices
• Find new auto and home insurance with better rates

Open an Emergency Fund

You never know when disaster will strike. A foundation crack. An expensive car repair. An unexpected medical procedure. Getting hit with an expensive bill can make it hard to avoid living paycheck to paycheck. That’s why it’s suggested you have at least six months of emergency funds saved up in case an unfortunate event occurs. This means a six-month emergency fund should have enough money to cover essential expenses such as food, insurance, mortgages, and other items.

If you don’t have a robust emergency fund, it may force you to spend more on your credit card or take out loans that you may not be able to repay on time if an emergency pops up. Instances like these can negatively affect your credit score, which can make applying for loans and mortgages even more difficult in the future.

The Bottom Line

If you want to stop living paycheck to paycheck, it’s time to act. While it may seem like a daunting task, implementing a few lifestyle changes and developing a few new habits may help lead you towards financial freedom. Create a concise budget, handle your debt, spend less, save more, and create an emergency fund – it’s a recipe for success!