How to Stop Living Paycheck to Paycheck

How to Stop Living Paycheck to Paycheck

If you’re one of the millions of Americans living paycheck to paycheck, you probably feel like there’s no way out, and you’ll never obtain that coveted financial freedom that we’re all seeking. From California to The Big Apple, people everywhere are feeling trapped by their wages. Living paycheck to paycheck doesn’t have to be crippling; in fact, there are plenty of ways to rearrange expenses and spending to put aside more of what you earn and begin making your way to financial independence. Here’s how to stop living paycheck to paycheck.

Track Your Spending; Every Penny!

Your first step should be to sit down with your bank/credit card statements and track everything you spent money on in the last 30 days. Chances are, you’ll be amazed at where your money actually goes during the month. Start separating your spending into categories like food, living expenses, vehicle expenses (including insurance), etc. Once you’ve got your expenses organized into categories, you can take a look at which of them impacts your income the most.

What are your fixed and variable expenses? Fixed expenses don’t change on a month-to-month basis, so things like rent and car payments tend to fall in this category. Utilities, credit card bills, and other changing expenses will be considered variable. They’ll carry a different amount each month, making them a little more difficult to track and budget.

Variable expenses aren’t likely to change (have you ever tried negotiating rent?) anytime soon, so they should be immediately deducted from your monthly income. When it comes to variable expenses, however, there’s usually a way to save money on them. Credit cards, for example, can be paid down and only used sparingly to avoid interest fees, late fees, and the overall cost of using credit to buy items that don’t hold their value.

Although your variable expenses will fluctuate, they probably fall somewhere within a certain amount every time. It’s a good idea to place a fixed spending ceiling for these expenses, effectively making them fixed expenses when you’re creating your budget. This will act as a hard limit that you can deduct from your expenses each month. If you don’t reach the spending limit, set aside any extra money you accounted for but didn’t spend.

Do You Really Need That?

Impulse buys are easy to make because they’re an “in the moment” reaction to something we really want. We’ll make all kinds of excuses for how we can possibly afford it right now, and even with the tiny financially-savvy voice in the back of our heads screaming “put it down!”, we still end up making the purchase.

Impulse buying is a problem for many people; especially with the effectiveness of ad campaigns, relatively easy access to products and services, and things like credit cards to give us a false sense of the amount of spending money we actually have available.

Cue the 24-hour rule. This helpful “rule” for spending only has one simple stipulation; you wait 24 hours before you decide to buy anything. That’s it-just one full day before you make a final decision. A few hours may pass, and you’ll forget all about the item, or you might still want it the next day. This rule is helpful for minimizing impulse purchases and keeping you within your spending limits for the month. It can also help reduce credit card debt by reducing the amount of credit you utilize on impulse buys.

Pay off Debt Entirely 

Debt-free is truly the new wealthy. By living without debt, you’ll have access to the majority of your income after expenses are accounted for, and your monthly budget will be much more flexible without things like car payments and credit card debt.

Paying off debt can be daunting, especially if you owe tens of thousands of dollars. But don’t let the fear get in the way of the journey, let it motivate you to move ahead. Who wants to live in fear of something the rest of their life anyway? Debt can be crippling; keeping you from truly experiencing the joys of life and holding you back from reaching savings goals and other financial goals.

Focus a percentage of your leftover income each month to minimizing your debt as much as possible. Start with the smallest debt first (the snowball effect) and move up to your bigger debts. Paying off small debts will give you a confidence boost to tackle the larger ones, effectively rallying you against the enemy of your financial freedom. Don’t take on new debt to pay off old debt, as this only serves to dig a bigger financial hole.

Keep chipping away at your debt, and hire a financial advisor or planner to help you better plan out your finances for maximum effectiveness. You’ll be amazed at what an extra set of (professional) eyes can show you. You can compare financial advisors on to ensure you’re hiring the right person for the job.

Save First, Spend Later 

You should be saving money anywhere you possibly can, but if you’re not great at manually putting away money, you can set up automatic savings withdrawals with most banks. On a fixed date of each money, the bank will automatically move a pre-determined amount from checking to savings; which means you don’t have to do anything to save money at the end of each month.

This type of automatic savings takes the worry out of saving, making it a simple automated process. Once you pay down some of your debt, you can put the money you would have spent on monthly payments into your savings. Imagine your $300 car payment going straight into your savings account each month!

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