Nobody wants to live paycheck to paycheck, yet so many people are struggling to make ends meet. It’s hard to escape the cycle of having just enough funds to get by and not enough to build your savings. While you might have enough to pay for rent this month, not having any savings can get you in a bad situation fast if something goes wrong.
Escaping the paycheck to paycheck cycle isn’t always easy, especially if you don’t know where to start. It’s impossible to save if you barely have enough money as it, so how do you break this habit. If you don’t make a change soon, you’re going to hit a wall and run out of money eventually. It’s not about stretching your paycheck just long enough to make your next payment. It’s about learning new financial habits that free you from this cycle altogether. This guide will discuss real steps to take today to break up with your bad money habits.
Step 1: Create a Savings Plan
Before you do anything, create a savings plan. No matter how old or young you are, you need to save. In theory, you should have enough money in your savings to cover a few months of living expenses. This is a best-case scenario and isn’t realistic for your first big milestone. However, you should aim to save at least $500 in a separate savings account.
This money isn’t for your next vacation or the latest gaming system. It’s for emergencies. It’s in case you lose your job suddenly, your car breaks down, or something else unexpected happens. When an emergency occurs and you don’t have a savings account, you’re left using credit cards or loans to cover these costs which only digs you further into debt.
To keep yourself in check, set up automatic payments every time you get paid and allocate some funds into your savings account. It doesn’t have to be a lot at first, just start with what you can. If possible, don’t get a debit card for this account so you aren’t tempted to spend the money on other things. Saving is your ticket out of living paycheck to paycheck.
Step 2: Commit to Cash
Let’s face it: spending with cards is easy. It’s all too easy to swipe your credit card for lunch every day or drinks at the bar. It’s a lot harder to part with cash. When you’re relying on your credit cards and debit cards for spending, you’re disconnected from the process. You don’t realize just how much you’re spending until the money is already long gone.
Create a cash budget and stick to it. First, list out your bills every month. These are things you must pay like rent, transportation, utilities, etc. Then, only use cash for everything else. If you go out for lunch, pay cash. If you buy something new, pay only in cash. This forces you to really pay attention to how much money you’re parting from every month. Freeing yourself from cards also means you need to free yourself from payday loans. If you don’t have the money in cash, you don’t have the money at all.
Step 3: Find Extra Income
If you’re unable to stretch your paycheck into your savings, you aren’t bringing in enough income. This isn’t an easy time to work your way up in the job market. It’s competitive out there, and it makes sense to struggle from time to time. That doesn’t mean you can’t bring in more sources of income on your own outside of your 9-5 job.
The gig market is in full swing in 2018, and there’s no excuse not to have a side hustle today. You can start your own business if you have the expertise to offer through freelancing or consulting. Starting this kind of freelance job is as easy as setting up your own website and prospecting clients.
If you don’t have the time to commit to freelancing, you still have options. Platforms like TaskRabbit let you complete tasks for others in your community for a rate. If you have a car, you can drive with Uber or deliver food with Postmates. You can make money in your free time if you’re willing to put in the extra work.
Step 4: Downsize Your Expenses
You should always try to live below means, especially if you’re struggling to make ends meet. While you don’t have to sacrifice everything in your life, you do need to cut costs when you can. Look carefully at what you pay for every month. Are you devoting 70% of your income towards rent? Consider downsizing to a smaller place once your lease ends or getting a roommate to split costs. Are you spending a ton on your phone bill? Look into pay-as-you-go plans to stop overspending.
Even learning to downsize for a few months to a year can be just what you need to get your money back on track. If you’re not sure where to begin, do a money reset. This means halting all unnecessary spending for at least a week to reevaluate your outgoing money. Eat through the rest of your kitchen before going shopping for groceries. Skip expensive weekend activities and look for free events in your city. You might realize it’s easier than you thought to cut costs.
Earn Your Life Back
Living paycheck to paycheck is hardly living at all. Not knowing if you’ll be able to make ends meet from one month to the next is exhausting. You owe it to yourself to get your finances back in order so you can start moving forward. Is living below your means so hard if it means you’ll have more financial freedom a year from now? Can you use cash for a few weeks to cut your spending? These small things make a big difference in your financial wellness, and your bank account will thank you.