More than half the population of workers in the United States live paycheck to paycheck. Unfortunately, this type of lifestyle puts you just one paycheck away from poverty. Without savings to fall back on, even a small financial event quickly develops into a large problem. Thankfully, you can end the vicious cycle and begin to enjoy a comfortable life.
Why You Live Paycheck-to-Paycheck
Many people who live paycheck-to-paycheck do so because they don’t handle their money correctly, while others simply don’t make enough to cover their expenses. If you fall into the first group of people, recovering and turning things around will be much easier. However, if you fall into the latter, you may need to make drastic changes in your life.
Tracking Your Expenses
Budgeting is important to achieving a healthy financial future. Keeping track of your bills and making sure that your payments are paid on time is essential. Investing in a filing cabinet and creating files for all of your monthly obligations will help to prevent a late or missed payment. You can increase your chances of success by also using a document scanning app to preserve your invoices to your phone or computer.
Pulling in the Reins
Reckless spending is often a contributing factor for people who live paycheck-to-paycheck. They receive their week’s salary and immediately purchase something they want. In order to end this way of living, you’ll need to refrain from making any large or unnecessary purchases. This means that you should start to make cutbacks where you are able. This will help you free up monies to pay down your debt and work towards achieving the goal of paying all your bills at the beginning of each month. Foregoing the morning cup of Joe on the way to work, brown-bagging your lunch, and eating at home instead of ordering out are just a few ways to keep more of your money.
Reducing Your Debt
Chances are, if you live paycheck-to-paycheck, you have large sums of debt on credit cards, and possibly a car loan and a mortgage. Just maintaining a current status can prove difficult and quite stressful. It’s important to reduce your debt so that you have some money left in your pocket to live. A great place to begin is with your credit cards. Take the one with the highest interest rate and pay that one off first. Then move on to the next one. Once you completely pay off the first one use the money that you were paying and add it to the already allocated funds for the next, and so on.
Develop a Safety Net
Any unexpected expense can have a catastrophic effect on unstable finances. This is why, in addition to reducing your debt, you also need to create a safety net. Take a small amount of your weekly or biweekly paycheck and put it into a savings account that you create for the sole purpose of emergencies. When you get a raise, add a portion of that payment increase into your regular savings deposit, too. In a short time you’ll have monies tucked away that will prevent turmoil with your finances when the next urgent expense happens.
Living out of your means to keep up with the Jones will never provide you with the kind of lifestyle you want. All that happens is you run up tons of debt and then fall hard. Instead, become focused and conservative with your spending. Carefully weigh the pros and cons before buying anything. For instance, let’s pretend you are deciding whether or not to buy a new car. Your car is old and unreliable and needs costly repairs. Those are all pros to buying a new car. Now the cons: it’s expensive, insurance rates are going to be higher, and you might possibly have to deal with an excise tax. A compromise may be to buy a pre-owned vehicle from a dealership fresh off a lease. The miles are low, it’s in excellent condition, the payments are less and the insurance will be lower.
Ending the paycheck-to-paycheck lifestyle is easy if you create a budget and a savings plan, learn to spend your money wisely and work hard towards paying off your debt.