Are you living from paycheck to paycheck? Do you worry each month that you will not be able to make ends meet? If so, you are far from alone.
According to personal finance writer Maurie Backman (TMFBookNerd) at The Motley Fool, “An estimated 75% of adults live paycheck to paycheck, and it’s not just lower earners we’re talking about. Rather, 1 in 10 Americans earning more than $100,000 a year also lives this way even though that sort of income should, in theory, buy folks a bit more breathing room.”
Whether you are scraping by on low income or you are pulling in a six-figure salary but still are living from paycheck to paycheck, finding a way to give yourself that breathing room can help you achieve much greater financial stability and freedom.
Below are 7 steps you can take right now to regain financial control of your life if you are tired of living paycheck to paycheck.
When the cashier asks you if you need a receipt at a restaurant, do you typically say “No?”
Countless consumers are in this habit, and it is one which is likely costing you a great deal of money. Former managing editor of Clark.com Alex Thomas Sadler (@TheAlexSadler) writes that, “Tracking your expenses is the best way to get control of your money,” and adds that, “Tracking how much money is coming in versus how much is going out — and where exactly that money is going — is the only way you’ll really be able to understand your finances.”
Once you’ve begun tracking your expenses, you’ll be able to create a budget. Your goal of course is to make sure that what you are spending each month adds up to less than what you are earning.
Sadler explains in the previously linked article, “Identify any areas where you can reduce what you’re paying each month, and then create your budget based on what you should be spending on everything — including recurring expenses, those you’ve reduced and those you have to pay every month, as well as other expenses like groceries and extra spending money.”
How can you reduce costs? There are all kinds of possibilities. Perhaps you can stop purchasing cable TV, ask if a lower cost internet plan is available, reduce your hot water use, switch from centralized heating to a space heater, cook more meals at home, or even move to a more affordable house or apartment.
If one of the reasons you are living from paycheck to paycheck is that you are drowning in debt, come up with a concrete plan for consolidating your debts and paying them off as rapidly as possible. If you need help, turn to a credit counselor.
If you do not have an emergency fund, you will be forced to rely on credit heavily to pay unexpected expenses. This can cause debt to pile up quickly. Prevent this in the future by making it a priority now to save at least $1,000 and set it aside for emergency use only.
If it is your income which is too low and not simply your expenses which are too high, you will also need to make it a priority to look for ways to bring in more bread. That could mean taking on a second job or looking for freelance opportunities to do in addition to your current day job.
In some cases, motivating yourself to stop living from paycheck to paycheck could be as simple and compelling as the pressing need to escape a cycle of poverty.
But if you are a higher earner, you may have a very hard time staying on target without a concrete goal. Finance writer Kate Ashford (@kateashford) writes at Forbes, “You must have a strong reason to change your habits. Are you saving toward a down payment on a second car that will make your family life easier? Or a down payment on a house so you can stop renting?”
Once you can visualize where you want to be and once you have a motivation which is worthwhile, that should help you to stay committed to your goals and follow through with your budget.
No matter your income level, living paycheck to paycheck may feel like a hole that you will never climb out of. But if you’re diligent and committed, and you use a methodical plan, you may be surprised by how dramatically your life can change. By following the concrete steps above, you can get back on track and enjoy enhanced security and flexibility with your monthly finances.