The rush of payday is exhilarating. If you’re like many people, as soon as money hits your account, you treat yourself to a night out or new clothes. Then, you’re struggling to pay bills before your next paycheck comes and wondering where all of your money went.
If this sounds like you, you’re not alone. Three-quarters of workers live paycheck to paycheck, according to a survey by CareerBuilder. The surprising thing is that this issue affects people earning less than $50,000 a year to those earning $100,000 or more. Nearly 10 percent of workers earning $100,000 or more say they usually or always live paycheck to paycheck and 59 percent of them are in debt.
Living paycheck to paycheck means that if you’re laid off tomorrow, you wouldn’t be able to pay for rent or food without going into debt because all of your salary is devoted to expenses. Also, you have little to no savings. How can you stop this vicious cycle?
1. Check your relationship with money
The issue that many people have is not that they don’t have enough money, it’s that they have a strained relationship with it. A book that can transform how you relate to money is Your Money or Your Life by Vicki Robin. By following the nine steps in the book, you’ll realize the role that money plays in your life.
You can start by asking yourself:
- Do I have enough money?
- Do I return home from work full of energy?
- Do I have enough savings to see me through six months of expenses?
If you answered “no” to any of these questions, you would benefit from reading this book and following the nine steps within it.
2. Know where your money is going and create a budget
Living paycheck to paycheck is often not a money problem, it’s a self-discipline problem. Before you think “I need more money,” take a step back and track where all of your money is going. Your Money or Your Life tasks you with tracking every expense for a month, or you can use a system like You Need a Budget (YNAB) or Personal Capital.
You Need a Budget asks you to “give every dollar a job” or think ahead for your expenses, break it down by month and then live off of the money that you earned a month ago. As long as you create a plan for your money before you start spending it, whether that be in a spreadsheet, on an app or written in a notebook, you’ll have a budget that will help you allocate your earnings over long periods of time.
3. Pay yourself first
Saving money is a smart way to stop living paycheck to paycheck. The rule of thumb is to have at least six months of expenses saved in case you’re laid off or unexpected expenses occur. An easy way to start saving now is to pay yourself first. Before your paycheck reaches your checking account, have a portion of it automatically transferred to a savings account. Sending as little as $50 per paycheck will force you to live off of less while saving at the same time.
Another way to pay yourself first is by participating in an employer-matched 401(k). Participating in a 401(k) is a little bit like getting free money because you’re taking a portion of your paycheck before taxes and saving it for retirement. With employers who match your contribution, you’re doubling your savings without any additional work.
4. Reduce your spending in certain areas, dedicate that to savings
Do you want to save $500 a month? If you’ve created a budget and tracked your expenses, you might find areas where you’re overspending such as entertainment, dining out or clothing. By combing through your expenses and finding where you can cut back, you’ll see where non-essential purchases can be reduced.
Switching from cable to a streaming service like Netflix or Hulu, changing cell phone or internet providers for a lower rate, canceling your gym membership to run outside and reducing the number of days you dine at restaurants will all reduce your expenses. Before you know it, you might find $500 that can go to savings instead.
5. Pay off your credit cards and stop using them
Credit cards can take a long time to pay off and they’re typically debts with the highest interest, averaging around 13%. One of the slowest ways to pay off credit cards is by making only the minimum payments. This is a dangerous method, because you could pay more than twice the amount of the debt due to interest!
Transferring your balance to a 0% credit card for 12, 18 or 24 months is a good option if you can maintain the payments required to reach a zero balance. This requires self-discipline, but is an excellent option if you want to pay off your credit card with no interest.
6. Control impulse spending
Impulse buying, which is when you give in to the temptation of buying something without thinking of the consequences, is common. A way to curb this is by asking yourself, “did I plan to buy this or do I just want to buy it right now?” and giving yourself 24 hours to consider the purchase. You will often find that after a day, you don’t want the item anymore. If you do want it, you can return to the item knowing that you gave it the right amount of thought.
7. Try the envelope system
The envelope system means you separate your cash into different envelopes labeled with budget categories. Common categories include groceries, restaurants, gas, clothing, and entertainment. You can quickly look in your envelopes to see how much of your budget remains for that category. Once your restaurants envelope is empty, for example, you don’t dine at restaurants until you get paid again! It’s as simple as that.
8. Refinance your debt
Over 40 million former students have loan debt and the amount of student loan debt rises by $3,000 every second in America. Programs like Student Loan Consolidation or Refinancing can help you to climb your way out of debt without going into default. They can save you up to $20,000 in the long term and companies like SoFi boast saving refinancers an average of $288 per month. It’s a simple way to consolidate your debt into smaller payments while securing a lower interest rate.
9. Earn more
After you have a handle on how you relate to money and know where your money is going, it’s a good idea to look for ways to earn more so you can stop living paycheck to paycheck. Sites like Upwork, Toptal or Elance offer freelance jobs in writing, design, programming, consulting, and more. You can find short-term or odd jobs on Craigslist but assess these carefully because there can be scams.
Assess what you’re best at and work from there. Can you play an instrument and can give lessons? Are you a good writer and can ghostwrite blogs or articles? Are you skilled at child care and want to sign up on a site like Care.com?
You can also earn more by negotiating a raise. The next time you have an annual review, bring reasons why you deserve a raise. Research websites like Glassdoor to know your market value and justify why you’re asking for an increase.
10. Take little steps and keep sight of the big picture
It can be overwhelming to think of all the ways you can stop living paycheck to paycheck. Instead of trying to accomplish all of these steps at once, take things slowly. Think to yourself: what can I do today that will make a difference? If I make coffee and lunch at home instead of buying them at a shop, will this bring me closer to my goal? If I set up automatic payments to a savings account now, will it help me save? If I skip buying new clothes this month to save a bit more, will it stretch my paycheck further? These are all little ways you can make a big difference.
Your money is under your control. Making smarter money decisions, saving, creating a budget, and taking a conscious approach to how you spend will help you stop living paycheck to paycheck and give you back a feeling of financial freedom.
