Living paycheck to paycheck can be incredibly stressful because it means all of the money you bring in goes right back out by the end of the month. While this probably means youโre staying on top of your bills and paying off your debt, it also means you probably arenโt making progress toward your financial savings goals.
Plus, one emergency or large unexpected expense can have a significant impact.
While most U.S. workers (54%) are living paycheck to paycheck, according to a LendingClubโs recent Reality Check: Paycheck-to-Paycheck research series, there are ways to gain financial security and improve your financial circumstances so you can stop the cycle. Here are a few tips to get you started.
Create and stick to a budget
Write down your average monthly income as well as average monthly expenses. Include the cost of your rent or mortgage, utilities, food, debt payments, gas, entertainment, and anything else you regularly pay for. Analyze where youโre spending the most and decide if itโs something you can cut back on.
Start by ensuring your essential expenses are covered, such as food, utilities, home, and transportation. List everything else you pay for in order of importance. This can help you decide what must be paid, and where you can eliminate spending to keep money in the bank. Limit how much you budget to spend on unnecessary expenses.
Build an emergency fund
Start with $1,000 in your fund. Even though you may be just trying to make ends meet, an emergency fund can help provide a buffer and give you peace of mind knowing you have a fallback if something unexpected happens.
Once youโve started building your fund, experts recommend having at least three to six monthsโ worth of expenses saved. Contribute as much as you can to your emergency fund until itโs built, and then leave it alone until you have that emergency.
Paying off debt
High interest rates mean youโll be paying off more than your original debt was worth, so the longer it takes you to pay off debt, the more youโll be paying in the long run. Living with debt is one of the biggest things that keeps people living paycheck to paycheck because it can seem impossible to catch up.ย
First, stop taking on any kind of new debt. Then, use debt repayment methods such as the debt snowball method to pay them off. With the snowball method, you start by paying off the smallest balance first, then move to the next smallest, and so on. Once those debts are paid off, youโll get all of that money back into your wallet.
Start a side hustle
Whether you start a part time temporary job, sell some of your stuff, or start a side hustle, find a way to make some extra money on the side. This can help support some of those unexpected expenses you may face, go toward paying off debt, or even go into your emergency fund or savings account.
Live below your means
Even if you can afford to go out to eat, take a vacation, or make a new purchase, it doesnโt mean you should. Making more money doesnโt help if you continue spending it, so though itโs tempting, try to stick to your budget and live below your means. If you donโt spend that extra money, youโll have it in case of an emergency or can contribute to your other savings goals.
Cut where you can
When youโre budgeting, look at expenses you may be able to cut, even if just for the time being. Common expenses to cut may be streaming services, gym memberships, cable, eating out, etc. These temporary sacrifices can help you save what you need now so youโre more financially secure in the future.
Plan for big purchases
Donโt make a big purchase on a whim. Instead, think about big purchases you may need to make in the next three, six, or 12 months, and start putting a little away each month instead of blowing your budget all at once.
Plus, if youโre living paycheck to paycheck, youโll have to be careful about what big purchases you spend on. For example, new tires for your vehicle may be necessary while that big vacation isnโt. Think about stuff you want but donโt need, and recognize that now may not be the right time.
Automate your savings
Create a separate account just for saving. Each month, set up an automatic transfer from your checking account to that savings account to ensure youโre prioritizing savings without even having to think about it. Treat savings as a necessary expense to make sure you have what you need in the future.ย
Guest Blogger
Caitlyn Callahan
Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and campingโand hanging with her dogs Coco and Hamilton.