Do you always find yourself in a position where it feels as though your paycheck is gone the moment it lands in your possession?
Do you also know you can break free from this seemingly endless financially-vicious cycle?
We have written this article to help you keep your financial life in check and quit living paycheck to paycheck. So if that is a goal of yours in 2021, lets get into it!
According to a study by Careerbuilder, it was discovered that around 78% of workers in the United States live paycheck to paycheck to make ends meet.
From the same study 3 out of 4 workers said they are in debt today and more than half of them feel they will continue to be in debt for the the foreseeable future.
All the facts above imply that US workers often engage in overspending, possess a very terrible saving habit, and poor debt management. This is because the majority of them live paycheck to paycheck. This trend is consistent across about every country around the world.
The fact you are here right now reading is an indication that you are looking for help to break this cycle and that's exactly the objective of this article.
In this post, we will be dishing out productive tips to help you overcome this financial challenge and prepare you for a brighter financial future. Let's ride on!!!
Living Paycheck to Paycheck - what does it mean?
Before delving deeper into the scope of this article — how to break out from this horrible cycle of living paycheck to paycheck, we must shed some light on what living paycheck to paycheck means.
Definitions are abound all over the internet. However, to ease your comprehension of the term, living paycheck to paycheck — "simply means that you will become too broke to pay your bills and your debts if you were to miss your paycheck when due." This only happens when you overspend without a budget and have no savings to fall back on.
How To Quit Living Paycheck to Paycheck — 10 Simple Steps
1. Plan Out Your Budget: Budget planning is the foundation for financial success, whether you are an individual or a business. A carefully planned budget helps you to be more calculated with your money. It will bring clarity to where you should minimise your expenses and lets you know how much you set aside for savings. This way you get to consistently reach your savings goal and do not overspend.
2. Keep Track of Expenses: Now, the next thing is to keep track of where your money has been going. It is at this point you will discover you've been spending a great deal on things you want rather than things you need and perhaps discover a long list of recurring subscriptions you didn't even realise you had!
I can remember vividly way back when I made the decision to quit living paycheck to paycheck and I started tracking my expenses. I was startled to learn I was expending about $2,000 on junk and eating out. It stopped when I decided to flip this impulsive spending and change for good - my health and my finances improved.
3. Cut Your Expenses: Wouldn't it give you peace of mind to know that you could miss your next paycheck and not feel bothered about it? This scenario can only come into play when you have something to fall back on — savings.
To save, you need to cut costs. This is where you need to sacrifice some of your lifestyles for long term gains. Once you have your list of expenses, you need to critically look at which ones you need and which ones you can let go of. Tough decisions will need to be made, but remember it is for your long term financial success and happiness.
4. Have a Multiple Stream of Income: Nowadays, multiple streams of income is no longer a need but a necessity. Asides from your original source of income, you should have a side hustle or other side hustles to fetch you more money.
If you are already spending much more than you make, it's either you find a means to make more money or minimise your spending.
There are many ways to start a side hustle and lots of ideas out there. Our best advice is pick something that you are good at (or are prepared to learn), but more importantly something you are passionate about.
5. Learn Proper Debt Management: Firstly, you should stop living with unnecessary debt. Unless it is inevitable, excessive debt is a sure fire way to bankruptcy. Debt comes in various forms — student loans, car loans, mortgages, the money you promised to give a friend, store credit cards and many more. You need to critically assess any transaction if it means you will incur more debt.
However, it is understandable that sometimes circumstances demand that we get loans, and paying them back becomes a big task and often a long term commitment. Unfortunately, at the time of the debt decision, we don't always know what the future holds. Many people experience unfortunate turns in their circumstances and paying these debts over the long term becomes mission impossible. This is where Settled comes in — we have tools that can help you with your debt management issues to get them resolved with your bank or creditors quickly.
6. Assess Your Needs and Wants: Just like we've explained above, if your income is not as much as you would like it to be, you shouldn't be spending too much on wants, while your needs are left unattended. And to meet your needs, you might end up borrowing which isn't the best financial practice. Prioritising your expenses is a critical step and it is something you need to instinctively know as it will prevent you from making those impulse buying decisions.
7. Automate Savings: This can be achieved in several ways. You can automate your savings by seeing if your employer will split your salary into different savings accounts - one for expenses and one for savings.
Or consider the options available to you to salary sacrifice or contribute funds into your superannuation or retirement fund. The benefit of this is that you usually can't access this money until retirement so its guaranteed savings and you can let the power of compounding interest and investment returns work its magic for you.
Another way is to open another savings account at another bank so you don't get tempted to transfer from it - and don't get an ATM card for it. Make it as hard as possible to take the money out!
8. Get Comfortable Living on Less than You Earn: This is self-explanatory. If you earn about $5,000 a month, pretend you earn only $4,000 a month and make spending decisions based on that. Once of the keys here is to stop trying to keep up with the Jones's. This can be hard in a very material world but set realistic expectations.
If you have kids, look for cheaper ways to entertain them and reward them. It is amazing how much joy a child can get from making a simple flip book with paper, or designing something with leftover materials compared to playing with the ready made item from the toy store - not to mention they are likely developing their mind and skills at a much faster rate too.
9. Start an Emergency Fund: This is also known in economics as precautionary savings or a contingency fund. This kind of savings will serve as a cushion against unexpected disasters. The value of money you save will depend largely on your monthly paycheck and ability to control expenses, but something is better than nothing. Always remember that!
10. Define Your Motivation: Why do you need to halt living paycheck to paycheck? What are your reasons? What is your why? There has to be a very big reason why you've decided to do this. In the end, it will be your motivation that will help you achieve the goal. It is a cliche, but anything is possible if you put your mind to it.
Changing your attitude and habits around money is very important in aiding your efforts to quit living paycheck to paycheck. Carefully draw out your plans, make a budget, save as much as you can, and don't procrastinate paying off debts.
If you find yourself left with too much debt and you simply don't see how you can pay it all off, consider using Settled to unlock the vault on debt negotiation and use their fully digital debt settlement letter generator to present an offer to your creditors.
As the saying goes, if you don't ask, you won't get. The same simple principles applies for debt negotiation and Settled shows you how to ask.
When you eventually pay off your debts, try as much as possible to avoid shouldering another. Life becomes easy when there is no debt on your mind. We wish you well on your journey to be debt free and stress free in 2021.