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If you think that you’re one of a small group of people who live paycheck to paycheck, then you may be surprised to know that more than three quarters of full-time workers live this way. That’s 78% of people who work full time.
When you live like this, it can be stressful as you can end up feeling like you never have enough money to cover your monthly expenses and buy the occasional luxury. Living paycheck to paycheck also makes it nearly impossible to get financially ahead by putting savings aside. Often it is easy to end up overspending and ending up in debt becomes a likely possibility.
How to stop the cycle
While this way of living may seem like an endless cycle, here are some ways to stop it and take control of your finances:
1. Learn to budget.
If you want to find out where your salary goes, the best thing to start doing is budget! That way you’ll see exactly where your money goes and how much you are spending on certain items. Without a budget, it can be difficult to make your salary last to the end of the month because you don’t know how much money you have to work with. A budget will help you to see where you can cut back on expenses in order to start saving money.
A successful budget has all of your expenses worked into it so that you won’t be surprised when something like your car registration is due. Budgeting also helps you keep an eye on fluctuating expenses such as water and electricity. This is the biggest step you can take to stop living paycheck to paycheck, but where do you start with setting up a budget?
Begin by writing down your income for each month, which should include your salary and any other income you receive on a monthly basis. Next, write down all of your monthly expenses such as rent, food, electricity etc. Make sure to remember that some expenses change month to month, so you’ll need to make sure to budget accordingly each new month. Once you’ve worked those two amounts out, it’s important to make sure that your monthly income covers those expenses with some money left over which can be put into saving in case of those unexpected emergencies that can pop up during the month.
2. Take care of your essentials first.
If you are living paycheck to paycheck, it is important that you manage to pay for things that you need to survive. Dave Ramsey refers to these as your ‘Four Walls’ which includes:
– Food
– Utilities
– Shelter
– Transportation
These need to be your priority, which means you should pay for these before anything else. Once you’ve covered your four walls, list any other expenses you incur and pay them in order of importance. Keep reminding yourself that this way of living is temporary, and you are working on not living paycheck to paycheck.
3. Get out of debt.
If a large portion of your monthly income is being spent on repaying your debt, it can end up holding you back from spending your money on things you want to do. Stop using your credit cards until you are out of debt is a way to help you to control and monitor your spending. While cutting down on your debt, avoid taking out any loans as this is another way for debt to sneak up on you. If you are struggling to get out of debt, Exonerate can help you with this.
4. Get a part time job or start a small business in your own time.
If you find yourself living paycheck to paycheck, you could probably do with extra, regular income. A good idea to earn extra income would be to find part time work, some ideas for part time work would be to wait tables, housesit, become a dog walker etc. If you want to start a small side business, a great place to start would be to focus on your talents and see how you could use them to make money. If you have design skills or are good at a particular skill, use this to start a business.
5. Live below your means.
If you are struggling to live within your means now, making more money won’t guarantee you’ll be able to do so either. It is definitely tempting to spend more when you earn more, but don’t do it! Stick to your budget, pay attention to what you’re spending money on and if you don’t need it – don’t buy it.
6. Look for expenses to cut.
While waiting for payday to arrive, it certainly isn’t the time to spend extra money on going to the movies or going out for a big fancy meal. This is the time to start finding expenses that you can cut out, look for any area in your budget where you can spend less. Pause or cancel luxury subscriptions, such as Netflix. While these may seem like disheartening things to have to do, just keep reminding yourself that is all temporary.
7. Start an emergency fund.
While this may seem impossible to do when you’re currently living month to month, it is vitally important to do – even if it is only small amounts you are putting away. Keep the above point in mind when looking for money to put into savings, and if things are tight it may take a while to build up this emergency fund, but the sooner you start, the closer you are to having funds to fall back onto if need be. Just remember not to dip into this fund for anything other than what it is intended for!
If you are living paycheck to paycheck and are struggling to get through each month as well as pay off your debt, reach out to us today to let us help you get back on your feet.