How familiar does this scenario sound? You check your bank account and see your direct deposit from your job just came through. Your excitement lasts for about two minutes before you realize the entire paycheck will be gone within a couple of weeks after paying for your bills and expenses.
Over half of Americans live paycheck to paycheck. Whether it’s due to debt, not making enough money or poor money management, there are a lot of people ending the month with nothing leftover to put in savings or an emergency fund.
If you’re caught in the vicious cycle of living paycheck to paycheck and can’t seem to get ahead, here are five actionable tips to break the chain. We also highly recommend going through a No Spend Challenge, which addresses points 3 through 5, all together.
Create a Budget
First and foremost, you need to have a budget. Normally just tracking your finances is enough for most people but if you’re living paycheck to paycheck, it’s time to buckle down and make decisions on where your money goes each month.
Write down all your fixed monthly expenses. These are the expenses that are a set amount every month like your rent, cable bill, phone bill, etc. Then write down your bills that fluctuate month-to-month like electricity, heat and water. For these, you’ll need to look back at your past bills to get an idea of around how much you’ll need to budget for them.
Now it’s time to tackle the big boys — Credit cards. If you’re living paycheck to paycheck there’ a strong chance you have some credit card debt. You have two options here. Try to pay them off as quickly as possible and live frugally for a while. Or make a little bit more than the minimum payments while you work on the other tips on this list.
To stay organized, track everything in a monthly budget spreadsheet you can continuously update.
Increase Your Income
I know, easier said than done. But the reality is there are two main solutions to stop living paycheck to paycheck and one of them is to increase the amount of money you have coming in each month.
If you’re really committed to digging yourself out of a financial hole, taking the steps to earn extra money each month won’t be such a huge deal. So where does this additional money come from? Here are a few options:
- Ask for a raise: Most people wait for their annual review to get a raise, so the thought of going to your boss to ask for one is a little odd. But it doesn’t have to be. The worst thing they can say is no, which puts you right back in the same position you’re in now.
- Freelance: If you have a skill or talent people are looking for, offer your services for a fee. Whether you’re a photographer, writer or graphic designer, there are plenty of ways to pick up some freelance work. Anne has plenty of great tips to become a successful freelancer.
- Sell things you don’t need: Do you have stuff laying around the house that you haven’t used in months or years? Instead of letting it collect dust, sell it on eBay or have a yard sale. You’ll be freeing up space in your house and making money at the same time!
There are plenty of great side hustles you can do to make money. Just take action.
Lower Your Expenses
This is the second big solution to stop living paycheck to paycheck. A lot of people will recommend going this route first, but I think increasing your income should become a priority because it can have tremendous long term benefits. It’ll also allow you get out the hole without having to live miserably.
At the same time, you should try to cut your expenses as much as possible. Put the expenses you want to cut into two buckets:
- Things you can cut out for good.
- Things you want, but don’t need.
For the first bucket, think of bad vices like smoking cigarettes or buying food that goes to waste. These are things you should try to fix permanently because they’re hurting more than just your wallet.
The second bucket is for things like Netflix, music streaming services and other expenses that are great to have, but you could live without. You might be cringing at the thought of giving up your Hulu account and I understand. However, think of it as a temporary change. Once you’re in a better financial position you’ll be able to get all of these things back but for now you’re in emergency mode.
Also look for other ways to save like lowering your car insurance or switching cell phone plans. These small changes can add up to big savings.
Cut Your NES
NES stands for non-essential spending. After you’ve gone through your monthly expenses I can guarantee you there will be plenty of purchases that fall into this category.
I recommend using a tool like Mint or YNAB that syncs to your bank account and categorizes all your transactions. That way you can see how much you’re spending on Starbucks and fast food restaurants each month.
Once you identify the problem areas, cut back on them. That might mean settling for dollar coffee for a while or cooking your own food instead of ordering out so much. The sacrifice will be worth it once you’re not living paycheck to paycheck anymore.
Don’t Stop Once You’re in The Green
This is where most people go wrong. Once you get in a position of not living paycheck to paycheck anymore that doesn’t mean you should start living extravagant. You still need to live below your means for a while.
You didn’t get into this situation by accident. It’s very easy to slip up and find yourself right back in the same place you were in before. The next step to take after you’re in the green is to start saving money. If you don’t have an emergency fund you need to build one asap in case things start to go downhill again.
Don’t look at the money you have leftover each month as leisure or spending money. Put it away and keep living on the same budget for at least 3-6 months. Hopefully you’ll be able to keep increasing your income and eventually afford to spend more money on going out and doing the things you enjoy. Just take things slow so you don’t end up back in the red.
Next, read all about doing a No Spend Challenge: