One of the scariest financial situations to be in is living paycheck to paycheck. Unfortunately, too many people are in this predicament. According to a study done by LendingClub and PYMNTS.com, 64% of Americans live from paycheck to paycheck. Whatβs even more surprising is that almost half of Americans who earn more than $100,000 live this way as well. Itβs a difficult situation to be in, especially when you have a family to support. It can also be mighty tough to get out of this rut.
Having savings to fall back on in case of emergency is important to everyone, which is why living paycheck to paycheck can be so dangerous. Any unexpected expenses can really complicate your life and create long term problems that make it more and more difficult for you to dig out of this hole. If youβre living paycheck to paycheck, consider these seven tips to help you get on the right course:
1. Change Your Lifestyle
The first thing you need to do is to change your lifestyle, which is more of a mental change than anything. Being financially healthy is more than just skipping a couple trips to the mall or brown-bagging your lunch. Itβs a commitment to changing your habits and improving your life. You not only need to understand your long term goals, but you also have to want it as well. Itβs going to be a long road ahead and you wonβt get very far if youβre not taking it very seriously.
2. Reduce Discretionary Spending
When youβre living paycheck to paycheck, you should drastically cut down on the luxuries. Itβs OK to treat yourself every once in a while but not too often. Unfortunately, most of the discretionary spending will have to wait until you can get your finances back on track. That means only spending on things you need until your situation improves. Youβll have to cut back on your lifestyle significantly and your social life will take a hit, but youβre going to have to make sacrifices if you want to get out of this rut.
3. Stick to a Strict Budget
Make sure you have a strict budget and you stick to it. You might not need to track every little penny, but you need to know exactly where your money is going and whether you need to adjust if youβre living paycheck to paycheck. Track your expenses carefully and analyze your habits to see if there are ways you can cut back at the end of every month. The good news is that once you start tracking your expenses, you will likely find money leaks you can safely cut out without even missing what you get from that spending.
4. Look for Ways to Save
There are literally an unlimited amount of ways to save. Sometimes, you may even be able to get a discount without changing your consumption at all. I frequently call my Internet provider to extend my new customer discount before it expires. Perhaps you can give them a call now to start paying less from now on. I also always make it a point to call the medical provider every time I get a medical bill. Not everybody does this, but some will extend a discount to you just because you asked. Iβve received a 10% discount a few times. One time another offered a 20% discount that saved me $150. The worst they can say is no right?
5. Earn More Money
You may have already cut back on expenses but still find yourself with nothing left over after every paycheck. In this case, your best bet is to find ways to earn more money. There are many simple ways to make extra cash, such as babysitting, dog walking, or running errands. If you have a skill that is in demand, you can put it into use whether itβs writing, graphic design, or coding. Many small-business owners started their companies as side jobs just to make extra money and honed their skills over time. Who knows? This may be the first step to building a thriving business down the road.
6. Start Saving
Any extras you have left need to be saved. Start a savings account, and then move on to an investment account once you have an ample emergency fund. It doesnβt matter if the leftovers are tiny. Save that $5 every two weeks. Heck. Save that dollar. Once you are in the habit of accumulating, itβll be easier to increase that amount. The first step is always the hardest but the most important.
7. Make Savings Automatic
Consider taking savings further by automating it. Treat savings as an expense and just have it automatically transferred to a savings or investment account that you donβt touch. Out of sight, out of mind. This works elsewhere and it works for building wealth too. You wonβt miss the money over time and the beauty is that youβll find yourself with a nice financial cushion after a while.
Have you ever lived paycheck to paycheck? If so, how did you change your financial habits?
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