Roughly three-quarters of Americans live paycheck to paycheck. More than half of Americans have less than $1,000 in their savings account. And 16% of Americans live in poverty.
Just looking at a few statistic is all it takes to convince most people that as a country, we’ve got money management backwards. BUT just because we can point to statistics doesn’t mean that everything is as clear cut as it seems.
I used to live paycheck to paycheck and it wasn’t because I racked up debt, mindlessly spent my money or didn’t have a job. Not at all. In fact, I did a lot of things right. It wasn’t until I really committed though that I was able to change my situation. I eventually broke the cycle, built stability and am at a point where I can now focus on building wealth.
Improving your financial situation isn’t easy or fast but it is possible. Here’s how to stop living paycheck to paycheck this year.
Stop Living Paycheck to Paycheck = Catch Up On Your Bills and Put Money in Savings
Before we get started on actual strategy I think it’s important to clarify exactly what it means to stop living paycheck to paycheck.
Breaking the cycle means to be caught up on all bills and to have one months’ worth of income in savings. This way you are always at least one month ahead of your finances.
After these two things are accomplished you can focus on other goals like paying off debt, increasing savings or investing. But for now you sole financial focus should be breaking the paycheck to paycheck cycle.
Establish a Written Budget
First things first, you need to establish a written budget. This budget is going to be your roadmap until you get ahead.
Get out a sheet of paper and…
- List out all fixed expenses (Rent/Mortgage, Utilities, Childcare, Phone Bill, etc.)
- List out all minimum debt payments (Credit cards, car loans, personal loans, student loans, etc.)
- Go through your bank statements and look for the averages for all monthly variable spending (Groceries, Gas, Clothing, Home Décor, etc.)
Everything you’ve spent money on in the past three months should be broken down into one of these categories with your average monthly spending amount. Now go through this list and see what expenses can be eliminated.
Cancel any memberships that aren’t used, ban yourself from clothes shopping, stop eating out, etc. Just be realistic!! If you’re serious about improving your financial situation you’re going to have to make sacrifices. Now is the time to decide what those will be.
Once you’ve determined what will be cut create a budget showing what you will be spending each month and on what.
Related Post: Budget Binder Printables
SAVE Your Tax Refund
If you’re reading this post when it’s first published, its tax refund time. Since the average federal tax refund is $2,893 there’s a good chance you’re getting ready to fall into a chunk of change to work with.
While it’s certainly fun to “treat” yourself with the money it’s definitely not a smart thing to do. Instead you need to put that money to good use. Put at least $1,000 of it in the bank for future emergencies and use the rest to get caught up on any bills you’re currently behind on.
Sell The Stuff You Don’t Need
If overspending on material goods is the reason you’re in this situation you can undo some of the damage by selling the items you don’t need.
Go through your house and collect anything in good shape that is used or needed. You can sell on Facebook Yard Sales, Craigslist, ThredUp and a host of other places.
Downgrade Your Living Situation
One of the most helpful yet hardest things to do to save money is downgrade your living situation. I personally went through this after my divorce. The biggest savings I was going to reap was in the area of housing. After much debate I bit the bullet and bought a trailer to live in.
My monthly payment was only $226, saving me a TON and allowing me to devote all extra money to financial stability.
If you know that your housing situation is what’s making your broke, it’s time to consider making a change.
STOP Using Credit Immediately
Credit is a HUGE issue when it comes to financial stability and paycheck to paycheck living. Credit is expensive!
If you’ve been purchasing items on credit cards, using payday loans or other personal loans, a good chunk of your monthly payment is solely going to interest. You are creating a trap for yourself!
Stop using credit immediately. No exceptions.
If you have debt you need to seriously consider creating a debt pay-off plan after you get caught up on everything else.
Pick Up Extra Work
For many people spending isn’t a problem, income is. This was definitely the case for me. My budget was low and as a naturally frugal person there wasn’t much I could cut back on. Instead I had to pick up extra work.
I began by working two day jobs but then transitioned into online work which in my case, paid much better.
If you need to earn more money to meet your goals there’s a few routes you can take. 1) You can try and get overtime at your current job. 2) You can get a second job. 3) You can create your own job.
I personally like the third option but again, you need to do what works for you. If you are looking for a work from home gig to supplement your current income here are some resources:
- 50+ Legit Work at Home Jobs
- How to Become a Freelance Writer
- 5 Companies That Hire for Data Entry
- How to Become a Virtual Assistant
You can also browse the work from home section here for more ideas.
Get Help When You Really Need It
I’ve personally known a few people who had the desire to take the actions on this list but simply couldn’t cover basic needs like food, for example. If you’re in this situation where your housing is as low as you can get, you’re working yourself to the bone and just cannot catch a break, go and get help.
There are plenty of government programs that you can rely on temporarily (see a big list here) while you get back on your feet. I know it can be hard to suck up your pride and get help, but if having help for a few months could make a drastic difference in your future, you need to do it.
It Takes Hard Work and Perseverance – There’s No Way Around It
At the end of the day breaking a paycheck-to-paycheck cycle isn’t easy. It involves replacing bad habits with good ones. It involves sacrifice, hard work, commitment and time. Depending on your situation it could take weeks to months to break the cycle.
The important thing is to keep going even when times get tough. In a year from now you’re going to look back and be SO proud of the progress you’ve made.