Did you know that almost 80% of Americans live paycheck to paycheck every month? That’s one of the most sobering paycheck to paycheck statistics I’ve ever read.
Money can be a very stressful topic even if there is enough to go around.
We don’t want you to fall into that massive majority. We want YOU to finally be able to feel what freedom from money troubles or money stress feels like.
And so for YOU, we put together a step-by-step guide to take control of your finances, get out of debt, and stop living paycheck to paycheck.
The relief you get when you have control over your finances is indescribable. Life becomes “simple,” in a way.
- The $800 car repair is no longer a life-changing event, it’s simply a scheduling inconvenience.
- Your kids getting invited to too many birthday parties no longer feels like a choice between your bills and your kid’s social life.
- You’ll have more time when your finances are in order. For example, you won’t need to teach yourself as many DIY repairs, because it’s easy to make it fit into your budget to hire out those time-consuming tasks.
- Generally speaking, you’ll start to feel what true “freedom” feels like.
Why Living Paycheck to Paycheck Is A Bad Habit
You might be wondering, “well if almost 80% of people live that way, then what’s so wrong with it?”
What’s so wrong with it is the stress, the uncertainty, and the high risk of debt accrual (or worse, bankruptcy) that comes with it.
I’m not trying to sound like some bringer of doom, but it’s just the facts.
You don’t need me to tell you “what is it like to live paycheck to paycheck” because statistics say 80% of you reading this will already know all about how you are
- likely increasing your total (high-interest credit card) debts each month (because you’re always, simply put, “behind on cash”),
- definitely unaware of where all of your money is going (and can’t seem to figure out how to stem the flows),
- possibly starting to realize that you’re paying more in interest each month than you do in actual principal loan repayment dollars,
- stuck in a constant cycle of letting out a deep breath when your paycheck comes in and you see that you can cover your next bills, and getting more and more tense as the money steadily dries up as the month progresses, and
- putting serious risk on your health, your relationships, and your overall future enjoyment and success by not getting a better handle on your money.
Now I know it’s not always your fault that you’re living this way — jobs can come and go, health problems arise, and sometimes you just get one stretch of bad luck after another.
But THAT is why it’s important to figure out how to stop living paycheck to paycheck, so that you won’t need to worry about your job status, your income level, or whether the universe just has it out for you this year.
You need to get better at budgeting so that you can keep a closer eye on your money, make an effort to build up an emergency fund so that you won’t have to up-end your budget when trouble crops up, and make a plan for every dollar you spend, so that you can get out debt and stay out of debt, to work up to finally realizing what true financial freedom feels like.
Steps to Stop Living Paycheck to Paycheck
Complaining, wishing, and reading every article you can find about how to break the paycheck to paycheck cycle won’t do you any good.
If you’re tired of living paycheck to paycheck, there are only 3 things you truly need to do to make the change that you’re obviously wishing for:
- Take a critical look at your financial situation, and give yourself NO grace about it. It is what it is, it’s not as good as it should (or could) be, and it NEEDS some harsh inspection so you know what to change. Don’t make excuses — make plans on how to change it.
- DO SOMETHING ABOUT IT. Use the steps below to TAKE ACTION and actually make a difference, today. Don’t wait until next week, or the next paycheck, or the next month, or any other time in the future. Take one action every day, if possible, until your finances start to work for you instead.
- BE PATIENT. You’re going to start taking action today, and you’re going to start seeing results within a month. But you are NOT going to get out of tens of thousands of dollars of debts overnight, and you are NOT going to be able to afford an expensive Disney vacation before the school year ends if it’s already Easter. Buckle down and know that the sooner you accept where you are now, the sooner you’ll see the end of this process!
1) Calculate your monthly cash flow
The very first step in not living paycheck to paycheck is understanding your monthly cash flow.
Knowing what the difference between your monthly expenses and income is critical is taking control of your money.
Start by writing down every single expense you have each and every month. Things to include will be the mortgage, rent, utilities, food, gas, restaurant, entertainment, student loans, car payments, etc. If you don’t track these yet then do a rough estimate of what you think they are. We will talk about budgeting next.
Now write down your monthly income. Include your paychecks from your job, side hustle money, and even things as small as selling items online or through Craiglist. The main point is to get as clear a picture as possible of your monthly cash flow.
Monthly Income – Monthly Expenses = Cash Flow
2) Make a monthly budget
We are HUGE fans of having a budget. In fact, we truly believe that having a budget is a key factor in becoming financially independent.
After you have gathered all your information, you need to create a monthly budget. If you don’t know where to start we put together an awesome budget template roundup that will give you plenty of ideas.
Whether you prefer an online budgeting software like Mint or using the simple pen and paper method, it really doesn’t matter. The most important part is you start to track ALL of your monthly expenses.
Starting out this might be painful and time-consuming, but trust us from experience it gets WAY easier.
Think about having a budget as being similar to trying to lose weight. Unless you track every calorie it’s going to be easy to slip up. You will be far less likely to eat a donut when you have to track the 300-500 calories than if you didn’t.
Create a budget and stick to it. Habits take a full month to develop, so give yourself ample time to adjust.
You don’t have to make budgeting difficult, keep it simple!
3) Cut out the waste
We are all guilty of it, yes even us! We all have monthly expenses that are a complete waste of money. Go through your budget and find the area you can improve on.
For us cutting our cable bill was a huge money saver. Not only did we save money, but we also stopped wasting so much time in front of the TV and started this money making blog.
We also called our monthly service providers and negotiated lower prices on almost all of them. This saved us well over $1,000 in just one year.
You work hard for your money so why is spending it so easy? Buckle down and really find where your money is being wasted.
Check out our list of 100+ ways to save money if you need some ideas.
4) Save an emergency fund
Having an emergency fund is another key component to end living paycheck to paycheck. An emergency fund is just that, a fund that helps during emergencies.
Life is going to come at you HARD some times and you need to be prepared. Whether it’s a death in the family, car repair, or a medical emergency you need a buffer so it won’t affect you financially.
The last thing you want to happen when an emergency comes up is to worry about how you are going to pay for it. A good rule of thumb is having at least $1,000 in a savings account at all times (if you’re done paying off debts, starting building up at least a few months worth of expenses as a buffer).
If you don’t have an emergency fund this should be your #1 priority after you create your budget and start saving. This buffer alone can prevent you from living paycheck to paycheck.
5) Pay down your debt
There are a couple of very popular ways to pay off your debt. The beauty of personal finance is there are many ways to solve financial problems.
Two of the most popular methods for paying off your debt is the snowball and avalanche.
The snowball has been made famous by Dave Ramsey himself. You take your smallest debt and pay it off as aggressively as possible while you make the minimum payments on the rest. Once that debt is destroyed you take that money and move to the next smallest debt. The snowball effect starts to happen and it’s quite a beautiful thing.
The second method is called the avalanche method. You start by paying off your debt with the highest interest rate first. Once that is paid off you work your way through the rest of your debt based on interest rates.
The snowball is based more on the emotional part of paying off debt while the Avalanche is based strictly on the numbers.
Both of these methods have worked for millions of people. Pick one method and get started destroying your debt.
If you are struggling with paying off your student loan debt LendEDU has an incredible refinance tool to check out. The best part is it’s 100% free! Hundreds of our readers have already used it with great success.
6) Look for extra income opportunities
Relying on one form of income can be a risky game. We love diversifying our income with what we call side hustles.
Adding extra income into your household is a great way to widen the gap of your monthly cash flow. Wouldn’t it be nice to have thousands of dollars in leftover cash each month instead of a few hundred?
We have put together a few incredible lists of side hustle ideas for you to get motivated from if you’re tired of not making enough money to see a change. It’s time to get your side hustle on!
Some of our favorite side hustle ideas:
- How to Start a Part-Time Money Making Blog
- VIPKID Teacher Review – How to Make $20 an Hour From Home
- 10 Best Paid Online Survey Sites That Will Pay You Cash (Up to $25/Hour)
- 50+ Side Hustle Ideas Guaranteed to Make You Money
- 20 Online Proofreading Jobs For Beginners (make up to $50/hour)
- 63 Proven Ways to Make Money Fast (earn $100+ now)
7) Remember money is not everything
This might be the most important point in this article. While you start your journey in becoming debt free and end living paycheck to paycheck you need to stay grounded.
Money is just that, it’s money. Money cannot buy you happiness. Money can buy your freedom, comfort, and a stress-free life though.
Understand the reason WHY you want to start taking control of your finances and let that always be your motivating factor.
You got this! Let’s not be part of the struggling 80% of America anymore!