Hey savvy readers! Today we have a very serious post about living paycheck to paycheck. According to a study found on Career Builder, close to 80% of Americans struggle with their money, which in turn forces them to live paycheck to paycheck.
We find this statistic to be very troubling and sad. Money can be a very stressful topic even if there is enough to go around.
Today we want to help do our part and resolve this issue. Below we have laid out our 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. You start to feel what true “freedom” feels like.
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 on Craigslist. 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. Give yourself ample time to adjust.
3) Cut out the waste
We are all guilty of it, including ourselves. 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, we 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 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 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 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 to 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 left over 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.
It’s time to get your side hustle on!
Side Hustles Ideas
- How to Start a Part Time Money Making Blog
- VIPKID Teacher Review – How to Make $20 an Hour From Home
- 20+ Best Survey Sites to Make You Extra Income
- 48 Spectacular Side Hustles to Earn Extra Money This Month
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!
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FREE Printable Monthly Budget Template
Tired of living paycheck-to-paycheck? Grab our FREE monthly budget template and start taking back control of your money today!
It sometimes has felt like we’re living paycheck to paycheck this summer, but that’s because we cashflowed our wedding and are saving aggressively for our home which we close on in just over two weeks. It’s an artificial feeling of scarcity; in reality we have a healthy bank account balance right now.
These are great strategies to keep in mind though! 🙂
Can totally relate Dave. Sometimes it’s actually good to have the “scarcity” mindset. We stick to a budget and get upset when we go over and look for ways to improve.
Great tips. Having an understanding of where all your money is coming and going is a great way to get your finances under control. I actually created my own Excel spreadsheet to track everything. I’m a bit of an Excel geek so it’s become way more advanced then you really need for a simple budget, but I love all the detail it provides me.
The nice thing about excel is you can make it pump out any information you want.