According to a survey from Career Builder that was shared on CBS News earlier this year, eight out of ten Americans are living paycheck to paycheck. Along with stress and frustration over financial matters, this type of money management can lead to greater problems in relationships, health and all other aspects of your life. Living paycheck to paycheck can also drive you into debt. If you are looking to break this negative cycle, we have some actionable tips for you.
Know your “why”
Nothing can motivate you as much as knowing the “why” behind your actions in the first place. When I first started on my personal finance journey at twenty three, I was highly motivated to save money and cut costs because I wanted to go back to school. My financial aid was placed on hold for months, and if I didn’t put down a deposit on my classes, I would have lost my seat.
Not all financial journeys need to start with such drastic measures, but maybe that is the “why” you need. Before starting your journey to stop living paycheck to paycheck, ask yourself “why you want to get ahead in the first place or have extra money on hand.” Is it an emergency? A trip that sounds pleasant? Or maybe it’s something along the lines of not having any more money stress?
Knowing your “why” is going to be important when the going gets tough and you need something to reflect on.
Track your spending
After you determine motivation in knowing your “why”, the second and most important step is to track your spending. Tom Drake, from Maple Money, explains that by tracking “you can see where you can free up some cash flow. Track your spending in Mint, and you’ll start to see where you can cut back, whether it’s your premium cable bill or the dreaded daily latte. You’ll find a breathing room to start saving and putting some money aside.”
A lot of people suggest tracking your spending for a month and then looking to see where you can make cuts. I would be more aggressive and suggest looking after two weeks. As someone who’s recently jumped back on the train of watching where every dime goes, I can already see where I have to make improvements.
Spoiler Alert: I eat out way too much, and now I’m not shocked why my discretionary funds are so small AND why the pounds aren’t coming off as fast as I hoped. By tracking your spending, you may be just as surprised as I was about eating out or perhaps you will be surprised that you are not even bringing enough income to pay your bills.
>> READ: 9 Best Apps to Manage Your Money
Start your budget with controlled spending amounts
Once you have tracked your spending to see where your cash flow is going, it’s time to make a budget and assign controlled spending amounts. By making a budget and giving every category its own allotment, you can monitor your spending. It may be tedious at first, but monitoring is what is going to help you put funds aside for the future and stay on track with your spending.
Amanda Pound from Puddle 2 Pond Financial shares with us that controlled spending amounts in separate checking accounts “naturally help us save money for the non-discretionary items. For example, my husband and I have a grocery account. Once our grocery amount is gone, it’s gone. We no longer have money to eat out or go shopping. This allows us to make an informed decision to either stick to our grocery budget or break it.”
If managing multiple savings accounts seems intimidating, try utilizing a cash envelope system.
At the beginning of the week assign a certain amount of money to an envelope for an individual purpose. For example, my envelopes would be for grocery, gas, and fun. Once the money is spent out of that envelope, I would need to make due for the rest of the week or borrow from one of the other ones. This is an easy way to realize how much you are physically spending instead of just swiping a card and to help you cut back.
Start saving small
The majority of the time, we are not prepared for an emergency. Cars break, people get sick and sometimes paychecks themselves can end up short. Because we have no savings set aside for such expenses, we must make our paycheck stretch, borrow from a payday loan or charge it onto a credit card with no way to pay it off. But how can one save for such emergencies if you are living paycheck to paycheck in the first place? By starting small.
Neal Frankle from Credit Pilgrim describes that by doing so gradually, it will be harder to notice than saving a large lump sum. “Put fifty at the start of month one. Then, do that for a few months. After you learn how to survive without that fifty, bump it up to a hundred per month. Rinse and repeat until you have your emergency fund set up.”
If you are scared of not being able to save money adequately, starting small may be the way to go.
Start by moving twenty dollars a paycheck into your savings account if you are paid biweekly or ten dollars a paycheck if paid weekly. Ten dollars a week may not seem like a lot but over the course of the year, it adds up to five hundred and twenty dollars. For example, a flat tire may just be a minor inconvenience rather than an event that brings up a full-scale panic attack.
Earn a side hustle
You may realize that after tracking your spending, you do not have an adequate cash flow. An adequate cash flow would be enough to cover all of your bills with some left over for minor expenses or emergencies without breaking the bank. If you are barely making ends meet or maxing out your card to make it to the next payday, this may seem impossible.
If you are not bringing in enough cashflow to cover your basic needs, consider looking into starting a side hustle or getting a part-time job.
An extra two hundred dollars may not seem like a lot at first, but that two hundred dollars can easily be used to help you ahead on bills or saved in an emergency fund. Consider freelance writing, dog sitting or any other side job that can be done on your own timeline.
>> READ: 7 Ways to Earn More Money
Be nice to yourself
Above anything else when you start your journey to stop living paycheck to paycheck, be nice to yourself.
A positive mindset will have positive results while a negative one will have negative results.
Unexpected emergencies and expenses related to health and kids care, auto and house repairs seem to pop up when you are least expecting them to. When you are frustrated by these emergencies and expenses, don’t give up. Instead, take time to reflect how far you’ve come on your journey and remember your reason for starting in the first place. Pay the expense and go back to saving.
The bottom line
It can honestly feel suffocating when you are living paycheck to paycheck. The good news is, you don’t have to do it any longer. By knowing your why, you can motivate yourself to take action. When you track your spending, you will see where you can cut back in order to find money for your financial goals. By saving in small increments and then larger one you can move forward in your financial journey.
In order to increase your results, don’t forget to earn a side hustle and practice a positive mindset. By taking all of our actionable steps into consideration, you will see results and reach your financial freedom sooner.