Driving your car until its comfortably on “E” and hoping you can get to work just one more time before you have the money to fill up.
Eating stale crackers and a 2 year old can of peas for dinner because you don’t have the money for groceries.
Do any of these situations sound like you? If you find yourself constantly waiting with bated breath for payday only to run out of money a few days later, you are bound to be feeling a great deal of stress and depression. There is hope though, you can avoid living paycheck to paycheck. Here are your best steps to avoid living paycheck to paycheck and to move forward if you are.
Sounds obvious, doesn’t it? But for those people who haven’t had a financial education, it may not be so obvious. Being in debt is one of the biggest reasons people find themselves living paycheck to paycheck. When you are spending a portion of your income to pay on debt month after month, you are not able to build a savings account, pay for emergencies when they arrive or avoid using credit cards for items you want.
Avoiding debt is essential to financial health and living with money leftover from each paycheck.
Cut Expenses and Make Lifestyle Changes
Before you can begin the steps that follow this one, you absolutely must make changes in your lifestyle. Spending money on items you want (rather than need) must stop. Spending money on your lifestyle, (For example, eating out, buying coffee at Starbucks, having drinks on the weekends with friends, etc.) should cease. Also consider extras at home that you can eliminate. Consider eliminating extras on your cellphone or cable television. You don’t really need $150 cable television package or subscriptions to video rental sites like Netflix, Blockbuster or HuluPlus.
Be honest with yourself and even if it hurts in the beginning, make those cuts now. Once you are no longer living paycheck to paycheck you can add them back in, although you may find that life is actually greater without them.
Build an Emergency Fund
Before you can start paying off debt (which is your next step to avoid living paycheck to paycheck), you will need to build an emergency fund. This is money that you will use when emergencies arise that you had not expected. It’s for those days when your car battery has died and you need to replace it. It’s for the days when your kids come home and their only pair of tennis shoes has a hole in it thanks to an accident on the playground. An emergency fund is not for those cute pair of shoes you just saw at the mall.
While you are ceasing unnecessary spending any money you have saved should go into your emergency fund. After you have built your emergency fund to a level you feel comfortable with (the amount typically suggested is $1,000), it is time to start paying down debt.
Pay Down Debt
One of the most important steps to stopping the cycle of living paycheck to paycheck is to reduce your debt. Paying off debt may be difficult to do when you only have a small amount of extra money but it is possible. Once you have stopped using your credit cards and are applying the money that you used from your lifestyle choices that you’ve eliminated, your debt will start to decrease. Using the snowball method, as described by Dave Ramsey will also help your debt reduction process.
If you find that paying off debt is still difficult after completing this steps, you may need to consider ways to bring in more money.
Increase Your Income
There are many ways to boost your income from taking on a second job, to turning your hobby into an income stream or by finding ways to earn money online. Finding different ways to bring money in is easy to do on the internet. Some of the ways I like best are completing online surveys, getting paid to read emails, turning my hobby of blogging into an income stream and working on the weekends doing a second job. There are many sites that offer suggestions for increase your monthly income.
It is possible to move away from the cycle of living paycheck to paycheck. It will require you to evaluate your life, the choices you make and the direction you want your life to go. It will also take cutting costs, avoiding unnecessary spending, reducing debt and increasing income.
What would you add to the list above?
“You Can Avoid Living Paycheck to Paycheck” was included in the following carnivals:
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Y and T’s Weekend Ramblings at Young and Thrifty.ca
Carnival of Financial Planning at Dividend Monk
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