Hoping with crossed fingers that the check you wrote doesn’t come through your account before you can make a deposit.
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.
Avoid Debt
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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We’re working on increasing our income as much as we can. Hope to add some passive income to the mix soon! 🙂
I’m with you. Passive income is definitely a goal.
Thanks so much for replying.
Of course, over the long term, you will be able to buy things you want and make lifestyle expenses. It’s all about moderation, though! 🙂 Buying things you don’t absolutely “need” isn’t bad. Buying things you can’t afford is!
Getting out of debt is very critical! I am looking at increasing my income. My dream goal is to increase my income by $20,000 over the next two years. This will most likely be active income, since at our age we do not have enough assets to generate passive income. Passive income is definitely a long term goal though.
Passive income is my goal. I’m starting very late in life but I hope to own a piece of rental property within the next 15 years. As well as freelance writing, I’m also looking to return to my chosen profession which is teaching but it is without any form of retirement. Passive income is only of my best hopes for any sort of a retirement before I’m70.
Good luck to you, to us all.
Great post Jessica! It’s always better not to live on paycheck alone and to always have an emergency fund. Having a passive income is also good for boosting your finances, but people should bear in mind that it takes time and effort before you can reap the fruits of your labor.
No one knows how bad it can be living without an emergency better than me! It’s a mistake I will never make again.
Passive income is a definite goal for the future.
Thanks so much for your comment.
No matter how small or big income you may have, if you are not responsible on how to handle your finances and expenses, it is still worthless. You will still end up being in debt. It is always important to be responsible and cautious in every dime you spend and always make wise decisions when it comes to handling finances.
Hi Jessica, thanks for such an informative post. Doing freelance jobs, similar to the ones you have mentioned, is a great way to keep the money spinning! Staying frugal initially after receiving pay hikes can also help to weed out debts!
That’s so true. I know a gal who lives so richly and gives back to so many people because she learned to live on her very first income and didn’t really change her lifestyle with each pay raise. I can only hope to be like her in the future.
Thanks for your comment.
Felix is quite right. It comes down to managing your finances well because if you really want to, you can still save even if your are receiving the minimum salary.
You are so right and that’s where a financial education comes into play. I always thought that because I was low income, I would always be in debt and without a savings account. My mom thought the same thing. Educating myself about finances more has shown me that it is possible.
I don’t think we do enough in this country to educate our children about finances before they graduate and live on their own. They need a great deal more than we are giving them.
Hi, there thanks for approving my comment.. looking forward to some fruitful discussions ahead!
We’re allo about positive cash flow in our household and now we’re focusing on obtaining passive income.
These are my goals as well. Still working on it. I definitely take my own advice after writing about it.
Thanks for your comment.
My pastor explained it like this: If you were to take a group of people who worked for different companies and asked them the same question.Who of you would like to double your income?All their hands would go up.One person earning $2500 would like to earn $5000 because he thinks that would solve his financial problems.But another person who’s already earning $5000 has proven that’s not enough and also thinks if he could double his income his problems would be solved.This clearly shows us that we never actually will have a financial problem but rather a wisdom problem.Wisdom is the accurate application of knowledge.(Proverbs 4v7)
Great post Jessica.Very positive and informative.
I am currently living paycheck to paycheck. Much of my income is spent on student loans, do you have any advice for dealing with this sort of debt? Most of my payments pay only interest, and the principal hardly goes down. What can be done if I lack the funds to increase my payments?
Atticus, I would contact whomever owns your loans and find out if there’s a better plan that would help you eliminate the debt quicker. I would also take a serious look at your lifestyle to see where you can cut back. Car loan? Sell your car and drive a beater car for a few years. Reduce your housing expenses, cheaper rent, a roommate, eliminate cable, internet and get a cheap cell phone plan.
How can you increase your income? Get a second job. Freelance on the side. Take on extra hours.
If you have done all these things and still can’t make it work, I would contact a financial adviser to help you figure it out. The first meeting is free and they may be able to help point you in the right direction. There’s tons of information on the internet too for how to reduce debt, increase your income and get out of the cycle.
Just don’t give up and don’t acquire more debt. You can do it!
The main thing that I need to build up is my emergency fund. I have had several unexpected expenses during the last year and hitting up the parents every time gets old. I am going to try and build it up to about $2k between now and the end of the year.
goodness, do I know about that! Just had to hit my mom up last month thanks to a $2200 expense that I wasn’t prepared for. Wiped out everything I had and there wasn’t anything set aside after using it all at the first of the year. I’m back in the rebuilding phase again too.
The key for me is to cut out everything while I’m rebuilding my EF and remind myself that it’s just temporary. My goal (silly, I know) is to have it done in time for college football season so I can get the cable package that includes The Big 10 Network so I can watch my Buckeyes this season. I will unsubscribe again after the season is over with. REALLY hope I get there. I missed far too many games last year because they were only shown on B1N and there wasn’t anywhere for me to go watch the games (going to a bar & grill to watch ends up costing as much as the cable package, I learned that the hard way too)!
In my experiennce, some people just don’t get it when it comes to changing their lifestyle and making themselves financially secure. They are so much used to living from paycheck to paycheck that it’s a big deal for them to change their thinking about the way they live their life.
I agree with you Harry. I read some where once about how it’s all common sense but I disagree. It’s not common sense if you aren’t thinking that way. Growing up, I was always led to believe that debt was a part of life and running out of money before the next paycheck arrived was normal. My parents didn’t know any better so they didn’t have any way to make it “common” for me.
Getting the message out there that it isn’t the only way to live and a few simple changes in lifestyle can improve their lifestyle is essential.
Thanks for your reply!
After working as a Special Finance Manager at a car dealership (arranging loans for people with bad credit) and now working as an Enrolled Agent to help people resolve their tax debt, I have arrived at an idea I call “A week late”.
These are people who have jobs and make money but don’t have the money when they need it and thus have to resort to Payday Loans etc. Not having the money on time means that they are late paying bills and there credit is bad.
Since their credit is bad, things cost more such as car payments and other loans. If you don’t have the money to buy things or the credit to get inexpensive loans you might find yourself using Rent to Own stores (some people Rent to Own tires).
Credit scores can also have an effect on where you can live since credit reports are run by many Property Management companies to determine who is a good risk.
So you start out short of money and then your expenses are higher and as they send more debt into the future things get worse and worse.
The unpalatable but necessary intervention is to cut current spending to the bone. I would start with “Unnecessary” expenses and then move straight to Food. No eating out. Live on rice and beans if you have to. It’s necessary to have a cushion, you need to be ahead instead of behind.
Then comes the chore of rebuilding your credit. It’s a painful regimen but the hardest part is to start.
The hardest part IS starting. But I think the crucial component is getting the information out to the people who need it the most. In my family (a low income, uneducated family), it was just assumed that debt was a part of being an adult. My mom never did anything to change it because she just thought she’d always be in debt (and she always has been, always will be too). We need to beef up financial education especially to the people who need it the most.
Debt can really hit you hard and completely destroy your life. Now, I’m just exaggerating there that but you should really avoid debt. Right?
I don’t think it’s an exaggeration at all. Debt has destroyed many lives.