Living paycheck to paycheck is incredibly risky and dangerous. If you currently live paycheck to paycheck you may think you have a grip on your lifestyle, but the truth is unexpected financial emergencies could happen at any time.
However, financial emergencies aren’t the only risky aspect of paycheck to paycheck living. A person can never become financially stable if they are always barely breaking even or if their bank account has just enough money to avoid bank fines.
Think about it. Most people are paid bi-weekly. This leaves 13 days between each paycheck. In those 13 days, we have to pay bills, get food and groceries, and still enjoy somewhat of a social life. If by the time Wednesday or Thursday before payday rolls around you are completely out of money, a change in spending/savings desperately needs to happen.
In my personal goal to achieve total financial freedom, I promised myself I would never live the paycheck to paycheck lifestyle after learning of a friend who only had $12.00 in her account with payday still a few days away. I was completely shocked that anyone would let their account dip that low.
Turns out, my friend is not the only person who lives like this. Almost 8 out of 10 American’s currently live paycheck to paycheck. This habit of overspending and undersaving desperately needs to change and there is no better time than now to get rid of this scary lifestyle.
Here are 10 tips for breaking the cycle of living paycheck to paycheck.
1. Know your outgoing spending
This is probably the most important part of breaking the habit of living paycheck to paycheck. You absolutely have to know every single thing you spend money on. Once you know how you spend your money, you can create a budget for yourself to help trim costs and control the areas where your spending is unnecessarily high.
When monitoring your spending, it helps to make a list and break it into two categories. The first category is bills and necessary costs such as rent/mortgage, groceries, car insurance, gas, and phone bill. The second category is for social outings and entertainment such as movies, eating out, subscriptions, gifts.
Once you have your list, write down how much you spend on each item monthly. You’ll see that the price quickly adds up. Since the items in the first category are typically nonnegotiable, you’ll want to evaluate and cut out unnecessary spending from the second category.
Tip. Know your credit score
If you’ve never checked your credit score, now is a perfect time. It’s so easy nowadays to check your credit score through online banking and for most banks it’s free. By keeping tabs on your credit score, you’ll better understand your spending habits and what helps or hurts your score.
2. Open a savings account
Once you’ve assessed your outgoing spending, it’s time to look at the amount of money you put away into savings. If the answer is $0, that needs to change. If you put away money here and there when you feel like it, that also needs to change. Depositing money into your savings account needs to become a habit every single time you get paid.
First things first, if you don’t have a savings account open one up asap. I personally have two savings accounts. One is for school tuition & emergencies and the other is for a house. I never touch my house saving fund and I only touch my other account when I have to pay my tuition or if there is an emergency.
If you think it’s too difficult to remember to deposit money into your savings, schedule a monthly direct deposit from your paycheck or your checking account into your savings account. Direct deposit makes saving money a no-brainer. Also, regardless of how much money you have, never stop saving. It’s said that we need to have enough money in our savings account to cover at least 6 months with no income. So, start saving now.
Tip. Save your extra income
If you have a really good month financially, don’t spend the extra money, save it! Extra income is an awesome chance to reach your financial goals sooner, but it only works if you use it wisely.
3. Live like you have less
There’s a term I learned during my undergrad called, subsistence living. The definition of subsistence living is surviving off of what is necessary and nothing more.
Although this term has been modernized to reflect the ‘minimal lifestyle’ the phrase actually dates back to people who were impoverished and could literally only afford the necessities.
After I graduated with my undergrad degree, I embraced this term and used it in order to feel confident in paying off my student loans. Whenever friends would ask me why I never hung out or went shopping anymore, I told them it was because I’d choose to live a subsistence lifestyle in order to get out of debt.
The same concept can be used to break the habit of living paycheck to paycheck. If you take out all the unnecessary things you pay for in a month and only spend money on the necessities (no, coffee is not a necessity of survival), you’d be surprised with how much money you are left with.
Subsistence living is not something that needs to be done forever, but until you’ve built up your savings account and have learned control over your finances, it may just be the culture shock you need in order to value the money you’ve earned.
4. Learn the importance of saying NO
It’s okay to say no, even if you want to say yes. If you know you can’t afford to go out with your friends, stop saying yes just to be a people pleaser. If you feel comfortable enough to tell your friends you need to save money, tell them! Otherwise just learn to say no and leave it at that.
Keep in mind you also need to learn to say no to yourself. If you and a friend go shopping, learn to tell yourself no when you come across a cute jacket or pair of shoes. It’s okay to be the friend who hangs out just for the company and not to spend money.
Trust me, I’m that person and I haven’t lost any friends because of it. What I have done is become debt free and that to me is worth the times I’ve said no to my friends and myself.
5. Work to pay down credit card (and student loan) debt
Most people have credit card and student loan debt. The difference between credit card debt and student loan debt is the idea that student loan debt is ‘good debt’. Newsflash, debt is debt regardless of how it’s labeled.
If you’re in any sort of debt, you’re paying interest, which is just more money out of your pocket in the long run. It’s absolutely okay and realistic to want to live debt free, even if people try to convince you that “some debt is good for building credit”.
Although this is the only section that actually requires you to pay money out, you’ll save money in the long run by paying off your debt sooner. I’ve talked to so many people who have just accepted the fact that they will be in debt the rest of their lives, but it doesn’t have to be that way. With dedicated monthly payments of just a little bit more than your minimum balance owed, you can get out of debt sooner.
I do want to acknowledge that everyone’s financial situation is different and it may be more difficult for some to put more money towards paying off debt. That’s why it’s so important to sit down and figure out a financial plan that works for you and your family while also obtaining a financially stable life without living paycheck to paycheck.
6. Monitor how you spend your money
We’ve already gone over our spending categories, now it’s time to dig deeper. Are you eating out ten times a week? Do you buy coffee daily? Are you a shop-a-holic? These are important aspects of your life that need to be realized in order to understand your spending habits.
Since the goal is to stop living paycheck to paycheck, spending needs to be cut back in some areas. Unfortunately, that area is typically in the ‘fun’ category.
We can convince ourselves all we want that we deserve the new outfit or the daily coffee and donut, but those costs add up (the average Amerian spends almost $100.00 a month just on coffee). If you have a pattern of spending money in areas that suck your money with no real benefit to you, consider cutting it out of your spending.
Tip. Online Banking
It can be hard to remember what you spent money on since no one likes to keep their receipt. A solution to this is to check your online banking every few days to see what you purchased and at what cost. You’ll be amazed at how quickly you spend your money on things you don’t really need.
7. Cancel subscriptions
I know, I know, we live in the modern age where subscriptions are everything! That doesn’t mean the costs don’t add up. Nowadays we can subscribe to anything: tv, makeup, music, shaving razors, clothes, even groceries! All these amenities are fun and helpful, but they aren’t necessary when trying to get your finances in order.
It may only seem like 10 bucks here and 30 bucks there, but if you are scraping pennies the day before payday, I guarantee you it’s not worth it.
8. Think of the big picture
A few months into your goal of becoming financially stable, you might begin to feel frustrated. Please, don’t lose hope. Simply think of the bigger picture.
By ridding yourself of the paycheck to paycheck lifestyle, your preparing for your future. If your goal is to buy a house or pay for a wedding, everything you’re doing right now is worth it.
If a financial emergency happens to you or a loved one, you will be able to comfortably help because of your savings. This is not just about responsibility, it’s about security for your future. And you’re future looks good!
9. Learn to ignore
Temptations will arise, guaranteed. You have to learn to ignore.
If a new phone comes out, don’t run out and buy it. If your favorite store is having a sale, ignore it. Don’t take a step backward while you’re still adjusting. Always ask yourself if you truly need something or if it’s just a materialistic item distracting you from your goal.
Keep in mind that you won’t always have to live like this. This frugalness is only necessary until you learn to spend wisely and save constantly. Once you feel stable and in control, go ahead and get the phone or shop the sale! But, until you are 100% out of the woods, learn to ignore.
10. Get creative while saving
I get it, you want to save money and still retain a social life. It’s possible, you just have to get a bit creative. Gather your friends or significant other and go to a drive-in movie, cook dinner together, or go on a bike ride. There are plenty of activities to do for free or ridiculously cheap.
When you set a budget for yourself, you’ll want to leave a tiny amount for fun that way you can do a few things. But remember, if it starts getting too expensive, you can always say no and suggest something else. There’s no shame in that!
Well, there you have it! 10 tips on breaking the habit of living paycheck to paycheck. I wish you the best of luck on your journey and I have faith that you will succeed!