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Are you tired of having too much month left at the end of your money? Want to break the cycle and learn how to stop living paycheck to paycheck?
How to Stop Living Paycheck to Paycheck – 5 Simple Steps
If you find yourself worrying about being able to afford your monthly bills, you might be living paycheck-to-paycheck. The definition of living paycheck-to-paycheck is a lifestyle in which a person doesn’t save any money and they would incur financial stress if they don’t receive their next paycheck.
This lifestyle is becoming increasingly popular, with 1 in 3 UK households living this way. Keep reading to find out how you can break free from it.
Track your spending
The first step to stop living paycheck-to-paycheck is to get an idea of what you spend every month and compare it to what you are earning.
Make sure to track everything you spend whether it is cash or card. Write down everything you spend in cash and use your bank statements to track what you have spent on your card.
If your outgoings are higher than the income you receive per month or you only just have enough every month to cover your expenses, you are living paycheck-to-paycheck.
Add up all your debt
Work out how much debt you have, including your car payments and credit card debt. You should initially focus on paying off your debt as the interest on debt grows a lot faster than it does on savings.
Make a budget
Having a monthly budget allows you to see what money is coming in and what is going out. Creating a budget is the next step to getting out of the paycheck-to-paycheck trap.
A monthly budget that clearly shows what money comes in and where it goes is the next logical step on your path to getting out of the paycheck-to-paycheck cycle. If you want to eventually start saving – and you should, as life and unemployment are unpredictable – a budget that you stick to can help you spot any money not accounted for.
Read more: 9 Easy Budgeting Tips >>
Cut down on your spending
Identify any bad spending habits you might have. Maybe you buy a coffee every day or struggle to prepare your lunch the night before work which means you end up buying it?
By tracking and comparing your income and expenses, you can categorise what you spend your money on and possibly even why you spend it. This knowledge can help you break a bad spending habit.
If you physically can’t cut down on your spending and everything you spend is essential (which let’s be honest most likely isn’t the case!), focus on increasing your income.
There are so many resources and methods to use to do this.
If you have a habit of going on frequent shopping trips, pick one day a week to go shopping and stick to it. This not only helps you track what you’re spending, but also what you are buying. By doing this, your impulse buys will be massively reduced.
Add up your essential bills (such as rent or mortgage, bills, food, transport, debt repayment etc.) and make a note of which date they come out of your account each month.
Read more: 17 things to quit buying to save money >>
Build up your savings
Once you’ve cut down your spending or increased your income, you can begin saving for financial emergencies.
The only way to break out of the paycheck-to-paycheck cycle is to have a financial ‘cushion’, which you can use for emergencies, such as a day without pay, a job loss, or repair or maintenance of household items or transportation.
Lots of financial experts recommend paying yourself first, which means setting up an automatic transfer into a savings account on the day you get paid. This way, you don’t see the money in your account before it comes out so it’s not there to spend.
You can also put your savings somewhere that isn’t easy to access, so you’re not too tempted to spend what you are saving.
Whether you are hoping to save for something like a house deposit, a new car or a holiday, with these steps you can break out of the paycheck-to-paycheck lifestyle.
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