Let’s face it - living paycheck to paycheck is really stressful. No one wants to be constantly scrambling to make ends meet. It’s bad for your finances and even worse for your mental health.
The good news is that anyone can learn how to stop living paycheck to paycheck and how to start getting ahead of the game. As you take control of your finances, you’ll pay off debt, save more and start to feel a sense of security that money can’t buy.
Ready to break the paycheck-to-paycheck cycle? We’ve got six essential tips to get you there.
1. Make budgeting your best buddy
Ask any personal finance expert how to not live paycheck to paycheck, and they’ll tell you the answer is to budget, budget and budget some more.
Learning how to budget can take a few months and a little trial and error, and there are many different ways to approach it. Start by tracking how much you actually spend, either on a spreadsheet or one of many free budgeting apps available. Once you know what your spending habits are, it’ll be easier to see how to allocate your paycheck.
Creating a budget will keep all of your expenses top of mind, including those that you don’t pay monthly like insurance premiums. That way, you’re not caught off guard when occasional expenses come along.
2. Find ways to spend less
Once you’ve tracked your spending and created a budget, it’s a good time to see where you can spend less. Doing so will help you free up some money to pay down your debt and set it aside in case of emergencies.
Here are some ideas on how to cut back:
- Move to a smaller apartment
- Pack your lunch instead of eating out
- Bike or take public transportation to work
- Exercise at home and cut out the gym membership
- Borrow books and DVDs from the library instead of going to the movies
The goal is to start small and work your way to saving more money. Even setting aside $10 dollars from each budget category every month will add up over time.
3. Set aside some money every month
Putting cash aside each paycheck will help you build a fund for emergency expense, or what many call a “rainy day” fund. As for how much to save from your paycheck, aim to save any amount you can at first. You can always work up to larger amounts.
The ultimate goal for your emergency fund should be at least $1,000 or a month’s worth of expenses, whichever is higher. This may sound like a lot of money, but you’ll do this slowly over time. As mentioned before, even if you can set aside $10 from each paycheck, it’ll get you there eventually.
Once you have at least $1,000 in your emergency fund, consider setting even more aside. And don’t dip into that stash for just any reason—it’s meant for emergencies such as a job loss, medical issues or unexpected expenses (such as a car repair).
If you feel like you’ll be tempted to spend the money, open a separate account without ATM access. You can even make it so that you can only access your cash at a local branch, which will take at least a few hours to get to—and give you time to reconsider whether you really need the money.
4. Pay down your debt
Many people who live paycheck to paycheck have a lot of debt to deal with. Making a dedicated effort to get out of debt once and for all will help you get ahead by eliminating expensive interest charges.
As for how to pay debt down, there are different ways to do so. Some do what’s called the debt snowball method, where you focus on accounts with the smallest balances first. Pay as much as you can toward the smallest account while continuing to pay the minimum on other debts. You then focus on the next smallest account once the smallest debt is paid off, and so on. Paying off small balances quickly may give you the confidence and motivation to keep working toward a debt-free existence.
Another method is called debt avalanche, which has you focus on the account with the highest interest rate first. Prioritizing high interest rate debt can save you money in the long run, since those interest charges are the highest.
5. Increase your income
If you want to pay down your debt faster but can’t cut your budget anymore, consider trying to make more money. You can do this by asking for a raise or working a side hustle. In today’s freelance-heavy economy, there are many jobs you can do from home or during after-work hours, including driving for Uber, dog walking and tutoring.
Remember to deposit your extra income into a savings account to increase your safety cushion. Once your emergency savings is up to snuff, you can consider socking extra money into your retirement account for an even more financially stable future.
6. Look to the future
Having a life where you don’t live paycheck to paycheck is possible! You can create a realistic budget, find ways to spend less, pay down debt and make a concerted effort to set aside money.
However - let’s face it—you’ll probably feel discouraged at times. It’s important to figure out what’s motivating you and surround yourself with reminders of that thing, whether it’s an easier night’s sleep, a day when you’re not afraid to open the mail, or even a future vacation or other reward. Focus on your future, and you’ll get there before you know it.