How to Stop Living Paycheck to Paycheck - Part 2

In our previous blog post Stop Living Paycheck-to-Paycheck, we discussed some common reasons why people live paycheck-to-paycheck. In this blog post, we'll share some ways that can help you get out of this cycle and put your money to work for you. 

Setting a Budget

The first step is to set a budget. When you set your budget, it's important to think about your needs, your wants, and the future, which involves savings according to your goals and plans. Creating a budget can seem overwhelming at first but keep reading for helpful tips. 

  • Determine Your Income – Your income is not what your boss pays you or what you earn if you work for yourself; it’s what you have left over after all mandatory paycheck deductions like taxes and insurance have been paid. After all, you cannot budget what you do not have. Getting this figure right will really help.
  • Add Up Your Expenses – This may take longer if you’re in debt or you have a lot of expenses you didn’t realize you had. The best way to do this is to open your bank account ledgers and write down your expenses for an average month. Be sure to note which ones are fixed or flexible, plus which ones are essentials, and which are non-essentials. For this exercise, you can consider any contracts to pay something to be essential, since you cannot just stop paying even if it was frivolous at the time.
  • Add Up Your Debt and Create a Payoff Plan – For your credit card debt and other revolving credit like store cards, add them up, note the interest you pay and the minimum payment due. Set up a payment plan to pay off the high-interest cards first while you pay minimum payments on the others. Then add that money into the payoff for the next card on the list.
  • Create Financial Goals and Plans – What do you need money for in the future? Would you like to have the ability to retire early or at least at 66? Are you investing anything for those goals? Even if your only goal right now is to pay down consumer debt and eat more healthy, that’s okay too.



  • Use Software to Help – Some banks offer online software to help with budgeting. Using your bank’s software will be beneficial since everything comes from that account.
  • Check Up Daily at First – Once you set up your budget, do a daily check to ensure you stuck to it. For example, you may not think it’s a big deal that you impulsively bought that coffee today from the expensive coffee shop, but that can add up. Even if it’s just $5 five days a week, by the end of a year that’s $1300. You could put that money towards a vacation or pay off a credit card.
  • Be Realistic – When you are creating your budget, be realistic. Just because you want to go on vacation to Europe next year doesn’t mean you can. Just because you want to pay off $30K of debt in a year doesn’t mean you can. You can only deal with the reality of the money you have. Living within your means is a lot more satisfying than you think. If you want to be able to live differently, find a way to make more money.
  • Find Money-Making Opportunities – If your income is too low to support your goals for the future, then you’ll need to find a way to make more money. There are many options such as delivering groceries, driving for a rideshare company, and having a garage sale. It’s up to you, but if you need to boost your income to have a good budget, then you are going to have to find a way.

Regardless of your current situation, there is a way to thrive. You may have to get real with yourself. You may have to work extra hard for a while. You may even have to do without right now and for the foreseeable future, but with the right plans to reach your goals, you’ll eventually end the paycheck to paycheck struggle.

Spend Less on Essentials

When it comes to buying essentials like food, clothing, and paying the electric bill, it may seem like there is no way to spend less. However, there are many ways you can spend less on essentials if you are creative and determined. Let’s look at some different ways to do it.

Food

Believe it or not, food is one of the areas where you can cut expenses and still eat healthy. Eating with a budget meal plan can also be fun.

The other thing you can do to save on food is to plan your meals in advance, shop sales, and use coupons. When you serve the meals, focus on ensuring everyone gets the right serving size, calories, and nutrition. One wasteful thing that most people do is making too large of servings - which of course costs more money but doesn’t make anyone healthier.

Utilities

It really depends where you live regarding your utilities and what you may or may not be willing to do to cut the bill. One way to deal with utilities if you want to be sure you can run your AC when it’s hot and your heater when it’s cold, is to ask for "budget billing." If you’ve lived in a place at least a year so that you have a record, you can easily get that set up. This means your bill will be the same every month, making it a lot easier to budget. It’s usually evened out twice a year.

The other things you can do is ensure that your home is insulated well so that the windows don’t have gaps letting air out of the house (and air into the house). Plus, if you look at your utility bill, they usually have tips right on it about how to cut costs. For example, the best time to run your dishwasher is to run it right before bed or after 8pm at night, when the power grid is not being overstressed.

Set the temperature a couple degrees off from perfect. Instead of 72 in the summer, set it at 74. Instead of 70 in the winter, set it at 68. This small change will not be that noticeable after you get accustomed to it. Wear more clothing in the winter and wear lighter clothing and turn on fans in the summer.

Clothing

The truth is that outside of growing kids, most people could go at least a year without buying any new clothing. Let’s look at a few tips to help you save money on clothing.

  • Buy High Quality – Some types of clothing are an investment. For example, a solid suit, nice dress shoes, the little black dress. If you spend more on these items, they’ll last forever and always be timeless. Check the seams, the buttons, and the overall make to ensure the quality is good.
  • Choose Classic Pieces – Don’t go for the fads in the high prices. Buy quality classic pieces on sale that are of high quality and value, then add a few fad items from discount stores to freshen up the wardrobe seasonally.
  • Avoid Too Many Colors – When you buy anything, including a t-shirt, you should know what you’ll wear it with. If you avoid buying too many colors and stick to a color palette that enables everything to match everything else, you’ll save a lot of money, instead of trying to match something with that random sweater you just bought on sale.
  • You Only Need One – There was a time that people had that one Sunday dress or that one thing they could wear to a wedding, a funeral, and a cocktail party with minor changes. When you think of investment pieces like that, you really only need one. You don’t need two little black dresses or even two pairs of the same jeans.
  • Thrift – This is especially important for growing children. Children grow super-fast during certain ages, so there is no reason to spend a lot of money. This is especially true for clothing for children. In our area, we have many consignment stores and some consignment sales that happen a few times a year. 
  • Find Sales – There are certain times of the year that you should buy different clothing items, from coats to shoes, and it’s always off season. It depends where you live but if you pay attention, you’ll start learning when the best deals and sales happen.

The important thing to remember is that you only need the right clothing for the job. You don’t need more than one thing for each job. You can add little touches to the items to spruce them up without breaking the bank. Plus, if you’ve never budgeted before, you may already have more clothing that you’ll need for a while.

Medicine

Finding good deals on medicine is a little harder in some cases. It depends on your situation. When a medication is a necessity and has a high cost that you cannot afford, there may be programs that you can help.

Contact the manufacturer of the medication to try to get a discount. The other thing you can do is find out if the generic works just as good and buy that. Also, don’t assume that your "with insurance" price is the cheapest; always ask how much it is without insurance first. Call around to check prices. 

Maintenance

If you own a house, or a car, or anything that can break down, the best way to prevent unexpected costs is to keep the maintenance up according to whatever the manufacturer suggests. When you do that, you will end up having fewer costly repairs. Getting your oil changed, changing AC filters, and keeping bugs off your car all help maintain the value of your investments.

Anything you want to save money on, including essentials, can be done if you give it some thought. Ask around about what other people do and set up a budget that you will stick to. When you are forced to stick to your budget, you can become quite creative when you need to be. 

Manage Your Debt

One budget killer is debt. Specifically, credit card debt. If you don’t manage your debt, you can end up living paycheck to paycheck even if you have a good income. This can be very difficult for someone to accept, but it’s easy to get into debt if you’re not tracking and paying attention. Life can get away from us and time passes before we know it. 

Earn More

If you can find a way to earn more money and get your debt paid off in a reasonable amount of time, then that is the best option because your credit will be outstanding when you’re done, and you won’t feel bad about yourself. Of course, if you’re doing your best in life, you should not feel bad for having issues occasionally. You can consider taking on a part-time job, freelancing, or finding another stream of income to help if necessary.

One of the biggest things that can help you manage your debt is to have a realistic budget set up so that you know where your money is going. It’s amazing what happens to your mind when you know for a fact that if you buy that coffee every day, you cannot pay your electric bill. Knowing what you have left over after your expenses will inform all your choices moving forward.

Savings Tips and How to Set Up an Emergency Fund

One of the most important ways you can help yourself financially is to pay yourself first. Paying yourself first involves saving for a rainy day, emergency issues, and the future. Most financial advisors state that you should save at least six months of living expenses in your emergency fund. Plus, you should save the maximum contributions in your individual retirement account, either via your employer or via your own investment funds. But, how do you do it all? Let’s look at how you can save money and set up an emergency fund in the most painless way.

  • Set a Goal – How much do you want to save, and which accounts will you use? How will you do it? Will you get an automatic payroll withholding, or will you do it manually yourself? Remember to be realistic when you set your savings goals. If you can only save five dollars a week because that’s all you have, that’s okay. 
  • Save Your Change – One way to trick yourself into saving money is not to spend your change. Just spend cash, and when you do, save the change every day in a jar. You will be shocked at how much you have at the end of the year. Some banks also have a "keep the change" savings plan that will automatically divert your change to whole dollars into savings.
  • Cut Expenses – If you have unneeded expenses, even if they are wanted, get rid of them for now. Once you have your six months of emergency savings, you can re-evaluate whether you need that thing you were spending too much money on or not. For example, cut your cable TV or your cell phone bill, or stop buying coffee or other snacks every day at work.
  • Track Your Bank Account – It can help to go back and look over your expenditures for the past year. You can go online to your bank account and look at each month's withdrawals. Which expenses were frivolous? Which were needed? Was it worth it?
  • Save Your Raises – If you get a raise, don’t spend it. You’re used to the current budget. Just save the difference. Adding the raise to your savings is the ultimate way to pay yourself. Maybe it’ll go in your emergency fund for now, but once that’s built, it can go in another fund like the vacation fund or the boat fund.
  • Get a Side Gig – If your income is just too low, you may need to earn more money. You can freelance, clean houses, pet sit, offer childcare, or even become a mystery shopper. It’s up to you, but all that money can go right into your savings.
  • Invest in Your Employer's Plan – Don’t overlook the plans your employer has. Often, they’ll match a portion of your savings. Some companies will match up to 5 percent of your income in their program. Get the money auto withdrawn and you’ll never miss it.
  • Save Windfalls – Did you win a bingo game? Did someone send you a birthday gift? Get a refund from something you did not expect? Don’t spend it. Save it. All windfalls should immediately go right into your savings. Or at least put half in and spend the other half.
  • Save Budget Extras – Once you’ve set up your budget, stick to it and save anything extra. For example, if you set up your utility budget to be $100 a month but this month you only spent $50, put the remaining $50 in savings. One reason is that one month your bill might be $150 instead of $100 and due to saving the budget extras you’ll have that money to fall back on.

Saving money and getting an emergency fund set up is the best way that you can avoid the dreaded unexpected expenses that often harm budgets, cause people to borrow money, and put you further behind.

There are ways you can get out of the paycheck-to-paycheck cycle. It may not be easier and will require time and commitment, but having financial peace of mind will be worth it! 

Stop living paycheck-to-paycheck and enjoy financial freedom.

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