Today is a guest post from the personal finance blog, Financial Zen. For those not familiar with his story, the author of Financial Zen was well on his way to financial independence when a series of “life happens” moments took his journey off-course. Now that he and his wife have gotten back on track, he has decided to both document their journey to financial independence and help others on their journey as well. Financial Zen believes that people shouldn’t stress out about finances and shouldn’t let personal obstacles stand in the way of their financial dreams.
Feeling stuck in the habit of living paycheck to paycheck? Does it feel like no matter how hard you try to save money and cut out the morning Starbucks run there is never enough money to go around? Ever have to skip a student loan payment to cover the mortgage and keep food on the table?
I’ve been there and done that. We struggled for years with this cycle, feeling defeated, and not knowing what to do. It makes it feel like it’s impossible to keep your head above water much less try to get ahead.
Living paycheck to paycheck means sleepless nights spent wondering how you’ll cover the bills if something unexpected occurs. It’s extremely stressful and exhausting.
When living paycheck to paycheck, you are constantly scrambling to make ends meet or running out of money before the next paycheck arrives. It seems like you never have enough to cover the bills or buy the things you want each month. It’s delayed gratification to the extreme!
If this feels like you, you’re not alone. In fact, it’s more common than you think. Currently, 64% of U.S. workers, about 2 out of 3 workers, live paycheck to paycheck.
Living paycheck to paycheck means all your money comes and goes each paycheck. Trying to look to the future seems hopeless since all it takes is one little “life happens” moment to bring this house of cards crashing down.
If feeling stuck in this cycle, you don’t have to stay here. Escaping isn’t easy, but it’s definitely possible. If I can do it so can you. Change involves not just the hard work of changing your habits but also involves changing your thinking and mindset as well.
The people who have made the leap have paid off huge debts, reached ambitious savings goals, and turned their financial lives around.
If ready to break the cycle of living paycheck to paycheck, reduce your stress, and improve your financial life then read on! 😊
Today, I’m going to share 10 things I have done to break the paycheck-to-paycheck cycle and live a better life.
The 1st step in the journey of breaking the paycheck-to-paycheck cycle is to know where your money is going…. ALL your money right down to the last penny. Account for everything one way or another. The reason for much of the paycheck-to- paycheck spending is that the outflow of money is not being paid attention to.
Keeping an eye on spending is the 1st step to getting a grip on your finances and keeping it under control. You don’t need to do it for long to understand where your money is going.
Take the next 4-6 weeks and document every purchase no matter how it is being paid for (i.e., cash, check, or credit/debit cards).
At the end of this period, you’ll be able to see where your dollars are going and be more conscious of it.
Now that you know where the money is going, let’s look for way to plug some of the leaks.
Plug Money Leaks
Now that you know where the money is going, the next thing to do is plug the money leaks. We all have money leaks of various shapes and sizes. The Audible subscription you haven’t used in over a year. Eating out every night. The $200 a month cable package that you rarely use.
Look for ways to trim the financial fat from your spending. First check your variable and discretionary expenses 1st since odds on, these expenses are paid attention to the least. Look for things to cut out that you haven’t used in more than 6 months.
Once you eliminate those items, look for things to either cut back on or reduce. For example, if spending $80/month on a CrossFit program you barely use, maybe consider going to Planet Fitness for only $10 / month. Like to eat out 5 days a week? Cut back to 1 or 2 days a month.
Sometimes living paycheck-to-paycheck means you’ve locked yourself into a lifestyle you really cannot afford. For example, your mortgage / rent expense shouldn’t be more than 25-35% of your net income (i.e., 1-2 week’s pay). If outside this range, you may want to consider downsizing your place or moving to a cheaper neighborhood.
Lastly, look for ways to renegotiate payments. For example, if you haven’t shopped around for new car insurance or homeowner’s insurance in a few years, now is the perfect time. I just finished doing this and saved over 20% on my auto insurance and 35% on my homeowner’s insurance.
You’ll be surprised at what you’ll find freed up from this exercise and goes a long way towards the next step we will discuss.
Create A Budget
Now that you have tracked where your money is going and plugged the money leaks, the next thing you’ll need to focus on is creating a budget and sticking to it.
Anyone can write down a monthly budget. However, writing one and living on it are 2 totally different things. When you budget effectively, you track spending and stop spending when the money is gone.
A practical budget has all your expenses built into it so that you will not be surprised when the water bill is due, or the car registration will need to be paid. A good budget also deals with fluctuating bills such as electricity or heating bills as well as periodic bills such as car insurance.
Budgets are not limiting since a good budget is all about understanding your priorities and making conscious choices to follow those priorities.
A practical budget enables you to not go on crazy spending sprees and blowing all your money before the next paycheck arrives. A practical budget will also enable the next thing to occur.
Stop Taking On New Debt
Debt holds you back and can be debilitating. If all your money goes towards debt payments, it’s extremely difficult to get ahead.
Debt is also becoming sneakier. There are installment plans for almost anything from furniture to house windows to even higher-end appliances like Keurig coffee makers.
Living with debt is one of the biggest things keeping you in the paycheck-to-paycheck cycle.
The $10,000 question is: how do I get out of debt?
Answer: Stop taking on new debt! 😊
This means quit paying for things on your credit card thinking you’ll just “pay it off next month”. Let’s be real, has that ever really happened?
It also means not taking out any new loans (i.e., car, boat, or HELOC’s).
With all the cash you’ve just freed up, it would be a shame to spend it all on new debt you’ve just accrued and is probably how you ended up in this situation in the 1st place.
There is an adage that states when you dig so deep into the ground that the walls are caving in on you, it’s time to stop digging.
Generate Extra Cash
If you find yourself struggling to make ends meet once you’ve set a budget, plugged your money leaks, and quit taking on new debt, it’s time to find a steady way to increase your income.
There are some great ways to produce extra income. One way is to sell off some stuff that you don’t use anymore. Online platforms like eBay, Poshmark, or Decluttr make it easy to do this. These sites help you to find buyers for your stuff and make the transaction quick and easy.
If not keen on selling things online, another great way to earn extra money is thru a side hustle. I’ve talked about the benefits of a side hustle before on my site. Side hustles can enable you to not only grow your income but can also enable learning new skills that can be applied to your current career or can help launch a new career for you.
Some great options including being a bartender, a barista, a Lyft driver, and working in retail.
If not interested in any of these jobs, try leveraging your current skills to consult or freelance. Online platforms such as Fiverr or Upwork enable people looking for work to find people looking to hire. You’d be surprised at what skills people need. They are looking for anything from virtual assistants to computer programmers to website developers and so much more. Check it out.
Working a 2nd job, isn’t easy. I know, I’ve done it. However, once you get your debt under control and build up some savings, you can always slow down.
Also, the extra cash being created will enable several of the next steps to occur.
Live Within Your Means
This is really important so please don’t skip over it. Making extra money will do you no good if you keep spending it all. Don’t start a side hustle just to continue living a lifestyle you cannot afford.
The thing you need to watch out for is lifestyle creep. This is when an increase in pay enables you to spend more money unnecessarily. With this boost in income, you can now afford things you couldn’t before and are tempted to loosen the purse strings.
It’s REALLY tempting to spend more money when you’re making more of it, but don’t do it! Remember the reason you were looking for ways to earn extra money in the 1st place. Stay focused, stay intentional, and live within your means.
Start Emergency Fund
Now that you have your spending under control, have not taken out new debt, and you’re working extra hard to earn more income, the next thing you need to start doing is building up an emergency fund.
Ideally, you would build up enough savings to cover at least 6 months of expenses. For now, focus on saving up that 1st $1,000. That’s it. Just a $1,000. It’ll be your safety net for those “life happens” moments. If you get in a jam, you can pay in cash without worrying about taking on additional debt.
Savings money is tough especially when you are trying your best not to live paycheck-to-paycheck. Now we are going to talk about a mindset change that will help you start saving and take care of your needs as well.
Pay yourself 1st.
Before any bills are paid out of each paycheck, save a set amount each paycheck to build up your emergency fund. Even if it is as little as $50 a check, it will go a long way toward creating that exit plan you’ll need to fall back on if a surprise expense comes up.
You can do this.
Just take it in small incremental chunks and before you know it, that 1st $1,000 will be in your bank account! 😊
Stop Keeping Up With The Joneses
Let’s talk about another mindset change that needs to happen to keep you on the right path.
Stop comparing your progress to other people’s progress.
Comparing yourself to others is natural especially for the competitive types. People use this as a comparison tool, but unfortunately, it’s not comparing the right things.
Everyone has their own unique path to take and the progress experienced is also unique to each person.
You need to stop trying, consciously or unconsciously, to keep up with other people’s lifestyle and spending habits.
It’s a struggle, but one that a person needs to take. I must tell myself daily, “follow your own path”. It can be hard to do this when you see your friends buying brand new boats and vacation homes while still being able to put their kids through college. It makes me wonder, “What am I doing wrong?”
But that’s just it. I don’t know how they are doing it. Did they manage to save up the money to do this or have they taken out a bunch of debt to make it happen?
When you feel the pressure to spend, it takes a strong-willed person to resist that urge. Trying to keep up with others will sink your financial ship before starting its maiden voyage.
Practice Delayed Gratification
Nothing makes you count the days to payday like spending a large mount of money on a big purchase.
This is why it’s so important to practice delayed gratification. If you really want something, don’t pay for it using credit cards. Instead, save up the money for it.
For example, I pay myself an allowance every payday. Nothing significant but enough money to buy a couple of lunches as a treat if I choose to.
Instead, I saved up for a new mountain bike. I always wanted a good one and my bike was on its last legs.
It wasn’t easy or quick. In fact, it took me 18 months to save up enough money for it.
Taking the time to save up enough money to pay cash for it just made the victory that much sweeter.
If you want to make nonessential big purchases, I recommend against it until your financial house is in order. However, if you REALLY want it, then give yourself a small allowance and save up for it.
The delayed gratification will make it that much sweeter when you make that purchase in cash! 😊
Play The Long Game
We’ve done a lot of work so far. We’ve right sized your finances, started to build an emergency fund, and worked on changing your money mindset. Way to go! Woo Hoo! Lol 😊
There is 1 last lesson I learned that I want to share with you.
It’s to understand your Financial Why. Your financial why is the reason why you are doing what you are doing. Are you wanting to buy a house? Do you want to achieve financial freedom so you can live your life to the fullest? Want to be able to pay for your kid’s college?
You need a long-term strategy or dream to drive you towards success and a better life.
Let me give you an example. My financial why is to achieve financial independence. I want to quit my day job and live the life I have imagined for the last 20 years. Traveling the country. Seeing exotic places. Working on projects that excite me and use my skills to the fullest.
THAT is my “why” and my “heaven”.
When things get hard, and they will get hard, remember your why. It’s the reason why you do what you do. Knowing your why also drives your financial decisions.
Remember your why when you brown bag your lunch every day or make your own cup of coffee. Some days will be more challenging than others and making such a big adjustment is tough. However, YOU are tougher!
For example, I could easily afford a new car right now, but I choose not to. Instead, I’m investing that extra money so that it will speed up my journey towards financial independence.
It doesn’t bug me that my friends drive new cars while mine is 10 years old. On the contrary, I love the fact that both my bank account growth and my end goal comes closer in view by the day. I’ll buy a new car after I’ve achieved my goal. If I can wait 18 months to buy a nice mountain bike, I can definitely wait a few years to buy a new car.
So, what’s your why? What drives you to make positive changes in your life? I’d love to hear from you here.
Last But Not Least
Be patient with yourself.
Moving to a savings mentality for someone who hasn’t saved before is like changing from a junk food diet to a healthier eating lifestyle.
It takes consistent, daily effort to make it happen. The hardest part is getting started. Once you start rolling the proverbial ball down the hill, it does become easier.
Change can be slow and gradual. Some days you may feel like giving up.
Anything worthwhile in life takes time to achieve. Use you financial why to remind you why you are working so hard for in the first place.
Celebrate your wins every day (no matter how small) and learn from every opportunity you can.
In the end, you’ll make it! ……. just stick to it.
Live The Life You Love, Want, And Deserve. 😊
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