One of the most difficult experiences to deal with is the challenge of working and earning pay which runs out before you get the next pay check. Beside the fact that this situation makes it practically impossible to achieve any meaningful financial goals, it also creates an intense level of stress that is difficult to deal with.
While it is easy to throw your hands up in the air in despair and declare that it is impossible to dig yourself out of such a hole, there are practical steps that you can take to not only get a firm handle on your finances but to go on and enjoy financial freedom without winning the lottery. These steps include the following:
The first step towards escaping the trap of living from paycheck to paycheck is to make a firm determination that you want to end the cycle. It is this firm determination that will give you the strength to make the needed decisions and changes and stick with them until you achieve your objective. To develop a sense of determination that is strong enough to keep you motivated throughout the journey, you must be very clear within you as to why you are pursuing the goal in the first place. And truthfully, only you can find this reason. Why do you want to end the cycle of living from pay check to pay check? Do you want to end the cycle so that you will have some money set aside to make a down payment on a house? Or is it so that you can start saving for your kids’ college education? Or maybe you are just tired of perpetually lacking money, plain and simple. Whatever your reason, it has to be strong enough to keep you fired up all the way.
One of the major reasons why people live from paycheck to paycheck is because they don’t plan their spending. The way it works for a lot of people is that once they have cashed their paycheck, they spend the money as they go based on the needs and expenses that spring up. Obviously, this is a terrible way to manage money and it can only lead to one end: running out of money before the next pay day!
To avoid this, you should always work with a budget. The budget doesn’t have to be an Excel spread sheet or an advanced budgeting software program like Mint. It could be a simple outline on a piece of paper detailing how the money you earn on your pay day will be spent.
The key is to make sure that all your expenses are built into your budget. Your expenses include fixed expenses such as mortgage or rent and insurance; variable expenses such as groceries and utilities and savings or investment. The budget should also include the date when each of your bills will be due.
When you start the practice of budgeting, you may find that it may take you a while before you get a handle on how much you should allocate to expenses such as groceries, entertainment, and others within the variable expenses category. The most effective way to tackle this challenge is to track your spending by documenting every purchase, whether it is by credit card or cash. Do this for four to eight weeks and you will have a fair idea of where your money goes to and how much you should realistically budget for each expense.
Once you have figured out a realistic budget for each expense, you can set this as a template and use it every pay day with only a bit of tweaking here and there as the situation may demand.
It is one thing to create a budget for your expenses but it is entirely another to be able to stick to it. Beyond coming up with a budget for how you will spend your money, you need to develop the discipline to stick to it exactly the way you outline it. Without this discipline, it is easy to fall back into the practice of spending on impulse or spending without monitoring how your money is going out. To help you maintain the discipline of sticking to your budget, you should always make your purchases from a list that is based on the budget you have drawn up. This way, you can easily track the outflow of your money. It will be difficult for you to go off budget and if you notice that you are violating your budget, it will be easier for you to rein yourself back in.
If after making a budget and sticking with it, you find that you still don’t have any money left at the end of the month, the next step would be to trim your expenditures. Take a look at your expenditures to be sure that you have not locked yourself into a lifestyle that is draining money from you unnecessarily. Take a hard look at the various categories of your expenses such as housing, transportation, groceries and entertainment and see if you are spending amounts that are outside a reasonable range for your level of income. For instance, if you find that you are spending more than 28% of your monthly gross income on housing, you might want to consider moving into a less expensive apartment or into a less expensive neighborhood.
If you have a luxury car that drains money from you, consider trading it in for a reliable, less expensive model. If you have a gym membership that cost $200 a month, look to see if you can downsize to a less expensive one. And if you are on a cable package that cost $150 a month, ask yourself if you really need it. If not, consider going for a package that costs less but will still allow you access to the important channels that will meet your needs. And if you have always relied on takeouts for your meal, you can save a whole lot if you cook your meals at home.
If you are living from paycheck to paycheck, chances are that you have credit card debt. To help you get your finances together, you need to avoid piling up more debt by suspending the use of your credit cards until you have paid off your debt.
Since paying your debt take a sizeable part of your income, getting out of debt will go a long way in helping you escape living from paycheck to paycheck.
If you build all your expenses into a budget and also include in the budget an amount you will set aside to cover emergency expenses, you will find that suspending the use of your credit cards wouldn’t be the end of the world. Even if a catastrophe strikes, you will dip into your emergency savings instead of relying on your credit cards to cover the emergency.
Another way to end the cycle of living from paycheck to paycheck is to bring home more money. Understandably, this can be easier said than done but it’s not entirely impossible. There are actually a number of options you can explore to generate additional income. If you have time to spare, you can take up a second job. Granted, your second job may not bring in so much money but it could help you generate additional income to pay off your debt or start saving up an emergency fund.
If you cannot take up a second job, consider offering your skills as a freelancer on online workplaces such as Upwork and Guru. And if you have any items in your closet that you no longer have any need of, bring them out and sell them off at eBay or Craigslist.