How to Stop Living Paycheck to Paycheck
A recent CNBC report said that close to 75% of people are living paycheck to paycheck. If the average person were to miss one paycheck, they would be scrambling to pay their bills.
People frequently ask me, how can I invest if I am living paycheck to paycheck? …It’s hard to do this. The first step should always be figuring out how you can break the paycheck to paycheck cycle.
Here is a quick “How-To Guide” on ending the paycheck to paycheck cycle.
1.Figure out where your money is going
It doesn’t just disappear...
You want to start by taking inventory of what you spend all your money on.
Simply put, how much money did you spend last month? Look at your bank account and/or credit card statements and compile all of your expenses from last month (groceries, phone bills, internet, pets, insurance etc). This will allow you to take inventory of your spending and start with a clean slate.
After compiling your expenses, figure out how much income you brought in last month. If you make a salary, I would look at the total of 2 typical paychecks. Or, if you make commission, look at the average income of the last 12 months. I have been in both scenarios of salary and commission, so it can be done.
Once you have taken a full inventory of where you are currently with income and expenses, then you can move on to the next step.
2.Create a budget
Now that you know where you stand, you can start being deliberate about your expenses. What I would recommend you do with your budget is first, take all your expenses from last month (Step 1) and plug them into the budget. If you spent $400 on groceries last month put $100 a week in the budget for groceries. Do this for all your expenses.
Next, since you figured out your income, put that in the top left of your budget sheet.
Now the best part.
Once you have input all of your weekly and monthly expenses, you can start to play with the numbers. If you spent $100 a week on groceries, but you could realistically spend $75 a week, change it in the budget. If you spent $200 a week eating out, but you could probably lower that to $100, change it. You get the point, play with the numbers and see if there is an opportunity to lower your expenses, so you can stop living paycheck to paycheck.
What I found personally is if I give myself more I will spend more, but if I decrease even for a trial run I have found I can live within the lower limit. It is better to start small and then adjust as needed.
This information will reveal to you one of 2 things, which will help you move to the next step of breaking the paycheck to pay check cycle:
3.Figure out which issue you have because I guarantee, you have 1 of the 2
First issue: Income problem – You do not make enough money to support the life style you want to live.
Second issue: Expense problem – Your expenses are higher than your income comfortably allows
Now you have a decision to make.
You can either lower your expenses, get a second source of income, or both. When I was faced with this decision, I decided to lower my expenses to $500 a month so I could pay off my debt fast. I did not get a second source of income. Everyone is different though, if you have a family to support you obviously can’t lower your expenses to close to nothing, so a different solution is needed.
If you get more income you have more money to save or pay off debt now. If you lower your expenses you have the same options.
Personally, I think the final step is the most important and will be the most telling to your success or failure.
4.Don’t Make Excuses
Excuses irritate me the most, because we are so much better than we think and we place limits on ourselves or tell our brains things that are absolutely false. What if you always thought the positive? What if you believed in your own abilities and thought you could do this?
Obviously everyone has different circumstances in their life. However, if you want to stop living paycheck to paycheck YOU are the only one who can make the changes needed to break the cycle. There is no magic pill or get rich quick scheme that is going to fix it, it all starts with your behaviors.
Also, it doesn’t happen overnight. It took me 5 years to get to the point where I was finally debt free, really starting to live the life I want and investing in passive income streams.
As I mentioned at the beginning of this post, 3 out of 4 people live paycheck to paycheck, so majority of people are facing this situation and you are not alone. I started this blog to help YOU get motivated to break that cycle, I know what it feels like to live like that and it’s not fun. Sleepless nights, worry, and the feeling of being a slave to your situation. You can change that!