How to Stop Living Paycheck to Paycheck and Save Money

May 15, 2019

The struggle to stay afloat financially is all too real. According to a Harris Poll survey for employment website Careerbuilder, more than three-quarters of American workers are living paycheck to paycheck (a trait more common in women than men). Nearly 3 in 4 workers say they are in debt today, and nearly half don’t see their situation ever changing.

Living on a financial tightrope requires a lot more than good balance. For starters, there’s zero wiggle room in your wallet, so unanticipated expenses (like a trip to the emergency room) can mean you must sacrifice something else from an already tight budget. And saving for the future? That’s tough to do when the bulk of your paycheck goes to daily must-haves. Not to mention that the possibility of slipping into debt can take a serious toll on your mental health.

If you happen to have a temporary financial crisis, options like personal loans can tide you over until you’re back on your feet. But if scraping by paycheck to paycheck is how you’ve always done it, there are steps you can take to stop the cycle and start saving.

Diagnose the Problem

Uncovering the root of your personal financial situation usually starts with tracking your expenses.

Tracking your expenses for as little as two weeks can help you understand where your money is going (though you should aim for at least a month). Take note every time money comes in, cash leaves your hand, or you buy on credit. Once you have your log, examine it closely.

Are you simply not earning enough to cover your essential expenses? More than half of minimum wage earners aren’t able to support themselves without holding down a second job. Or could it be you’re overspending on non-essentials? Believe it or not, 9 percent of people with annual incomes of $100,000 consistently live paycheck to paycheck. And a surprising 60 percent of six-figure earners are actually in debt.

After pinning down the reason why you’re living paycheck to paycheck, it’s time to tackle the problem.

Trim the Fat

If you’re never sure where your money went to at the end of every month, the solution is becoming more mindful about your spending. This means starting with a simple budget to guide your spending choices and reduce your costs. Here are a few simple tips:

  • Eliminate pointless overspending. Paying too much for auto insurance, cable TV, or internet service? Get some new quotes and change providers if it makes sense.
  • Stop spending on services you don’t use (or really need). You’ve stopped watching that premium channel. You no longer read those monthly magazines. Are you still taking your car through the express wash every week? What about pet sitting, housecleaning or landscaping services? Evaluate everything, think about canceling the nice-to-haves and pocket the cash instead.
  • Swap out pricey goods for frugal alternatives. But instead of depriving yourself, get what you want for less. Ditch the theater and grab a movie for free at your local library. Skip the new Italian restaurant and enjoy pasta by candlelight at home. Bypass the designer stores and buy your new duds at a discount outlet or secondhand store.
  • Avoid places that tempt spending. Hanging out around the mall or browsing shopping sites for fun only leads to impulse buys, reducing what you can save.
  • Deal with debt. Buying now and paying later is an expensive way to live. Because, interest payments. Evaluate how much of your take-home pay is going to interest alone. Be sure you’re making at least the minimum payment on your credit cards (better yet, pay them down with a balance transfer loan). Once you cut costs using the methods above, put some of that money saved toward your debt to reduce costly interest payments even further.

> More: Want to slash spending even further? Check out The Simple Dollar’s list of 100 ways you can cut costs.

Get Creative to Earn More

The problem with your money might very well be that you’re simply not earning enough to cover the basics. Today’s job market includes options for working odd hours, accommodating limited skill sets, or money-making tasks you can do while the kids are in school. From running errands for your elderly neighbor to starting an online business, your options for making extra money are unlimited, as long you have the motivation and the time.

Trick Yourself Into Saving

True story: One-quarter of working Americans are not even putting $1 into savings each month.

If you’re among those who believe saving simply isn’t an option, start small—really small. Each pay period, set aside just 1 percent of your take-home pay. Get used to the adjustment. Then stretch yourself further. Save 2 percent of your income. Then shoot for 3 percent, and so on.

Mr. Money Mustache, acclaimed blogger and saver, famously lived on just one-third of his income before retiring at age 30. While it can be done, if setting aside the bulk of your income seems far-fetched, try harnessing the power of automation to take the sting out of saving in these other ways:

  • Build an emergency fund. Automatically transfer a set dollar amount (no matter how small) into a savings account each payday.
  • Create a “goal” savings account. Maybe it’s a new roof, a weekend getaway, or your child’s birthday. No matter how large or small your ambitions, set up small, recurring transfers that whisk money into separate accounts for specific goals.
  • Sign up for your company 401(k) plan. Saving for retirement doesn’t get easier than an automatic deduction from your paycheck. Plus, your employer may offer sweet incentives like free money from a company match.

With a few changes to your spending habits and some thoughtful planning, you can stop living paycheck to paycheck, get ahead of your money, and start saving for your future.

How much do you need?

$
Enter up to $40,000

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