How to Stop Living Paycheck to Paycheck and Save Money
The struggle to stay afloat financially is real. According to a report by employment website CareerBuilder, more than three-quarters of American workers are living paycheck to paycheck. More women, 81 percent, report living this way is the norm, compared with 75 percent of men.
Living on a financial tightrope requires a lot more than good balance. For starters, there is usually zero wiggle room in your wallet. So, unanticipated expenses (like a trip to the ER) can mean you have to sacrifice something else from your already tight budget. And saving for the future? It’s tough to do when the bulk of your paycheck goes to daily necessities. Not to mention, the possibility of slipping into serious debt can take a 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, are you overspending on non-essentials? Believe it or not, 9 percent of workers making $100,000 consistently live paycheck to paycheck. And sixty percent of six-figure earners are actually in debt.
After you’ve pinned down the reason why you’re living paycheck to paycheck, it’s time to tackle the problem.
Trim the Fat
Ever wondered where your money went at the end of the month? The solution to this is mindful spending. And that 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 insurance? Get some new quotes and change providers if it makes sense. Shelling out on high interest? Negotiate lower credit card rates or look into a debt consolidation loan.
- Stop spending on services you don’t use. You’ve stopped reading that monthly magazine. You never watch that premium channel. Could you be hosing down the car in your driveway instead of taking it through that fancy express wash every week? Cancel those perks and pocket the cash instead.
- Swap out pricey goods for frugal alternatives. Instead of depriving yourself, get what you want for less. Ditch the theater and grab a movie for free at your 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 surfing shopping sites “just for fun” leads to impulse buys and reduces the amount you can save.
- Deal with debt. Buying now and paying later is an expensive way to live. How much of your take-home pay is going to interest alone? Always make sure you’re paying at least your minimum payments. Once you cut costs using the methods above, pay extra toward your debt to reduce costly interest payments.
> 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 don’t earn 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: A quarter of working Americans aren’t saving even one dollar 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. Are you still able to survive? (Do you even notice it’s gone?)
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. But if setting aside the bulk of your income is not realistic, harness 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.
Ready to stop living paycheck to paycheck? With a few changes to your spending habits and some thoughtful planning, you can get ahead of your money and finally start saving for your future.