How to Stop Living Paycheck to Paycheck
Are you stuck in the all-too-common habit of living paycheck to paycheck? You don’t need me to tell you that’s a self-defeating cycle. You simply can’t get ahead that way.
But escaping isn’t easy, especially if your paycheck is tight. Change involves not just the hard work of making a new habit, but also changing your ways of thinking.
And yet people do make this leap. They pay off huge debts, reach ambitious savings goals and turn their financial lives around.
If you intend to be one of them, read on for an eight-point road map.
1. Know where your money goes
Some people swear by budgeting. Others are happier just tracking their expenses. Whichever you prefer, make sure you can see where your hard-earned money is going, right down to the last nickel. Keeping a careful eye on your spending is critical to getting a grip on overspending.
Don’t worry: Budgeting and expense tracking need not be painful. A program like YNAB (short for “You Need a Budget”) will walk you through starting a budget or an expense log and automate much of the process after that.
It can also pay for itself: According to YNAB, new users save $600 by their second month of using the program and $6,000 by the end of their first year, on average. To learn more, check out “How to Automatically Track Your Spending and Goals.”
2. Make saving painless
What are your dreams? Whether they include a comfortable retirement, launching a business, putting kids through college or buying a new home, you’ll need to translate those dreams into savings goals to make them a reality.
Setting concrete goals also helps motivate you, making saving easier. After naming your savings goals, set up automatic withdrawals from your paycheck to a high-yield savings account or retirement account so you’ll never see the money or miss it. You can find a great high-yield savings account in our Solutions Center.
Keep increasing the percentage of your paycheck that you save. When you get a bonus or a gift of cash, divert at least a fat chunk of that into savings, too.
3. Live on less than you earn
Well, duh, you say. But it’s not as obvious as it seems. When you spend less than you earn, you can save. If you spend everything you’ve got, you can’t save. And with no savings, it is nearly impossible to get ahead.
The solution is simple, but it’s not easy. Stop spending money you don’t have.
Again, a program like YNAB makes this easier. It can automatically generate a variety of reports — including an income-versus-expenses report — which can tell you in real time whether your income for the month is currently greater or less than the expenses you’ve racked up in the same month.
4. Get comfortable saying ‘no’ to the kids
If you are giving in to your kids’ every request and demand, you are doing worse than just emptying your bank account and making it impossible to get ahead: You are teaching them it’s OK to overspend.
Turn things around by setting a household budget that sets realistic limits for spending and then sticking to the limits you’ve set. You’ll help your savings and teach them a valuable lesson.
5. Cut your housing costs
Decisions about housing are super difficult. Traditionally, consumer experts have advised keeping the cost of housing at or below 30% of household income.
Today, though, many Americans are spending more, and housing costs keep growing.
High housing costs are a budget-buster because housing is typically a household’s biggest expense. The lower your income, the worse the problem is since housing consumes such a big chunk of your income.
You may need a radical lifestyle change to solve this problem. Take a clear-eyed look at your options, even though you may not like them: Move out of your neighborhood, out of town, out of state or in with relatives, or share lodging with others.
6. Drive a used car
Buying a new car is like throwing money into a rat hole. Unless you have money to burn, it is one of the worst financial moves possible. The average midsize sedan loses thousands of dollars in value in its first year alone, according to Edmunds.
Thus, buying a 2-year-old vehicle is a much better deal than buying new.
7. Learn to cook
It’s always been cheaper and healthier to cook at home than to eat out constantly. Unsure how to get started cooking at home? You’ll find lots of guidance and tips on the internet:
- “25 Ways to Spend Less on Food“
- “6 Ways to Make Cheap Foods Taste Delicious“
- “This Homemade Meal Is Cheap, Healthful and Requires No Cooking“
8. Forge an independent spirit
Some people save money easily and intuitively. Others must come to it through struggle. If you’re in the latter camp, becoming independent from the habits and opinions of your friends and family is crucial.
You’ll need to stop trying — consciously or unconsciously — to keep up with the lifestyles of others, especially the spending habits, trends and consumption among celebrities and in the media.
When the pressure is on you to spend, it takes a strong individual to buck the current. You must listen only to your own drummer. Keeping up with the homes, cars, fashion, vacations, sports equipment or even makeup choices of others will sink your financial ship as reliably as if you had a gambling habit.