Nearly 74% of all employees are living paycheck-to-paycheck. It’s a common issue that most of us suffer through. We have just enough to cover our bills and food and then wait for the next paycheck. To make matters worse, 3 in every 10 adults don’t even have an emergency fund. Everyone seems to be living on the edge, just hoping they can make it to the next month.
You may be thinking, “If I had enough money, I’d never be in this situation.” Well unfortunately, 1 in 4 families making over $150,000 a year are also living paycheck-to-paycheck. It’s not necessarily an income problem, but more of a financial literacy problem.
I’ve also been in this situation for years. Living in New York on a crappy salary was getting me nowhere. To top it off, I would supplement my income with credit cards. I had no knowledge of what I was spending, what areas I needed to cut back on or even how I was getting myself out of this hole. I had no savings, a huge pile of debt and I turned a blind eye to my growing financial troubles.
We need to pay more attention to the money coming in and going back out. Having an awareness of your finances can help alleviate so many problems and help you get back on track with your life. Below are 7 steps to helping you to stop living paycheck-to-paycheck and get back on your path to financial freedom.
Acknowledge the Problem
The first step, and most likely the hardest, is to acknowledge the problem. You are living beyond your means and need help. Turning a blind eye to the situation like I did gets you nowhere. You need to take a hard look at the money coming into your account and all the expenses you handle each month.
Do you need to spend $12.99 on Netflix every month? Probably, but you don’t need the newest designer items, takeout every single night or hitting the bar every weekend. You need to understand the situation you are in is serious and needs attention.
Critical life changes need to happen to get you back on track so you’re no longer drowning in our own financial troubles.
Analyze Your Finances
Once you acknowledge your financial troubles, it’s time to analyze your finances. You should track every single penny being spent each month and write it down. Finance apps can help you track everything or just use Excel or Google Sheets. Anything will do when documenting your expenses.
By the end of your analysis, you should know how much you pay in the three main categories: housing, transportatio and food. Then categorize all the miscellaneous purchases as well, such as shopping, gym memberships, and anything in between. The more detailed you are the better.
Getting a clear idea of everything spent can get you to the next step of creating a budget.
Setting Goals
The next step is to take the breakdown of your monthly expenses and begin planning out the goals you want to achieve moving forward. Do you want to be debt-free in one year? Have 3 months worth of income in your emergency fund? Whatever your goal is, set a time limit to achieve it and move to the next.
With your goals set, add up what it will take each month to achieve those goals. It may be a tough pill to swallow, seeing a large number like that, but it’s the reality of your situation.
I’ll give you a few minutes to cry in the corner. Take your time. Feeling better? Good, now wipe the snot from your nose and let’s move on.
Education Yourself
You’ve got that scary number to achieve each month, but it could be much worse. In fact, I’m sure it’s something totally achievable with proper budgeting, cutting back and finding ways to make more money. But more on that later.
For now, we need to educate ourselves. You need to learn more about finances and understand how you got there and how to never come back. There are books like Dave Ramsey’s Total Money Makeup, which has really helped me when I first got started in working towards my own financial freedom.
Financial literacy is among the least known topics of education. It’s so important yet never taught in schools. So It’s up to you to educate yourself and help you understand how money works and best ways to budget to a better life. Or you can read this blog and get all that information. (hint hint)
Cut Back on Expenses
Now is the time to look at your monthly expenses, the goals you want to achieve and how much you’re bringing in. It’s time to cut back on your expenses. You can call yourself Freddy Krueger, because you’re going to mercilessly cut some of these expenses out of your life.
You need to look over everything and see what you don’t need to survive. Anything you can’t survive without cut it. Now loosen the reigns a bit and bring a few more things back in, such as Netflix. If you’re too strict, the odds of giving up and failing are high. Give yourself some leeway. Not much, but enough to keep you motivated. Below are my top 7 ways to save money:
1. Plan out weekly groceries and find the best deals with off-brand items and coupons
2. Take advantage of leftovers to save money on extra day of meals
3. Ask credit card companies to help with repayment plan. This could lead to smaller monthly payments
4. Trade in car for an older model with smaller car payments
5. Quit gym memberships, especially since they are closed during this Pandemic
6. Quit cable and only use Netflix and Hulu for your nightly TV shows
7. Make coffee at home. Don’t buy it every morning
Make Some Money
So you’re feeling a little better now. You’ve cut out a lot of useless expenses you were wasting money on. Your credit card companies were gracious enough to work out a repayment plan and cut down your monthly payments. It’s a good start and we’re still making moves.
It’s time to look for ways to expand on the income you’re bringing in. You may have been just breaking even before this. You may even be living well below your means now that you did some cutting of your expenses, but you can’t stop now. You want to reach true financial freedom. You don’t want to get by with just waiting for your next paycheck.
You have your 9 – 5 job where you go every weekday. It’s very rewarding work, or you could hate it. It pays the bills and helps you get by. Whatever it is, it’s income and helping you keep afloat.
But what do you do when you’re not at your job? Do you stay on your couch and watch TV? Studies have shown people are happier without televisions. Not going to lie, I love watching my TV shows at night. I’m not getting rid of mine, just wanted to throw that out there.
We have a lot of free time and most likely waste a lot of it. The morning before work or the hours after you get home are probably filled with relaxing or mindless activities. Weekends are filled with chores and any errands you couldn’t do throughout the week.
What if we took all the free time we were doing nothing and put it towards side gigs or hustles where we could make money? Finding ways to turn your hobby into a cash earner can be very rewarding. Even taking an extra shift at your 9-5 can be a game changer when trying to turn your finances around.
Get A Month Ahead
Now that you have set your goals, cut down your expenses and have even found some ways to make a little extra income, life is looking good. You’re ready to start tackling your goals and get back on track in life.
But there is one final step before you can tackle that debt or any other goal. If you want to avoid living paycheck-to-paycheck, use the extra income to build up an extra month of income. This way you are living a month ahead of your income. Any surprises or change in your plan can now be handled since you’re a month ahead.
This is something I do and it’s such a weight off my chest. Any planning I do, or income I expect to receive is now in regards to the next month. This is especially beneficial for those freelancers out there where income fluctuates month after month.
I hope these steps were helpful and you can put them to use!
