Living paycheck to paycheck is a financial time bomb waiting to happen.
What if that next paycheck doesn’t come? What if there’s another world pandemic that forces everyone indoors again just like Covid-19? I mean, I can’t even begin to imagine the kind of life those who were living paycheck to paycheck pre-pandemic period are living right now. Surely they must have accumulated huge amounts of debt already and that’s if they even had good credit history to begin with.
WHAT IS CONSIDERED LIVING PAYCHECK TO PAYCHECK?
If you live from paycheck to paycheck, it means you are using all of your monthly income to foot your monthly expenses leaving no money left as savings.
Generally, when your monthly expenses is higher than or equates your monthly earnings, then you are considered as living paycheck to paycheck.
People living this way hardly have any money to save and would incur significant financial stress if they do not receive the next paycheck.
When you live paycheck to paycheck, it will take a miracle for you to get ahead financially and when you are faced with unprecedented emergencies, like the present coronavirus pandemic, a sudden illness or even a layoff, you will find yourself struggling to get by. Hence, accumulating more debt becomes the next viable option.
5 WAYS TO STOP LIVING PAYCHECK TO PAYCHECK
Start living according to your means
Let’s take a moment to consider this example – Steve’s monthly paycheck is $3500 and his expenses are as follows:
- Groceries: $350
- Car payment: $650
- Rent: $1500
- Utilities: $80
- Credit card payment: $400
- Student loan payment: $455
- Gas: $100
- Cellphone: $80
- Total expenses: $3615
Looking at this example, not only is Steve’s monthly expenses higher than his monthly earnings, but he also would need loans to sustain them.
This is a typical example of living above your means and it is a disaster waiting to happen to your finances. If Steve suddenly gets fired, or has an unprecedented emergency, he would have little to no backup to fall back on.
The way forward with this is to start living according to your means. Tell yourself the truth about your financial status. Also, identify and weed out those lifestyle that are eating deep into your finances.
Have another source of income
You’re probably living paycheck to paycheck because your income is just not enough. If you’re depending too heavily on one source of income to solve all your financial problems, then it might just not be enough. Having just one source of income is like putting all your eggs in one basket; something might go terribly wrong one day.
If you have cut unnecessary expenses from your budget, and your income is still not enough to sustain you, then you know you really should get a side hustle (and FAST).
While soliciting for promotions and salary increases at your main job is a good way to improve income, getting a side hustle will go a long way in helping you earn more. More money generally means you will have more to save.
If you have not started already, you have dilly-dallied too much. Want to know exactly how your entire paycheck went? Start doing a budget. Most people run into financial crisis because they have no plans that guides their expenses. They just spend money without direction.
Having a good budget plan and sticking with it will help you keep track of every dollar you spend and how you spent it, so that at the end of every month, you’ll not be at a loss for words on how all the money disappeared.
Budgeting simply means that you’re making sure every dollar in your bank account is given a job to do. It will give you the power to decide where every dollar will go for the month, including your savings.
Learning to budget effectively will help you take control of your finances and keep you from living paycheck to paycheck.
Automate your savings
According to Investopedia, “An automatic savings plan is a type of personal savings system in which the plan contributor automatically deposits a fixed amount of funds at specified intervals into their account.”
What this simply means is that, every time you receive a paycheck from your employer, the designated amount (say, 10% or 15%), is automatically transferred to the savings account you specified.
Putting your savings on autopilot takes the guesswork out of saving each month. You would only have to handle the initial set up and then it will be hands off for the rest of the way. Automating your savings will ensure you have funds saved up at all times.
Cut back on your spending
If you really want to stop living paycheck to paycheck, cutting back on unnecessary spending will go a long way to help you achieve this.
Also, you really should curb the habit of impulse buying by identifying and differentiating between your wants and needs.
In addition to this, you have to find a way to save on every category of your expenses; from food to nightlife to vacations. Just weed out those things you don’t need and for those that are necessary, you need to find a way to spend less on them. These extra savings will add up quickly and will help your finances in the long run.