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This post is all about how to stop living paycheck to paycheck.
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What does the reality look like for people living paycheck to paycheck?
For a lot of individuals, living paycheck to paycheck is an unfortunate reality in North America.
A recent survey from the BNNBloomberg.ca suggests, that a whopping 47% of Canadians are living paycheck to paycheck
Sadly, the situation in the United States is not much different.
These people have little savings (if any at all), spend on average more than they make in a month, and also have to combat huge amounts of debt.
As a matter of fact, recently I read in the News that the majority of Canadians would not be able to cover a $400 dollar emergency if they had one.
If you find yourself living paycheck to paycheck, scrambling to pay for bills and always trying to catch up, please know there is a way out.
Anyone can stop living paycheck to paycheck if they put their mind to it, become disciplined and take action.
What is living paycheck to paycheck?
The phrase “living paycheck to paycheck”, is used to describe a situation in which an individual tries to pay with the paycheck usually for last month’s expenses trying to combat credit and staying afloat in a current month, just barely though. Best case scenario, an individual living paycheck to paycheck balances out each month with zero. It’s a lifestyle where you barely have any extra money left at the end of the month.
If an individual lives paycheck to paycheck, they often do not have any savings, and any attempt to save money isn’t possible because of a lifestyle where you’re always spending more than you make. Living paycheck to paycheck can quickly lead to falling behind on obligations (ie. not being able to pay the bills).
In addition, no money is available (from savings) to pay for things when emergencies or surprises erupt.
Living paycheck to paycheck is a type of lifestyle which puts a lot of mental and physical stress on oneself. Due to the fact of not being able to allocate money earned through income towards savings, this scarcity lifestyle can have a toll on one’s overall well-being.
It often feels as though you do not have enough or sometimes worse, anything.
Why are people living paycheck to paycheck?
There are many reasons why people live paycheck to paycheck.
As a matter of fact, it can even be said, that the majority of individuals living in North America have little choice but to live paycheck to paycheck.
Of course many financial gurus and financial experts would tend to disagree.
People who live paycheck to paycheck usually though have one thing in common: they don’t have a budget or even know what a budget is. They lack the ability to budget their income and live below their means.
You might have had emergencies in the past and continue to pay off debt but also continue to add more to your debt each month as you are falling behind. Sometimes emergencies that you never had the money for can put you in a situation where you are bound to pay with credit or take up a loan. Of course this situation is horrible and a cycle that rarely can be broken.
If you don’t know how to create a budget, overspending and living paycheck to paycheck are a simple result of not having a plan for your money.
How to stop living paycheck to paycheck?
First and foremost, you’ve got to realize that living paycheck to paycheck is a problem. You need to become so fed up with the situation that you are determined to stop living this lifestyle. You need to realize that financial freedom is possible and that the cycle of living paycheck to paycheck can be broken.
There are easy steps how you can stop living paycheck to paycheck today.
1. You need to SEE your numbers
When you see your numbers on your bank account and credit card statements you can start making a plan to change your habits. You can analyze where you spent most of your money and then make a sound decision how to gauge that. So your first step is having a good luck at your situation, face your fears (bank account!) and start with the current situation in order to know where you’re starting out.
2. You need to have a WHY
You need to have a purpose “why” you want to stop living paycheck to paycheck. Is it that you cannot afford an ice cream for your child? Or because you cannot enjoy your life because you are constantly thinking of how to pay off the next bill or loan payment that’s coming up. Are you doing it for yourself? Your family? Your son? The next step is to write down your WHY in order to remind yourself why and constantly how to stop living paycheck to paycheck.
3. You need to create a budget
It’s really simple. You need to know what’s coming in dollar wise and what you have to spend your money on. When you want to stop living paycheck to paycheck you need to pretend that you earn much less. What you really should focus on is the primary things, like shelter (rent or mortgage), food, transportation, electricity, phone bill. These are the most important expenses. You depend on them. You need them. Yes, these are needs.
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Read: How to create a budget
4. Build a starter emergency fund and pretend you earn much less
Pretending you earn much less will help you save. All that money that you are not going to spend will automatically go to savings. You can decide for yourself what kind of savings (i.e. Rainy Day Fund or Emergency Fund). Whatever you call this savings account, the money that you pretend your didn’t have, goes in here. BEFORE you get to spend it. You pay yourself first.
5. Always stay current on bills
Even though money might be tight, make sure you continue to stay current on all bills, every month. Add these expenses to your budget so you know how much you need to take from your income. Don’t fall behind a bill because that means you’ll be adding to what you owe.
6. Pay down debt
Continue to pay down debt. Prioritize to pay off debt in an order such as tackling toxic credit card debt first, then loans, lastly go intense on your mortgage. There are two methods you can use to pay off credit cards, the avalanche method or debt snowball. Pay off your credit cards and loans according to highest interest or smallest amount to largest. Whichever way you choose, do it consistently.
7. Consider cutting out more expenses
You’ve already created your budget and probably have analyzed your expenses. Now you go back in with a microscope. Any items that can be cut should be cut until you can really afford to add these items back to your budget. Items like gym, TV subscriptions, coffee, take out, getting your nails or hair done, etc. These items can really add up and when you cut them out, you can see how much more money you get to keep. Try to do your own coffee at home or your nails. Once you are past living paycheck to paycheck and you’ve created more financial harmony, you can add these back into your budget. But you’d be amazed at how much you get to save.
8. Increase your income Consider adding other income streams
Another means of answering how to stop living paycheck to paycheck, is to consider adding other income streams to your day job. Maybe your job now just isn’t enough. Maybe you need to take on extra work to get out of the situation faster. This sure does mean you have to sacrifice but you know it will be worth it in the end. Maybe you can start a blog? Or become a dog walker in your neighborhood. Anything you can think of to pick up more hours is always good. Because really after you’ve cut out all the expenses to the bare minimum, you really are only left with increasing your income. It’s just those two options.
How much money do I need to stop living paycheck to paycheck?
If you follow the steps above, you will likely notice that you will have more money to break out of the paycheck to paycheck cycle.
The question isn’t really how much money you need because as we know, every siuation is different. However, a general guideline is to start with an Emergency Starter Fund.
Dave Ramsey suggests to start with $1000.00 but sometimes $1000.00 is too much. So you can start with $500.00 and build it up slowly every month.
When you know have your budget in place and know how much is coming in and how much is going out, you will see that from what you have left over you can put small amounts towards your savings. You can start small and eventually aim to put at least 10%-20% towards savings every month.
What are the benefits of living paycheck to paycheck?
The benefits are immense. You will feel less stressed, have a bigger financial buffer to pay for unexpected accidents or things that come up. You will feel more in control of your finances. Your chances of falling behind financially are lessened as you are building savings to help you out when things get tough. You will create better financial harmony for yourself and be able to decide between what is a want and need. Once you’ve broken the cycle of living paycheck to paycheck, the sooner and faster you are moving towards financial security.
Final Note
If you figure out a budget for yourself, stop living above your means and spending money on things you don’t need you will have the freedom to build up savings. Whether it’s an emergency fund to start out with worth $500 dollars or a $1000 dollars, knowing that you have that buffer will make life easier when things come up that you didn’t anticipate. You won’t have to rely on credit which will allow you to stop accumulating debt. Breaking the cycle of living paycheck to paycheck is worth the sacrifice because you will create financial harmony and a good relationship with your hard earned money.
This post is all about how to stop living paycheck to paycheck.
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