Money is a sensitive topic for all of us. How we manage it, however, makes a lot of difference. When we live paycheck to paycheck, we are constantly in stress how to make ends meet. If we don’t keep a track on our spending, money runs out before the end of the month and we are left with the sad feeling that we never have enough to cover all our bills and the things that we need or want to buy. By overspending each month, we run up into debt more and more.
How to stop living paycheck to paycheck?
Living like that, not only is almost impossible to get ahead financially, but we may not be able to handle even an emergency situation if it happens. I don’t have to explain to you all this if you’ve ever been (or are) in a similar situation. What I want to do, however, is to share with you some concrete steps from my own experience, which will hopefully help you to make a major financial change and start reaching your financial goals by taking control over your money.
Before you scroll down, though, I would like to make one thing clear. I am not a millionaire or a financial coach and I still face financial difficulties, which I am trying to deal with, but I’ve learned how to optimize my finances and live with what I make without getting into debt. And in this post, I will tell you exactly how I make it work.
For a good couple of years, I had to go through tough financial times. I was stuck with making the ends meet, not paying some of my bills on time, and always behind on every payday. It took me some good amount of time to realize that this situation I was in, was due to my own choices and financial habits and that it was possible to change it with some concrete steps.
Thanks to that, today, things have gotten better, although I’m still gradually working my way towards financial stability. So far, I have learned how to create my monthly budget and stick to it, pay my bills on time, reduce my unnecessary spending, and even plan ahead. If you would like to do the same and stop living paycheck to paycheck, it might be useful to you to take a look at my suggestions below.
First things first – revise your loans, spending, and costs.
Do you know how much you spend a day and what for? You don’t need anything much than a piece of paper and a pen to figure that out. Write down all of your constant monthly expenses first. Here comes the rent, the monthly deposits for loans, gas for the car, the water, electricity, internet, TV, mobile bills and any other monthly subscriptions like monthly gym card, public transport card, any classes that you go to, etc.
Then, add up the total amount of your average monthly food expenses – coffee, eating out, lunch at work/school, dinner, etc. Write down also the total cost for your monthly toiletries like cosmetics, shampoo, shaving cream, shower gel, washing powder, deodorants, etc. (for some people this amount can really be significant), as well as general home supplies like water filters, cleaning supplies, etc. Write down every other expense, which you do every month repeatedly.
This exercise is to help you review where your money goes and what are the regular monthly expenses that you must cover in order to make the ends meet.
Reduce unnecessary costs
Once you have some general idea of the costs in each of these sections, try to see what you can save up from and how to optimize in such a way, that you don’t exceed your monthly income. If after you’ve revised your spending and the total amount of your current monthly costs is more than what you make, you definitely need to reduce the costs wherever possible.
For instance, what I’ve done is, I’ve realized I hardly switch the TV on and decided to totally ditch that cost. Additionally, I asked my Internet and mobile provider for better plans, and that alone has been saving me some good amounts over the year.
Just ask yourself, do you really need to pay 40 bucks every month for unlimited phone calls and mobile data when you actually speak less than 500 minutes in total and can catch free Wi-Fi almost everywhere nowadays? Or, can you save up those fifty bucks for the gym and go running in the park instead?
Seriously, optimize and rationalize! Don’t pay for what you don’t make good use of. You will be amazed at how much you will be able to save up just from those little things, and they are real devils.
Why is it happening?
If you still have a huge financial gap between your spending and your income, you will need to reach to the root of the problem. That root, in fact, is probably very simple. You either are spending more than you earn and living above your means or you simply aren’t making enough money to meet your normal costs.
In both cases, it may be time to consider making some lifestyle changes. My suggestion is to start by making a list of necessary and optional expenses and see what you can cut down on. In case that your spending is already very low and there is nothing you could save on, then you may need to think about building more income.
Unfortunately, we live in times of low wages and high costs of living, that’s why an additional stream will make a difference even if it is a side job or some hobby that you could figure out how to monetize from. No one promises that it will be easy, but it will be well worth.
Keep a track on your spending
Tracking all of your spending on a daily basis is a typical recommendation from many financial advisors and blogs, and this is pretty good advice. However, since I’ve been there myself I know that keeping track of daily spending can be difficult.
You can try to use an app to help you with the process or create a special monthly budget planner for that. When you know how much you spend a day and what for, you will be able to analyze much better your finances and to optimize your spending accordingly. But if, for whatever reason, you don’t, still don’t let this stop you from taking control of your finances.
Stop getting into more debt.
Another very important thing I highly recommend you in order to stop living paycheck to paycheck is to stop getting into more debt. Don’t use your credit cards and stop taking loans from family, friends, banks, etc. Optimize and rationalize your spending instead and do your best to live the month with the amount you make.
Get yourself a moneybox and start putting something in it.
The next smart step after you manage to successfully live through the month with your paycheck is to start putting some small amount of money in savings. Start small. Get yourself a moneybox if you wish or create a savings account and regularly deposit a certain amount of money in it with every paycheck. Better do it on the payday itself or make it an automatic deposit. Password Safe Cash Box
Having some savings is very important and can really save you in emergency situations, like a car repair or a health emergency, so start putting some money aside the moment you manage to shrink back into your paycheck. Think of what extras you can cut on (for instance cigarettes, coffee, eating out, snacks, clothes, magazines, clubbing, etc.) and add the money you would normally spend on those to the emergency fund.
How to get out of debt?
♦Create a “getting out of debt” plan.
If you haven’t heard about the debt snowball, this is a simple system, which helps you to clear out your debts one by one. It works like this – you basically list all your debts from the smallest at the top of the list to the largest at the bottom. Then, start putting as much as you can into the smallest debt until you clear it out. Next, move to the next largest debt and put in it the maximum amount that you were putting in the previous debt. Repeat the scheme with the next debt until you pay off everything. Then, celebrate! This is a simple strategy which is very rewarding.
Make a budget.
A “budget” is a dreaded word but it is exactly what you need to stop living paycheck to paycheck and get control over your finances. What I do is, I use a spreadsheet to list the following:
- all my regular monthly expenses (rent, loans, utilities, internet, etc.) and their amounts.
- my variable expenses (groceries, gas, eating out, clubbing, etc.).
- my irregular expenses (things like home maintenance, medical, taxes, insurance, clothes, repairs, holidays, birthdays, generally things that might not come up every month).
What I have found out works for me is to break them into estimated monthly expenses in order not to weight down my budget when they come. For instance, if I plan to go on a vacation, I break the estimated total amount into smaller deposits, which I set aside in my monthly budget.
Then, I pull the line and match those calculations up against my income. Ideally, the expenses should be less. If not, go back to the first step and see what can be optimized in terms of costs to meet the monthly paycheck.
Automate your savings and your bills.
Financial specialists advise using automatic deduction for your deposits and your bills in order to make regular automatic payments. This is good advice that can help you take care of both your savings and your regular monthly bills and I find it very useful for managing the monthly budget. You can basically set that through your online banking.
Plan ahead for your irregular and “unexpected” expenses.
Having some savings (or Emergency Fund) for irregular and unexpected expenses like maintenance, repairs, medical, holidays, gifts, etc. is the key to smooth finances is a deal breaker. Otherwise, when such expenses come, they may hit your budget badly and get you back from where you started.
That’s why, I highly recommend you to list your irregular expenses out, calculate your estimated annual spending, and start saving for them each month. When the expenses come, simply use the dedicated savings money for them. This really works so well for me.
How to deal with fluctuating bills?
♦Use the pocked method for variable expenses.
Another smart and simple thing that I recommend and use myself is, I set aside the monthly amounts for my variable expenses (groceries, eating out, clubbing, etc.) in different pockets. You can get a wallet with many dividers and put the amounts in different sections. This helps you a lot to easily track how much from the budget you’ve spent on each of those expenses and how much is left till the next paycheck. This also helps not to overspend on these variable expenses and stick to the monthly budget amount.
Think about your bigger goals, and start planning for them.
Once you’ve gotten beyond the steps above and you are in control of your finances and your monthly budget, start thinking about what do you want in life. How often do you want to go on holiday? Where do you want to spend Christmas? Maybe you want to buy a new car soon? Or you need to do a planned home repair? Or buy a home?
Making plans can give you a good “why” reason to keep up with your financial discipline and to reach your life goals. So, give yourself some time to brainstorm on all that you want to achieve and this will give you even more motivation to stick to your budget.
Learn about investing.
Nowadays, there is a whole world of personal finance options you can choose from and if you are new to the idea of investing, I suggest you start with some simple googling. Don’t be scared to explore and to understand better how the money flows and how money can make you money over time.
Some more tips to break your mind blocks about money and budgeting.
♦Pretend you earn less than what you actually make.
I know that this is easier said than done, but I can tell you from experience that simply committing to live on less than you actually earn is the first and the most important step for me toward breaking the paycheck to paycheck cycle.
If you revise your spending and put your mind to spend less than your net income, you will soon have “a budget surplus” that comes with a really sweet feeling. And there is no need to say that once you start having money left at the end of every pay cycle, this will give you a surprising amount of peace of mind.
So, try to make a shift in your mind to live slightly below your means (start small, maybe with just 10 percent of your paycheck) and see how much you can benefit from it.
♦Identify your bad money habits
Do you go shopping without a list? Do you spend out of disorganization and laziness? Using an app or a planner to help you with grocery and meal planning will literally save you THOUSANDS over the course of a year. If you don’t know how much you should be spending on certain things, then you probably aren’t budgeting and need to get yourself a budget app.
Do you allow yourself to be sucked in by different sales, coupons, and deals and do you buy things that you don’t need because of them? Do you spend based on emotions and tend to buy overpriced items because of that? I think I just gave you a lot of food for thought here.
♦Cultivate good money habits.
The basics here is to know how much money you have coming in and going out (again the budget plan). It also helps a lot to pause before a purchase. So many times I’ve discovered I don’t actually need something that much that I thought, and more often than not, when I give myself some time, I don’t make the purchase. On the rare occasion I DO go back and buy it, I KNOW it’s something I really need and love.
Another tip – don’t buy things that you don’t have the money to buy. This is a sure way to getting into debt and would eventually give you more stress than pleasure. Make saving a priority in your mind, or as they say, pay yourself first and once you have a solid amount of savings behind your back, you will be able to make bigger planned purchases. And, of course, find opportunities to make extra money, be it from a side job, a hobby, or a better paying position.
Be patient and choose someone to help you and support you or feel free to join the Learn.Inspire.Share.Thrive. community for more productivity and self-improvement tips.
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