Discovering how to stop living paycheck to paycheck will open up financial opportunities that you never thought were possible. Many people, especially those with debt, struggle with the reality of living paycheck to paycheck.
This leaves you with little to no savings to fall back on if that paycheck suddenly stops coming in. A paycheck comes in and you immediately have to use it to pay for expenses. Those expenses can vary from rent, mortgage, groceries, bills, etc.
It can feel like a never-ending cycle but I assure you that it is possible to break this cycle and save for your future! Living paycheck to paycheck with no savings is not a unique situation. Many Americans and people around the world face this dilemma. Follow the below tips to dig out of this seemingly never ending cycle!
- Create a Budget
- Pay More Towards your Debt
- Set Money Aside Each Month
- Find Areas to Cut Spending
- Passive Income Sources
Lets dive into each of these tips to see which of them you can implement today.
5 Tips on How to Stop Living Paycheck to Paycheck in 2021
1. Create a Budget
Creating a budget is the most important step on your journey to stop living paycheck to paycheck. I have some restraints to this step as well because it implies that people that are living paycheck to paycheck do not have a budget. For that reason, I want to make the distinction that this step is geared towards those who have not created a strict and smart budgeting plan. For those that currently do have that, please proceed to the next four tips.
When money is tight, you need to plan out where every dollar is going to be going. Once this is planned, it will make it a lot easier to find areas of improvement. For example, lets say you track your spending for one month to see exactly where your money is going. At the end of the month, you realize that those 2-3 Starbucks drinks a week ended up costing you $40 a month and $480 a year. That is a lot of money to be going towards something that cost 10 cents to make yourself.
Creating a budget and delegating where your money will be going to ensure there are no loose ends of miscellaneous expenses will allow you to save more, build an emergency fund, pay off your debt, etc. Building a budget is truly step 1 of getting out of the paycheck to paycheck cycle. There is no shortcut to them, make sure every dollar you make is accounted for in your budget. Although, please exclude work bonuses from your budget as those are not always guaranteed.
2. Pay More Towards your Debt
Those who do not know about compound interest, are often the victims of it. Simply paying the minimum each month towards your debt will not help you get out of the hole. The compound interest of your debt will keep you in that hole unless you allocate more money towards paying more than the minimum. This debt when combined with compound interest can be described as the Snowball Effect.
Stop Using Credit Cards
If you are low on cash, it can be tempting to just charge the purchase to your credit card. Or even get a new credit card! This has to be avoided. Compound interest increases with the more credit cards you take on without paying them off completely.
Spend only what you have with your debit card. Of course, some financial advisors will tell you that this is not how you build good credit. My response to them, failing to hit payment dates and constantly being in credit card debt is much worse to your credit than simply using a credit card for purchases. To avoid this issue, use your debit card or cash and sparingly use your credit card until you have a strong financial foundation.
3. Set Money Aside Each Month
Build your savings goals into your budget. I even suggest putting money in your savings account before paying off bills. If you allocate a certain amount each month, by the end of the year you should have a nice emergency fund. It is recommended to take 10-20% out of your paycheck to put towards your emergency fund. Obviously, for those living paycheck to paycheck, this does not seem feasible.
Going back to the budgeting tip, find areas in your budget that you can lessen and contribute that towards your savings account. Sacrifices will need to be made in order to build a solid savings foundation.
A good rule of thumb is to have 6 months of living expenses in your emergency funds but this will vary based on your risk tolerance. Once you achieve this emergency fund bench mark, you can allocate future amounts to paying off debt or investments. Paying off debt reduces the compound interest of what you owe, investing allows you to take advantage of compound interest and have your money grow over time with the market.
If you would like more money saving tips, check out my article on 5 Ways to Save Money on a Low Income
4. Find Areas to Cut Spending
Cutting spending will seem obvious as a means of saving money, although, I mean really cutting spending. In order to get out of the paycheck to paycheck cycle, significant spending adjustments will need to be made. Food often has a large area of spending improvement. When I tell people this, they often say “well fast food is unhealthy”. Yes fast food is cheap, but you do not need to eat fast food to save money.
Simple practices to cut spending on food/drink is not eating out at all, do not buy coffee or soft drinks, and to shop discounts at the grocery store. This means not buying name brand foods and constantly looking for the best unit price on the groceries you do buy. A good option is buying food in bulk so the unit price is cheaper.
Coffee costs 10 cents to make ourselves at home yet many pay $4 for a cup at Starbucks without batting an eye. Ordering from Uber Eats costs $14 for one meal, but a similar meal can be made for almost half that price at home. It is these little decisions that could save you hundreds at the end of the month. Those hundreds saved add up to thousands by the end of the year.
5. Passive Income Sources
A great way to stop living paycheck to paycheck is finding passive income sources. Passive income sources are consistent money, no matter how little, that you make without having to put too much work into. Yes this sounds very “oh if it is that easy then how come everyone does not do it”. Although, many people do not even have the drive to create and seek out these alternative methods of income. Most people think that their only source of income will always be their 9-5 job. So what are some passive income sources that you can start implementing today?
A quick note, none of the mentioned side hustles are get rich quick schemes. If any blogger or YouTuber tells you otherwise, then they are wrong. All side hustles take some form of effort and long term thinking to start generating money on a consistent basis. Speaking of, a great source of passive income can be a blog! Blogging has a 2000’s ring to it where people think that the era of blogging is over. This simply is not true, in fact there are more blogs being started today then there were back then.
The real reason blogs fail is that the owner does not think in the long term. If you create a blog, write about topics that have high search volume, continually do this for 1-2 years without giving up, then your blog will become a passive income source.
If you want to check out other passive income sources, check out my article on How to Make Money Online. This article will show you five of the ways I built passive income and was able to stop living paycheck to paycheck.
Thank you for reading how to stop living paycheck to paycheck. There are countless Americans living paycheck to paycheck, don’t make yourselves one of them and take control of your finances. The steps above are how I stopped living paycheck to paycheck and saved my first $1,000 in my first 6 months.