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Are you tired of living paycheck to paycheck and not saving money at the end of each month?
Wondering how it’s possible for you to stop living paycheck to paycheck fast?
Not enjoying life as much because you’re always thinking about whether your next check will come in time to cover for rent and other expenses?
My friend, don’t feel bad because you’re not the only one who is seeking financial help. In other words, you are not alone.
Fortunately, we are going to cover the habits of people who never live paycheck to paycheck and help you reach financial success!
First, let’s look at some stats.
According to Forbes, there are a few facts about how many Americans are living paycheck to paycheck:
- Almost 8 in 10 (78%) American workers are living paycheck to paycheck.
- Nearly one in 10 workers earning $100,000+ in annual salary lives paycheck to paycheck.
- More than 50% of minimum wage workers said they had to work more than one job to make ends meet.
Based on those numbers, it’s no wonder why 65% of Americans are saving little to nothing.
Now, before we talk about how you can escape this financial disaster and start building a savings fund, let’s define what “living paycheck to paycheck” really means.
What is considered living paycheck to paycheck?
Living paycheck to paycheck occurs when you are spending most of your income to cover for your basic monthly expenses like rent, utilities, food, insurance, and other important bills.
In some instances, you may not have enough money from your income so you turn to debt options to finance the remaining expenses to survive.
This leaves most people with no money in savings for an emergency fund or retirement plan.
If any of this sounds like you, don’t worry because as mentioned earlier, you’re not alone.
Most Americans struggle financially and it’s not uncommon to hear this. But you don’t want to be that average American who lives that kind of lifestyle.
So here’s how you can stop living paycheck to paycheck and start living your financial dreams!
Just remember that any step you take to save money no matter how big or small is an awesome start!
1. Know what you’re spending your money on
The first and most important step to escaping the paycheck to paycheck cycle is understanding where your money problem is coming from. This usually starts off by knowing what you’re spending your money on.
It could be your spending habits or your upgrade in lifestyle that’s preventing you from saving money for an emergency fund or retirement.
I recommend checking out this list of things that may be causing you to be broke with no money left at the end of each month. Some of these findings may actually shock you!
Take the time to evaluate your spending behavior and see what you cut back on without impacting your desired lifestyle.
2. Find resourceful ways to save money
Once you understand your spending habits and know exactly where your money is going, then it’s time to find ways to save money.
Saving money can be achieved with two approaches. Firstly, you could cut any mindless and unnecessary spending. Secondly, take the time to look for better deals on things that actually add value.
For example, it’s possible that you’re still unknowingly paying for monthly subscriptions to services you’re not using.
On top of that, you could be excessively spending money on items like clothes, shoes, gadgets, and other material goods on Amazon that you end up not using. Cutting these expenses would make the most sense.
It’s also possible that your cable, cellphone and Internet service providers are charging you a higher price than they should. In this case, doing a little bit of research and shopping for better deals can help you save money each month.
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3. Automate your savings
Saving money is not always easy and it can become a daunting task for most of us.
We barely have time to cook meals at home let alone find room for savings!
For those of you who find it hard to budget and track what you’re spending, consider automating your savings on autopilot.
One of the first steps and easiest ways to automating your savings plan is to take advantage of any employer matches in your retirement contribution.
How much money should be saved from each paycheck?
According to financial experts, it is recommended to save 10% to 15% of your pre-tax income for retirement. Fortunately, this number already includes the employer matching plan.
This is a good place to start but keep in mind that this number is only general advice. You can adjust your savings rate depending on your financial situation and your future plans.
Of course, the more you can save without having to scrimp on your current lifestyle, the better.
Aside from retirement, savings for your other life purposes like a wedding, house down payment, vacation, Christmas fund, etc. can also be automated by creating multiple “sub-savings” accounts as long as your bank has the feature.
Next, come up with realistic goals that will allow you to hit your desired target for each desired sub-savings account.
By automating your savings with a realistic plan, you won’t have to rely on manual tracking or a budgeting system that makes you go nuts.
4. Make extra money and bank it
If you’ve already done the best you could with your savings plan, but money is still tight, then consider these creative ways to make extra money on the side to supplement income. I recommend you to check out the 21 different ways you could make $100 in extra money every day!
Alternatively, you could also find ways to negotiate your salary so you can increase your income and earn more.
Just make the conscious effort to actually bank your extra earnings and avoid lifestyle inflation you can’t afford. It can become quite dangerous when you give yourself permission to spend more money when you earn more.
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5. Stop comparing yourself to others
They say that comparison is the thief of all joy.
We’re better off spending our time being grateful for what we have and working on things that aid with our personal development. In this case, that could be your personal finances and relationship with money.
This point perfectly ties in with my previous point about lifestyle inflation.
You may be earning more but the reality is you’re living paycheck to paycheck because you’re spending most of or all your income on material updates.
A shocking story reveals that even one couple earning $500,000 a year can still have very little to no savings left.
It’s hard to not get caught up with the material things our families, friends, and neighbors have.
You may see your peers buying the latest gadget every year, living in the biggest house, or driving the newest car. And you automatically think to yourself that you need them too to keep up in appearances. Without it, you’ll feel like crap.
But ask yourself this…
Are you tired of living paycheck to paycheck?
One underlying reason why you may be living paycheck to paycheck is you’re always comparing yourself to others WITHOUT actually realizing it.
Be very honest with yourself and think about WHY you want this and that. WHY do you want to keep up in appearances?
It’s okay to like and want these things but it’s also important to be realistic about how much you’re spending and whether you’re going through financial pain because of it.
Also, take a step back and realize that your peers may not actually be better off because they could be using debt to finance those upgrades!
Based on a source from CNBC, one studied revealed that one in 10 Americans making $80,000 or more a year are willing to take on more than $5,000 in debt in an attempt to portray their life as luxurious. In fact, those who make more than $80,000 were twice as likely to go into debt to project the image of an indulgent lifestyle.
Aiming for an updated or luxurious lifestyle isn’t hurting you as long as you can truly afford it without going through financial stress!
If it’s something you dream of, then make it one of your life goals and achieve it without putting yourself into debt and living paycheck to paycheck.
6. Know “why” you want to stop living paycheck to paycheck
It’s hard to achieve a financial goal without understanding why you want it in the first place.
Are you desperately trying to stop living paycheck to paycheck so you can save money aside for your dream wedding?
Is it because you’d love to have that money for a home down payment so you can start a family?
Perhaps you want to save enough money to start a business you’ve been thinking about for years.
Knowing your purpose or “why” will encourage and motivate you to work hard towards escaping the vicious cycle of living paycheck to paycheck.
Wrap up on how to stop living paycheck to paycheck
It’s not easy to stop living paycheck to paycheck.
However, having a good understanding of your financial situation and knowing exactly where your money is going each month can be a great start.
Once you have a clear picture of this, you can start finding resourceful ways to save money. It can help further when you consider creating an automated savings plan.
If you’ve already maximized your savings to a reasonable rate, but you feel that money is still tight, then look for ways to increase your income by earning more money.
Most importantly, don’t get caught up with lifestyle inflation or comparing yourself to others. This is a dangerous trap and may even snowball into bigger problems when spending starts spiraling out of control.
Always go back to asking yourself why you want to stop living paycheck to paycheck. What is the real underlying reason? By knowing and understanding your subconscious motives, you’ll have the ambition to work towards your financial goals.