Learn how to avoid living paycheck to paycheck through solutions such as eliminating debt, controlling spending, and building a budget. Is it time to stop struggling?
By: Allan R Kirby
Are you living paycheck to paycheck?
Just getting by from one check to another is a common problem that many people have from all walks of life. Believe it or not even individuals and families with high incomes can find themselves struggling and living paycheck to paycheck. It's a lot more common than most people realize and these financial problems can be the root cause of many relationship issues resulting in breakups and divorce.
What percentage of the US lives paycheck to paycheck? Shockingly two-thirds of Americans, 63%, say they've been living paycheck to paycheck since the Covid-19 pandemic hit the U.S.
The Survey's ugly results:
That's not a misprint, it's true, almost two-thirds of Americans are struggling with their finances and Covid-19 has not helped. Unfortunately, the problems do not end with just getting by, many Americans do not have a backup plan. The respondents of the Highland Solutions survey responded that "if they were faced with a surprise $500 expense, 82% say they would not be able to afford it." Additionally, the survey found many have taken on new debt in the process, According to respondents, more than a quarter say they’ve accumulated $10,000 or more in debt, and 42% say they have taken on more debt than they normally would apart from buying a home.
Payscale found that the median wages in the USA, when adjusted for inflation has actually declined 8.8% since 2006.
Many Americans, they are getting financially squeezed with rising costs of living including food, housing, and medical expenses along with stagnant wages and high personal debt. Although some Americans are better off many are not and Covid-19 has hit some industries harder than others so it's going to be tough to try and stop living paycheck to paycheck.
The point I am making is that it's been a tough year for millions, so it comes as no surprise many are living paycheck to paycheck. Many of the problems faced by families and individuals have been from external factors such as increasing expenses, stagnant wages, and Covid-19, and not the families or individuals themselves. It's going to take time for the economy to recover but as well all know, the way we work and live has fundamentally changed. Although things are bad I would encourage you the reader to take the time to see if you can get yourself on track and stop living paycheck to paycheck by following a number of steps.
Unfortunately, it's a hard lesson that even I learned during a job loss! Not having enough money saved in my emergency fund.
Is it time to stop living paycheck to paycheck?
What I have been telling people over the years is that; when you finally decide to take it upon yourself to get control of your finances and stop living paycheck to paycheck, tough choices need to be made. Also although the process can be hard for some, most will find over the long term the benefits of getting control of their finances will help them feel empowered and less stressed.
How did I stop living paycheck to paycheck?
I learned how to stop living paycheck to paycheck by following five strategies that I learned to follow which included, cut spending, pay off debt, learn to budget, save money, and seek help. I found these strategies or tips are what got me back on my feet.
Tip 1: Controlling expenses by cutting spending
It might seem obvious but many people do continue to spend even though they may not have the money. However, cutting spending will help control your expenses and it is the first thing you need to do because it will have an immediate impact on your finances.
You need to really look at the things you buy each week and determine what can be cut. For example, ordering delivery from a restaurant or buying expensive coffee every morning can be cut. I know it sucks, but I learned quickly that you need to sacrifice in order to succeed. This means learning to make your own coffee and preparing your own lunch; it takes more time but it’s worth it. Keep in mind, this may not be easy for some of you, but cutting back is a necessity in controlling expenses, or at least slowing down the spending will get you on a better footing.
Cutting expenses might mean some lifestyle changes, but it will have an impact on your finances and help you succeed financially.
How can I make my paycheck go further?
Here are a few tips I learned to make my paycheck go further:
Stop dining in our eating out.
Plan meals and use discount grocery stores to get the food in advance.
Take the bus or walk to work if possible.
Learn to treasure hunt at discount stores for clothing and accessories.
Use no fee, high-interest checking, and savings accounts for your banking.
Cut back on alcohol and beer if you drink and try to buy when on sale.
Avoid impulse buying and keep purchases to what you need.
What are ways to eliminate debt? Cut spending, pay more than the monthly minimum payments and get rid of high interest debt.
Tip 2: Pay your credit card debt
I think we are all aware of the importance of not carrying a balance on a credit card. The high-interest fees can cost you a substantial amount over time. One myth that has cropped up, from some people I have talked to, is the assumption that carrying a balance on a credit card improves your credit rating. This is not the case and it could ultimately affect your credit score if you are just paying the minimum payments all the time. So please ensure you pay more than the minimum and get your cards paid off.
Three steps people can use to pay off credit card debt?
Stop spending and making impulse purchases.
Set a spending budget for your credit card.
Pay more than the minimum payments each month.
What are the dangers of high debt? It can squeeze you financially, you may end up using most of your money servicing your debt and unable to pay for the basics such as food and rent.
Tip 3: Learn to budget effectively
Yes, I know you might think there is a way around it, but there is not, you need to learn how to effectively manage your money, which is done through a budget. I can tell you this will take time and there is a bit of a learning curve but it's worth it over the long term.
My only suggestion is to take it slowly and build up a simple budget. The simpler the budget the better as it will help you build up confidence and get you used to having a budget. The single biggest mistake I have seen is people using complex software or building a really complex budget that can take hours to figure out and details just about everything possible. The problem with going so detailed and complex is that it ends up being a lot of work which then puts people off and eventually they decide to drop doing a Budget.
It took me about two months of learning and adjusting to develop a budget I could finally follow. Financial management is a journey, not a sprint, so it's best to create a simple budget and follow it. Do not worry if you make mistakes or need to adjust. It just takes time to understand the process. Using simple excel or google templates will work best for most. I would initially avoid trying more complex software, I have seen too many people, including myself, get frustrated because it ends up taking hours to set everything up. Try Microsoft, they have many free templates MS Office
"Learning to budget? Try a budget planners that you can buy on Amazon or at an office store such as Staples. They are simple and easy to use"
Tip 4: Save a little for each pay
As highlighted at the beginning of this article, many people do not have any money for an emergency. This is something I learned when I was faced with a job loss. I did not have adequate savings but I learned from that mistake and ensure that I save something every single pay. Even if it's only $10, it does not matter, as long as I am building up my savings.
I learned the concept of Pay Yourself first. This means that every time you get paid, put some money aside for your savings and retirement. For many people, it’s best to set up automatic transfers the day you get paid. That way you can ensure you have money set aside before you spend your money or pay your bills. You have guaranteed you have saved and not spent the money; think of it as an extra deduction on your pay.
Should I use High-Interest Savings Accounts?
One of the best types of savings accounts is a high-interest savings account. These types of accounts will not grow your money by a significant amount with the current low-interest-rate environment but it's still significantly better than nothing.
You can bet on the best rates with a number of online banks such as Synchrony Bank and Ally bank. Even these high-interest accounts barely go much higher than .5% but it's still significantly higher than the major banks.
How much should i save per paycheck? It's up to you however if you are really pressed for money, keep it simple, maybe $10, $25, $50 per week to start then aim higher, try 10% of your pay and eventually up to 20% if you can.
Tip #5: Seek Help from professionals
It’s important to know that personal finance can be difficult so I will always advocate that readers seek out a financial coach or visit a financial institution to talk to a financial advisor if you so choose. Sometimes the best choice is simply going to a professional who can sit down with you and help figure what the best approach to get you out of your current situation. They may be able to see problems or issues that you might not have realized was going on.
Financial coaches are great because they can develop a plan to help you stop living paycheck to paycheck, while also ensuring you follow through with the plan. This is the key to success when dealing with financial problems, have a plan, and following through on the plan over the long term. It's not easy but it can be done.
Good luck and try your best
The reality is that difficult choices have to be made when living paycheck to paycheck. It can mean changes to your lifestyle but over time you may find it’s not that bad. I went through a period of adjustment in order to get myself on track and although it took a while, I was very pleased with my success. It's always tough to go through financial difficulty and Covid-19 has not helped either, however never blame yourself, sometimes problems do arise that are outside of our control. All we can do is find a solution, hopefully, the tips I provided will help you get yourself back on your feet.
good luck!
This is a MySmallBank.com blog written by Allan Kirby, who writes and produces Personal Finance articles and videos.