Breaking the Paycheck-To-Paycheck Mentality
Nearly 60% of Americans had a significant unexpected expense in 2017. Almost 50% of households with incomes in excess of $75,000 lack enough savings to cover a $500 emergency expense.
- 41% will to use savings to pay for these costs.
- 21% will pay using a credit card.
- 11% will borrow from loved ones.
Are you like the majority of Americans who are unprepared for an unexpected expense, like a car repair or a medical bill? When you are living paycheck to paycheck, the idea of actually putting aside some extra cash for an emergency fund could seem completely unrealistic. While a payday loan could deliver the cash you need very quickly, the first step to building a solid financial foundation for your future is to break the cycle of living paycheck to paycheck.
Step 1: Create Accountability
The first step to changing your spending habits is admitting there is a problem, first to yourself and then to a support network of some sort. Whether it is a friend, family member or a support group, making yourself accountable to someone other than yourself is key in breaking the cycle of living one paycheck to the next. There are countless support groups out there, with options for participating online, in-person or a combination of both.
There are a few helpful resources out there, from online to in-person forums:
- Money Saving Experts
- Debtors Anonymous
- Spenders Anonymous
Step 2: Audit Your Spending
This is the part that takes guts and discipline, but it will really help you make meaningful permanent change by closely examining your financial habits and where your money really goes.
There isn’t really a wrong way to do this; for example, you can go old school and print out your bank transactions for the past month to see what you spent your money on. Then, you can monitor yourself for another 30 days by writing every expenditure down on paper.
You might consider signing up for a community college class that focuses on personal finances or downloading a money-tracking app. Don't go overboard at first – just do what it takes to get a clear picture of your spending and start to formulated a plan to replace your negative habits with positive ones.
Step 3: Explore Other Income Sources
If you are unable to negotiate a raise or more hours at your job, you may need to consider finding an additional revenue source. If you have a skill that lends itself to freelancing, like accounting or editing, you could generate extra income by hiring out your talents during your free time. You also shouldn’t underestimate the extra income that can come with a side job like pizza delivery, temping, babysitting or any other way you can find to bring in some extra income.
Another option to consider is playing off your existing talents and areas of expertise. We all have skill in some area (e.g. photography, social media, playing an instrument, speaking a foreign language), which is why so many people are working a side hustle in their spare time. The digital age has made monetizing your skills is easier than ever before.
The most important things to remember is you are not alone, and that nothing changes if nothing changes. Even your smallest efforts now can amount to big savings over time, so be patient, set realistic goals for yourself and believe in your ability to determine your financial destiny.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.