If you’re struggling to make ends meet, running out of money before month-end, and counting the days to your next paycheck, you’re not alone. According to a 2017 survey by CareerBuilder, 78% of U.S workers live paycheck to paycheck. While that’s stressful enough, the inability to manage emergency expenses can make the situation even more dire. Consequently, you may end up in a never-ending cycle of debt, and it becomes nearly impossible to thrive financially. But the good news is that ending the paycheck-to-paycheck cycle is possible! Here’s how.
5 Tips to Break the Paycheck-to-Paycheck Cycle
- Cut down expenses. That’s easier said than done. But it’s the most effective way to stop living paycheck to paycheck. Identify your big expenses and find ways to reduce them. For instance, if you have been spending more than 28% of your take-home pay on your mortgage payment, it’s time to consider refinancing your mortgage. Contrastly, if you’re renting your home, consider getting a roommate to share the rent. This can help you save a good amount of money every month and provide breathing room.
- Learn to budget. An effective budget can help you track and control spending. It takes into account all of your regular fixed expenses, insurance premiums, taxes etc. It also helps you deal with fluctuating expenses, such as those resulting from higher usage of air conditioning in summers and running the heat during winter. A good budget prevents you from overspending and helps you identify where you can save money.
- Build an emergency fund. Handling sudden or unexpected expenses is often a major challenge when you’re living paycheck to paycheck. This is also one of the biggest hurdles in getting ahead with your finances. The best way to tackle this is to set up an emergency fund and put money in it regularly. This helps you stay prepared for the unexpected.
- Create additional income. At times, merely cutting down expenses doesn’t help. Despite living frugally, you may still be trapped in the paycheck-to-paycheck cycle. This means your income is just not sufficient to get ahead. If this is the case, you should consider increasing your income. You could pick up a side hustle. Freelancing or taking up a part time job can help you earn those extra dollars and ease your financial situation.
- Exclude bonuses from your budget. Your company may be offering bonuses regularly. But do not rely on this money to cover your expenses. This income is not guaranteed since your company may decide to stop giving it at some point. So use your bonuses to pay off outstanding balances or debts, or even better put the money in your emergency fund.
Making small adjustments, sticking to your budget, and increasing your income are some of the sure-shot ways to get out of the cycle of living paycheck to paycheck, and to get closer to financial freedom!