"There's much more month than money."
If you've ever spoken this phrase (or something like it), you know what it's like to live paycheck to paycheck. In this financial situation, you may plan ahead and think you can stretch your funds until you get paid again. You may even think you'll have extra to save for school, pay down debt, or buy yourself something special.
But in the end, you find yourself eagerly awaiting your next paycheck without any room in the budget to spare. You may have even overdrawn your checking account or borrowed money to get by.
However, there's no need to despair. Many people start out this way and manage to turn things around. Read on to learn how to break free from financial stress, get (and stay) ahead financially, and start building a safety net.
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Structure income with a budget
First, you'll need a budget, and the 50/30/20 model can be an easy one to get started with. Here's how it works:
- 50% of your monthly income goes towards needs like rent, car payments, food, and health insurance.
- 30% goes to wants, such as coffee with friends, streaming services, or that new iPhone.
- 20% goes to saving for important goals, like an emergency fund. Or, if you have a lot of debt, this money can also be used to pay it down.
Like any budget, the 50/30/20 plan requires you to know what's truly a need and what's actually a want. For example, food can fit into either bucket. You must eat, but do you need to eat lunch at the corner sushi shop each week?
You can continue your sushi habit if you have enough money to pay for everything you need (including the 20% for savings and debt). However, if you're living paycheck to paycheck, it's important to examine this kind of spending more closely.
Watch recurring spending
Whether it's $4 or $40, you might not know how much of your income goes to subscriptions and other recurring purchases. Examples may include:
- Streaming services
- Gym memberships
- Online classes
- Apps
- Game passes
- Home meal kits
- Vitamin subscriptions
This type of spending is easy to miss, and the only way to know what you're buying is to check your bank and credit card statements every month. You can also try a service like Rocket Money, which can alert you to subscription fees and even cancel them.
Stop paying for convenience
Need lunch delivered? Your favorite takeout meal may not cost more than $10, but the fees for delivery and tips can easily stretch the cost to $15 or even $20. Paying more than you need for essentials (like food) can quickly blow your budget.
Instead, try to pick up orders in person or combine trips to stop at several businesses. If you're stuck somewhere and need delivery, look for promotional offers for new customers or other deals to help keep those fees under control.
Build an emergency fund
Having an emergency fund can be a lifesaver when something unexpected happens, like surprise car and home repairs or an illness that bumps up your medical expenses. But if you're already finding it hard to make ends meet, putting cash away for these types of unexpected future needs can seem like an impossible task. Fortunately, there are strategies available to help you put away small amounts each week.
For example, some bank debit cards let you round up your purchases to the next dollar and set the extra aside in a savings account. You won't immediately miss those extra nickels and dimes, and over time, these small savings can add up and help you out when you may need them most.
Let interest work for you
When you are able to start saving, it's important to consider where you store your savings. Not all savings accounts are created equally, and with interest rates changing all the time, you could be earning more on your savings account balance.
Each bank's terms and conditions vary, and you may not get access to the highest rates available without a regular paycheck deposit. However, if you're
shopping around for a bank account (especially one with the round-up savings feature), ask about available interest rates for different balance amounts.
Reduce fixed expenses
The term "fixed expenses" can be tricky, making people think it's truly fixed and can never be changed. But even fixed expenses like rent, car payments, or student loans have some wiggle room — provided you understand how negotiation, consolidation, and refinancing work.
For example, your rent may be fixed by what's stated in your lease, but there may be discounts for signing more than one year at a time or renewing during a promotional period. If you're willing to move to a smaller apartment within the same building or give up garage parking, you could further slash your spending.
Loans can also be cheaper through consolidation, which means combining several separate loans into a bigger loan. Then, these loans can be refinanced through a new lender with lower interest and monthly payments. People do this all the time with student loans and credit card debt, and the result is often a monthly bill far lower than what they originally paid (plus a lower amount of interest paid over time).
Upgrade your job
Depending on where you work, you may not have the ability to get a raise.Wage freezes happen constantly, and they are more common in certain troubled industries. However, if you've been at your job for quite a while and you have received excellent performance reviews, it doesn't hurt to ask. Your boss may use the opportunity to discuss promotions or further advancement in your workplace.
And if they say, "no"? It's up to you whether it's a reason to leave. If you've been looking at new opportunities, this may be the time to commit to looking for new work. Just be sure it actually pays more or helps you get ahead in other ways, such as offering benefits, growth opportunities, or the chance to move to an area with a lower cost of living.
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Sign Up NowMake money on the side
A full-time job doesn't have to keep you from working. Many people have a "side hustle" or extra gig they take to make additional cash to reach their financial goals. This can be anything from dog sitting a few hours a week to selling vintage scarves you find at garage sales and thrift shops.
With so many options, the hardest part may be finding something you can enjoy and stick with while you work on your money goals. Be sure you assign this money to a goal before you make it, such as putting it toward a particular credit
card balance. It will be easier to be disciplined with these extra funds with a plan in mind.
Pay debt wisely
Putting up to 20% of your monthly income toward debt is a great approach to being more financially secure. So, which debt do you pay off first? Money experts recommend one of two approaches:
Avalanche method: List all your debts and put the highest interest debt at the top. Pay any extra money after your minimum payments to this highest interest debt first. When it's paid, focus on the next debt on the list, and so on. The benefit of this method is you may pay less interest overall.
Snowball method: List all your debts in order from smallest to largest. Pay all your minimum payments, and use any remaining money to pay the smallest balance until it's completely paid off. Then, move to the next smallest account. The benefit of this method is that you reduce the overall number of accounts you hold with debt much faster.
Keep working toward your financial goals
Living paycheck to paycheck is often a numbers game. If you don't make enough to cover your bills, you will never get ahead. However, it's also a mindset game, and when you make a misstep or think you've already blown it for the month, it's important not to quit.
For example, say you've been doing really well with your spending, and you get an unexpected medical bill that puts you way above your budget. It may be tempting to write off the entire month as a failure because you won't meet all your financial goals that month. It may even be tempting to spend more on a dinner out you don't need or avoid paying debt.
One setback is not a reason to stop the hard work of staying on track. If you quit, it will only be that much more difficult to hit your money goals. Instead, focus on why you're working hard to meet your budget. Is it to finally have enough for a down payment on a house? Is it to pay off student loans? Is it to feel secure with an emergency fund in the bank?
Whatever your reasons for setting money goals, they are important. Remember these goals and how you'll feel when you've accomplished them. It will be worthwhile.