Living from one paycheck to another can induce significant stress and a feeling of being overwhelmed. However, there are ways to break free from this cycle and alleviate such burdens. Learn how to take control of your finances with this guide. Are you always running out of money before the next paycheck hits your account?
Roughly 64 percent of employed Americans live paycheck to paycheck, but that doesn’t mean it should be your way of life. Living on paychecks is like living on the edge of financial destruction. Lose your job and in a matter of days, you won’t have money to take care of your living expenses.
The good news is your situation isn’t a permanent sentence, although it might look like it. With a reorganization of your lifestyle and priorities, it’s possible to go from paychecks to financial prosperity.
This article fleshes out a handful of tips that can help you break free from paycheck dependence.
Shift Your Mindset
After living month to month for a prolonged period of time, your mind gets accustomed to it. It becomes the norm and you gradually cease seeing it’s a dangerous situation. Even if your paycheck doubles, you still won’t have the desire to stop living paycheck to paycheck.
This is why the first stop to conquering your dependence on paychecks is to change your mindset. You have to recognize that your lifestyle isn’t sustainable and your well-being is dependent on another party – your employer(s).
An employer doesn’t have to fire you to put you in financial jeopardy – in case you’re finding comfort in the idea you have the security of employment. The company could run into financial troubles and become insolvent. You’ll lose your job and source of income.
Do you know what will follow? Anxiety. Panic attacks. Guilt. Depression. All of which is bad for your mental and physical health.
Cut Your Biggest Expenses
If you’re living paycheck to paycheck, it also certainly means you’re living beyond your means. Perhaps you’re living in a rental that’s too pricey for you. Or maybe you’re supporting way more people than you can afford.
Analyze your current expenses and identify where most of the money is going. You might have no choice but to cut most of them.
For example, if you’re earning a net monthly salary of $5,000 and living in a $2,500 rental, that right there is the first problem. Typically, it is advisable to allocate a maximum of 30 percent of your earnings towards rental expenses, serving as a general guideline. You could move to a cheaper house or find a roommate and split the bill.
Cutting your biggest expenses will free up a sizeable chunk of your income. Your next task is to reorganize your finances. How do you do it?
Draw a Personal Budget
A 2022 survey established that 73 percent of Americans don’t follow a budget regularly. It’s no wonder the vast majority of people are in a state of always waiting for the next salary.
Put simply, a budget is a financial roadmap. It shows the paths your money should follow from the moment it comes in,
Follow the 50/30/20 rule when planning for your finances. 50% of income goes to needs (remember, 30% or less of this goes to rent, so spread the remaining to primary expenses like food and utilities). 30% of your income goes to secondary needs like entertainment and travel). 20 percent should go into savings.
Follow your budget and soon enough you’ll stop relying on paychecks. Your savings account will build up, which you can tap into whenever your money runs out before payday.
As you continue to follow your budget, be on the lookout for opportunities to cut your expenses even further. Instead of taking trips out of the city every weekend, for example, you can find recreational activities that don’t consume as much money. Like, you know, staying home some weekends and catching up on what’s hot on the streaming channels.
The goal is to free up as much of your income as possible and save it. That’s how you will build up enough capital to start investing.
Supplement Your Income
You’re ever in a cash crunch because your income isn’t sufficient. Although an increase in income doesn’t automatically guarantee you’ll stop relying on paychecks, it can go a long way – if you have good financial discipline – which you should have developed at this stage.
Supplementing your income has the same effect on your finances as cutting your biggest expenses. It will increase your disposable income and ability to grow your savings.
To supplement your income, you can get a second or even third job. The internet gig economy is thriving, so you can also learn how to make money online.
Another option is to pursue a side hustle. If you’re passionate about pets, for example, why not start a pet-sitting business in your neighborhood? You could sit the pets when you’re not working your regular job.
Avoid Expensive Debt
Debt isn’t a bad thing, but if you use it irresponsibly, living paycheck to paycheck will be an inevitable outcome.
An irresponsible way to use debt is to get expensive loans, like high-interest credit cards and payday loans. These loans will take up a big chunk of your income, leaving you with little to meet your other financial obligations.
Living below your means, or frugally, is an effective way to avoid expensive debt. You won’t have the need to turn to loans to fund your lifestyle. In case of financial emergencies, you’ll have a rainy-day fund to turn to.
Make Living Paycheck to Paycheck a Thing of the Past
The economy is slowing down, inflation is rising, and jobs are scarce… but whichever way you slice it, there’s no excuse for living paycheck to paycheck. With shrewd money management, it’s possible to improve your personal finances and stop relying on paychecks.
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