We often think of people living paycheck-to-paycheck as those who earn a lower income or struggle with debt. It makes sense as living paycheck-to-paycheck results in little to no money left in the bank at the end of each month. Surprisingly, the former issue isn’t always the case. A recent survey conducted by CNBC reports that 25 percent of those making over $100,000 a year are living paycheck-to-paycheck.
I know income is somewhat relative, but $100,000 is a good salary. Remembering back to my days of this lifestyle, I wasn’t making anywhere near that amount. Ultimately, it doesn’t come down to income. It’s the mindset that matters. If you’re currently living from paycheck-to-paycheck, here are some ways to break that cycle.
Know What’s Going On
This is the foundation of breaking the cycle of having little money at the end of the month. You need to know what your money is doing. You need to know where it’s coming from and where it’s going. Without this knowledge, you’re unable to make your money work for you. You must change that in order to live freely.
I know this sounds a lot like a budget. In many cases it is. Don’t let that scare you away. Budgeting, when done right, breeds freedom. If you don’t want to make a budget, then track your spending. All of it. You want to know where each and every cent is going. That knowledge creates power – power you can use to better manage your money. Without that, you can’t make your money work for you.
Cut Unnecessary Spending
Once you track your spending, you will find things to cut. Some of the likely big-ticket candidates include:
- Cable – the average cable bill is $100 per month
- Car – the average car payment is $483 per month
- Phone – the average cell phone bill, among the four major carriers, is roughly $150 per month
- Food – the average grocery bill for a family of four is $567 – $1,300 per month
All of those bills can be cut, in some cases significantly so. You can go without cable, find a cheap cell phone plan, reduce food waste and instantly add several hundred dollars to your budget each month.
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This is not to say you have to cut everything. What I am saying is you need to look at the value you receive from each item and cut where necessary. In most instances, you’ll find you won’t even notice the cuts and may even get more enjoyment out of life.
Make More Money
You can only cut so much from your budget. At some point, you won’t get good value back and you want to enjoy life. This is where making extra money comes into play. There are many ways to make extra money. You can either add a part-time job, start a side hustle or monetize a skill.
Don’t just spend the extra money you earn. It’s ok to do that, to a certain extent, but you want to use this extra money to beef up your financial standing. If you have debt, you can use it to get out of debt quicker. If you don’t have an emergency fund, you can grow that. If you have those covered, you can invest in the stock market to begin saving for retirement.
Determine Your Why
This is the key to breaking the paycheck-to-paycheck cycle in my opinion. You need to know why you’re working. You need to know your goals. That is what should drive you. Instead of focusing on the short-term reward of spending, focus on the long-term freedom you will have when you gain control of your finances.
I know that seems difficult, if not impossible. It really isn’t. It does require discipline, knowing yourself and being aware of your spending triggers. Simply put, you need to know the why behind your work in the first place. Once you determine that, you start down the path of breaking that paycheck-to-paycheck cycle that handcuffs so many.
Living paycheck-to-paycheck is no way to live. With work and discipline, you can break free and move towards financial freedom.