In personal finance there’s a tendency to focus on two things: the problem and the solutions. Pretty logical right? But what happens when you feel like you’re stuck between a rock and a hard place? For example, if you’re living paycheck to paycheck the idea of creating a savings or retirement plan can seem literally impossible. Even with all the advice available, it can feel like there’s simply no room to budge.
It’s incredibly challenging to feel stretched thin when it comes to your finances but if you’re one of the millions of Americans living paycheck to paycheck you can take respite in the fact that you’re not alone. A recent article at Time looked at data released by the Corporation for Enterprise Development and found that a surprisingly high percentage of Americans are living with limited savings. The report states that “44% of Americans are living with less than $5,887 in savings for a family of four.” When you consider the cost of unexpected emergencies that might come up for a family of four – a hospital visit, a car repair, etc. – these savings aren’t exactly comforting.
Why is it important to live beyond your paycheck?
If you’re living paycheck to paycheck, being hit with an emergency or an unexpected medical expense can create financial turmoil that upsets your entire life. When you take measures to protect yourself – by having money stashed away in an emergency fund/savings account – you’ll avoid having to take on debt or put yourself in a vulnerable financial position. This can inadvertently help you to avoid hurting your credit score, which has an impact on your future interest rates and financial options.
What to do if you’re struggling between paychecks
Though the steps will differ from person to person, here are a few ways to organize your finances and begin structuring a plan that will help you to go beyond living paycheck to paycheck:
1. Look at your finances objectively to minimize the emotional churn
There’s a lot of frustration and emotion involved with living paycheck to paycheck and that stress can result in feeling helplessly “stuck” in your current financial circumstances. To inspire movement in a positive direction, start by reframing the way you look at your finances. Compile your account statements and your numbers and – if possible – try to detach your emotions. This will allow you to make an honest assessment of your finances and pinpoint the areas that can benefit from tweaking rather than expending all your energy towards wishing things were different. Instead of looking at how far you have to go and feeling immobilized by the scope of the task, take a look at what small steps you can do now that will create movement in the right direction. If you have debt, take a look at our Student Loan and Credit Card Debt resource centers for help.
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2. Identify spending vacuums
Once you’ve crunched the numbers, use the insight to identify areas of spending that can be considered “non-essentials.” From extra subscriptions to unnecessary fees these are your spending vacuums. They suck money from other areas of importance (think savings or retirement) and are generally workable opportunities to increase your savings. By pinpointing these expenses you can reclaim money that’s disappearing into a financial void, thus giving you an added boost to your bank account. Our Budgeting Tips resource center might help too.
3. Make workable adjustments
Even small switches make a difference, especially if they’re implemented consistently. For example, switching from brand name to generic might save you 20 dollars on your weekly shopping trip. By itself, that might not seem like that much money. But multiply it by 4 and you’ll see an extra 80 dollars each month. Multiply that by 12 and it’s a yearly saving of nearly $1000 dollars. When paired with other “small” scale adjustments you can see how these adjustments will add up to have a large impact on your finances.
Why is consistency important? One time switches are undoubtedly helpful but they may also be indicative of a less controlled budget. It’s important to do what you can, when you can, but it’s also important to focus on creating financial habits that will continue to benefit you in the long-run. This is where a marathon mentality comes in handy. Make adjustments that are sustainable and feasible within your financial situation to see the biggest returns over time.
4. Ask yourself – is there a possibility for increased earnings?
If you’ve taken every last measure to cut your savings and increase your savings then consider if there are any ways for you to increase your earnings. This extra income can come from a variety of sources and can be a valuable way to help you escape the paycheck to paycheck cycle. For some ideas, you can check out our post on 30 Ways to Increase Your Income which highlights options ranging from freelancing to subletting a room.
5. Utilize resources
Don’t be afraid to research your options and experiment with the resources available. Financial calculators and spreadsheets are powerful tools when it comes to organizing your finances but they aren’t all created equal. The only way you’ll uncover the best tactic for your financial situation is to explore different approaches and then hone in on the ones that you find to be the most helpful.
Prioritize your financial security
Living paycheck to paycheck doesn’t mean that you’re irresponsible with money. It doesn’t even necessarily mean that you’re “broke.” You could be making a decent wage and still see a dwindled bank account at the end of the month. That’s because your financial situation is made of more than just your income. It includes your spending, your investing, your savings and beyond. To some, it’s only a matter of cutting back on extra spending (entertainment costs, travel, car payments, etc.) to see immediate returns. To others, it’s a matter of a complete financial rehaul. But regardless of your circumstances, one thing remains consistent: setting your financial security as a priority is an essential part of creating a solid financial base.
Have you dealt with paycheck to paycheck living?
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