If you’re stuck in the cycle of living paycheck to paycheck, you can turn things around. Here’s seven steps on how to stop living paycheck to paycheck.
1. Automate your savings
The number one way to get out of the paycheck-to-paycheck cycle is to save. Make your savings automatic by setting up a transfer. A good rule of thumb is to save 10% of your gross income. If you have debt, put 5% in a starter emergency fund and then 5% investing long-term for retirement.
This is a personal finance strategy called pay yourself first. You guarantee savings happens every paycheck before you have the chance to spend.
This will help you break free and get unstuck with money.
2. Create a budget
Get familiar with your take-home pay, fixed expenses, and flex expenses. If you’re used to spending everything you earn it’s hard to know where to start with budgeting.
Start by creating a basic budget and realize it’ll be a work-in-progress. Get in the habit of having an executive money meeting. Before the month starts forecast and budget what you think you’ll spend.
3. Track your spending
Next, to stop living paycheck to paycheck fill in at the end of the month what your actual spending and expenses were. This action will help you gain accountability with money and a sense of control with your spending.
4. Prioritize your debt payoff
If you’re living paycheck to paycheck, chances are a large percentage of your income is trapped in debt payments. And unfortunately, if you have credit card debt, a lot of what you’re spending is going to interest.
Debt and interest make it hard to get ahead. Avoid taking on new debt and push to pay $300 or more extra to the highest interest debt.
5. Live below your means
Living off less than you earn will help you quickly break the cycle of living paycheck to paycheck. Keep personal finance and your life simple. A popular saying from the Great Depression was, “Use it up, wear it out, make it do, or do without.”
This means you can get creative with what you already own! Living below your means is the ultimate form of environmentalism and going green.
6. Get clear on your emergency fund
A good rule of thumb is to save 3-12 months of expenses for an emergency fund. This is rainy day savings in case you lose your job, have unexpected health expenses, or need to repair your car. When you have an emergency fund, this is the ultimate sign you’re free from living paycheck to paycheck.
Determine how much your basic monthly expenses are and how many months you want to save for. For example, if you need $4,000 to cover your expenses and you want a six-month fund, you’d set the goal to save $24,000 for an emergency (6 X $4,000).
7. Turn a liability into an asset
It can seem impossible to save thousands for a rainy day. You can do it shockingly fast when you turn a liability (what you owe, like your debt payments), into an asset (what you own, like emergency savings).
For example, if you’re paying $1,100 a month to debt, once you are debt-free pretend like you still have your debt payments and transfer this money to save for your emergency fund.
Use these seven steps to stop living paycheck to paycheck.
❤️ Carly
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