There’s nothing more frustrating than seeing your paycheck evaporate out of your bank account as quickly as it arrives. About 38 million American households face this problem when payday rolls around. Getting out of the paycheck-to-paycheck rut isn’t easy but it’s doable if you’ve got a plan of action. Here are five things you can do to stop the cycle permanently.
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1. Get Real With Your Spending
One of the easiest ways to fall into the paycheck-to-paycheck trap is to not have a clue where your money’s going. When you’re not actively tracking your spending, it can be tough to pinpoint the reasons why you constantly come up short.
Keeping tabs on your dollars can be as simple as writing it all down or using an app like Mint to do it for you. Analyzing your spending is the first step in building a budget. It’s crucial if you’re ready to leave the paycheck-to-paycheck lifestyle behind.
2. Trim the Fat
Once you’ve gotten a grip on how you’re spending your money, the next step is to cut out things that aren’t essential. That goes for both your regular monthly bills and your variable expenses.
Consider this example: According to a survey from SunTrust Bank, 44% of higher-income households overspend on things like dining out and entertainment. As a result, they’re not saving as much money.
The next time you’re tempted to pick up dinner on the way home or head to a movie, you might want to think about how much it could cost you in the long run.
3. Downsize Your Debt
If debt payments are taking up a big chunk of your check each payday, getting rid of them could be your number-one goal. Cutting back on what you’re spending can free up some extra cash that you can throw toward your student loans or credit card bills but that’s not the only way to wipe out your debt.
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Refinancing your student loans, for instance, can lower your interest rate so more of what you’re paying each month goes toward the principal. The same thing could happen if you transfer your high interest credit card balances to a card with a 0% promotional deal. The lower your debt burden is, the easier it’ll be to chip away at what you owe.
4. Max out Your Income
Cutting your expenses is an important step but it may not be enough to get you out of the paycheck-to-paycheck cycle for good. In some cases, you might need to bump up your income to create some extra breathing room.
That could mean taking on more hours at your current job, getting a part-time gig or starting a side hustle. Even if you’re adding a couple of hundred dollars onto your check each month, that could make a big difference in terms of your overall financial picture.
5. Make Saving a Priority
“Pay yourself first” is the mantra of many a personal finance expert and it’s an important one to adopt if you’re tired of living paycheck to paycheck. You can think about saving in the same way you would think about paying any other bill. In other words, you can set aside part of what you make each month even if it’s just a few dollars every payday.
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If you don’t have any savings, it’s a good idea to start an emergency fund large enough to cover at least three months of expenses. Once you’ve got that in the bank, socking away money in a 401(k) or an IRA can be the next goal on your list.
Building up your savings takes time. But once you get into the habit of doing it, you’ll likely never want to live paycheck to paycheck again.
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