The phrase “living paycheck to paycheck” is so common in American culture that it has really lost its meaning. The idea that most people spend every dime that they earn – and often more than that – seems to define the way we approach finances. We embrace the “buy now, pay later” philosophy or, even worse, just don’t think about it at all.
However, living paycheck to paycheck has major consequences. Not only are you ill-prepared for the unknown including automobile accidents, broken furnaces, and even yo-yoing energy prices, the stress associated with never having enough money erodes relationships and affects your physical and mental health. Making a concentrated effort to stop living paycheck to paycheck, no matter how long it takes, is the only way to fight these problems and prepare for the future.
1. Learn to Embrace that Six-Letter Word
I feel like a broken record here, but the number one way to address the living paycheck to paycheck lifestyle is embracing that six-letter word finance people love:
Remember, it’s not as hard as you think to account for your spending. It is also not limiting, but liberating. Budgeting is so essential because taking the time to look at your spending reveals something very important in relationship financial health – waste. When you track your spending, you learn what you can do without and what you’re not even using, thus freeing up money for savings and emergency funds or paying down debt.
2. Manage Your Cash Flow
Budgeting is important, but it’s not the be-all, end-all of successful financial management. People without a savings account (i.e. those living paycheck to paycheck) must pay careful attention to cash flow – when you get paid and how, as well as when your bills are due.
While most people cannot control the flow of their income, noting it and matching it to the bills you have due each month is essential. Literally write down all your bills and their due dates to accomplish this. This list tells you how much you need from each check and what it needs go towards. As a result, you can see what money, if any, you have left over and then consciously choose to spend or save that overflow. You also avoid the common mistake of seeing a balance in your checking account and spending it.
The flip side to cash flow management is the half that you can control – billing due dates. Credit card companies are usually happy to change due dates to accommodate your pay schedule and many utility companies will work with you to do the same. Assessing your cash flow helps you to realize that, maybe, part of your debt problem is literally not having the money you need when you need it.
3. Consider Downsizing
After making basic changes to money management and spending through budgeting and cash flow assessment, there are many people who will still be stuck in the cycle of living paycheck to paycheck. These are the ones living beyond their means and who have already cut back discretionary spending.
Therefore, the only choice is to make a lifestyle change which alters the amount of non-discretionary expenses (i.e. rent/mortgage, utilities, insurance, etc.). Also known as “downsizing,” these options include moving to a smaller house or apartment, trading in a premium car for a more basic model, and working to conserve energy by walking more or turning down the heat.
Some of these options, like moving, are big and scary and a blow to the ego. However, making the decision to change is as hard as it gets. Over time, your new reality sets in and feels less punitive. Plus, by getting a handle on your finances, the reduction of stress and peace of mind you gain is worth it in the long run. Plus, by building up savings and freeing up income you allow yourself other indulgences such as a weekly latte, new clothing, or a vacation that you may not be able to afford otherwise.
Living paycheck to paycheck may be a reality for many Americans, but that doesn’t make it the ideal. We’ve all been there, whether it was because we were just starting out or had to manage a sudden job loss or illness. The trick is breaking the cycle sooner rather than later.
Making changes and sacrifices is hard – I remember a particularly tough summer when I refused to shower in my own home to save on the cost of hot water – but many of these sacrifices are also temporary (I showered at home this morning, thank you).
In fact, making lifestyle changes in an effort to focus on financial health is more than worth it in the end. Not only do you reduce stress and increase your health and wellbeing, you gain a sense of accomplishment and joy from the process.
**What are some of the biggest or most unique changes (either permanent or temporary) that you have made to get yourself on track financially and stop living paycheck to paycheck?**