26 Feb Four Steps to Prevent Living Paycheck to Paycheck
It can be hard to have peace of mind when you are living paycheck to paycheck. Just know you are not alone; according to a report from the Brookings Institute, about one-third of American households are living paycheck to paycheck.
Everyone wants to get ahead and start paying off debt and building wealth, but breaking the cycle of living paycheck to paycheck may seem impossible.
We want to help- using the following four steps as a guide, you can start the process of living with financial freedom.
- The first thing to do is write down all your monthly expenses. Monthly expenses would include rent or mortgage, utilities, cell phone bill, car payment, insurance, credit cards and memberships. Add these expenses up and subtract this total from your monthly income- this number is your take-home pay. Don’t forget to plan ahead for quarterly and annual expenses as well.
- Second, check your spending from the previous month. This is the time to see where your money is really going. Using your Bank of the Lowcountry checking statement and any receipts you have, organize additional categories of spending. These could include:
- Groceries (food, toiletries, pet supplies, etc.)
- Entertainment (movies, concerts, sporting events, etc.)
- Dining out (lunch at work, date night dinners, drinks with friends, etc.)
- Shopping (new clothes, gifts, etc.)
(Hint: create an Excel spreadsheet to save, modify and track your spending categories and bills.)
- Create and organizing system and SPLIT! Using the categories you made in steps one and two, divvy up your money based on how you know you will be spending it. This makes each month more predictable and manageable, so you can begin to set aside a part of your paycheck for savings.
- Spend with a purpose. It shouldn’t come as a surprise that breaking the cycle of living paycheck to paycheck will require some lifestyle changes. In order to put your money into a savings account, you will probably have to cut spending somewhere. Completing steps one through three can be a real eye-opener. You may realize that you’re spending more money than you thought on Starbucks coffee or in the entertainment category; you can even reduce spending in a necessary category like groceries by couponing and shopping smarter. It may be difficult, but cutting costs is a must to achieving financial freedom.
Never forget the reasons you are committing to this change. The benefits of gaining control of your finances will help you manage your cash flow and make it possible for you to pay off debts, save for a large purchase or invest in your future. Set goals for yourself to stay motivated and avoid falling back into living paycheck to paycheck.