How to Stop Living Paycheck to Paycheck and reach your financial goals. Strategies on how to achieve financial freedom.
Living paycheck to paycheck is stressful and financially debilitating. If you’re constantly counting on your next paycheck, you have little to no flexibility to make career transitions. You have to consider every expense carefully, and there may be situations where you’re unable to pay a bill on time. On top of that, you’ll have no money left over at the end of each month, which you would otherwise be able to use to pay down debt or make investments for the future.
So what’s the way out? How do you stop living paycheck to paycheck if you’re trapped in this prohibitive financial cycle?
Conduct a High-Level Financial Analysis
The first step is to conduct a high-level financial analysis, but don’t worry, it’s much easier than it sounds. All you’ll need to do is take inventory of how much money you’re making and how much money you’re spending, across all categories.
See if you can pinpoint the root of the problem through this analysis. For example, let’s say you’re netting $4,000 every month, and you’re spending $4,000 every month, including $500 a month on memberships and subscription services. Eliminate or reduce that category alone and you’d have much more financial flexibility.
You might not discover such an obvious culprit, but this is a good step to start with, regardless. It helps you understand the context for your own unique financial situation, so you can make smarter decisions in the near future.
Start With Eliminating Little Expenses
The two ways to crawl out of this situation are to eliminate expenses and increase your income. Arguably, eliminating expenses is much easier, and eliminating smaller, less noticeable expenses is the easiest way to start.
- Toilet paper. The average person goes through about 50 rolls of toilet paper every year; for a family of 4, that’s more than 200 rolls a year. With a bidet or a bidet attachment, you can reduce your toilet paper consumption to almost zero. Plus, cleaning yourself with a bidet is much more hygienic and healthier for you.
- Entertainment subscriptions. Nobody really needs entertainment subscriptions, like subscriptions to streaming services. There are plenty of ways to entertain yourself for free or cheap, such as by taking advantage of free online content platforms like YouTube or even hitting up your local library.
- Banking fees. Banking fees can often be avoided, so pay close attention to what you’re paying and why you’re paying it. Smarter financial planning can help you avoid some fees, but you may need to find alternative providers for certain financial services in other cases.
- Restaurants. The average commercially prepared meal is roughly $13, so even if you’re smart about where and when you go out to eat, restaurant meals get expensive fast. Cooking at home is much cheaper and gives you much more control over the nutritional content of the foods you consume. Learning to cook may feel intimidating, but it’s simpler than it seems from the outside.
- Gifts. You may also be spending too much money on gifts for other people. It’s polite to bring gifts for certain occasions and gifts can be valuable in reinforcing your best relationships, but it’s important to remember that valuable gifts don’t have to be expensive. Creating a piece of artwork from scratch or offering free services can be an easy workaround.
- Clothes. If you buy clothes on a monthly basis, you can probably reduce your wardrobe spending as well. Invest in higher-quality staples so you don’t have to upgrade your wardrobe as often and consider shopping at thrift stores to reduce your spending when you do need new pieces.
Focus on Bigger Strategic Moves
If these little cuts aren’t making a big enough impact, consider making bigger strategic moves.
- Moving/downsizing. Experts recommend that no more than 35 percent of your gross income be dedicated to housing costs. If you want to be more financially conservative, you can even target 25 percent. If you’re finding it hard to hit these targets in your current area, consider moving to a different neighborhood or downsizing your home.
- Public transportation and biking. Cars are convenient, but they can be expensive. If you live in an area that supports alternative options, like public transportation or biking, consider making the switch.
- Energy efficiency upgrades and changes. Investing in greater energy efficiency can often pay for itself. For example, consider upgrading your windows, your insulation, and your appliances to save big money on your utility bills in the future.
Start Cultivating New Sources of Income
Finally, you can complement your expense-cutting efforts by cultivating new sources of income. The more money you make, the less likely you’ll be to end up in a position where you live paycheck to paycheck again. Depending on your career path, this may mean focusing on earning more promotions and raises, taking on side gigs, or changing careers altogether.
It’s also a good idea to start learning about investing and wealth management. Once you start saving extra money each month, you’ll be able to put that money into income-generating assets, like dividend stocks or rental properties.
The path out of paycheck to paycheck living isn’t always straightforward, nor does it look the same for everyone. But oftentimes, even a handful of simple lifestyle changes can be enough to give you the momentum you need to establish a brighter financial future.
