How to Stop Living Paycheck to Paycheck
Wouldn’t it be great to never worry about money at all? Unfortunately, this is not real or true for many of us. According to a 2015 survey conducted by the American Psychological Association, money is the top stressor among Americans and has always been since 2007 when the study was first conducted.
But that’s not all. According to a recent survey conducted among America’s financially well-off (those who a net worth of $1 million) and above, they feel that they still need to strive and stay on the treadmill despite their good fortune. The constant hustle is fueled by the desire to reach their deeper ambitions, sustain their family’s wealthy lifestyle and the fear of losing everything they have accumulated.
In this sense, financial security feels elusive to the poor as it is to the rich.
What is Financial Security?
Financial security is different for every one of us. There is no standard definition for it. But for many, it refers to the state when you’re no longer worried about your finances and can do what you please with your time and money.
Does that mean you need at least $1 million in your bank account to be financially secure? It depends. If that much amount of money can bring you peace of mind and allow you to sustain your lifestyle without inconvenience and discomfort, then you can probably say you’re financially secured.
But some people may need more than that, perhaps, an even more substantial amount, to finance all their “perceived” needs like shopping and vacation.
The thing is, we all aspire to achieve financial security regardless of our personal perceptions. It’s not so bad to dream of having millions of dollars in assets. In fact, it’s nice to have such an aspiration. However, it’s easy to lose track of your small victories leading to financial security when you’re focusing on just the bigger picture. When the mountain seems insurmountable, begin with the smaller mounds first to savor each achievement.
The Importance of Financial Security
It’s easy to think that when one has a job, the rest is of your finances will soon come in order. Indeed, having an income is just one step toward financial security, but it is not the only determinant that you will become financially secure. If you’re earning six or seven digits and your expenses are close to the figure of your income, then security is not commanded by the amount of income at all.
It is important to remember that your job can only finance you as long as you are working. Meaning, when you lose your job for one reason or another, you will face grave consequences and suffer from a pile of financial stress.
The road to financial security is a long and on-going process for many of us. It is an endeavor that requires time, effort and a solid financial plan. Additionally, you may have to make certain sacrifices today to be financially secure in the long run.
Financial security is important for the following reasons:
- It helps you sustain your present needs. Financial security allows you to live in your house, use the AC, feed your family and buy the basic needs without going into debt.
- Financial security will enable you to afford your retirement lifestyle. Whether you retire at 30 or 60, when you’re financially secure, you can live the life you want without depending solely on a pension or be forced back into the workforce.
- It also allows you to quit the job you dislike without fear of getting hungry. When you’re financially secured, you wouldn’t have to stick to a job you hate because it’s the only source of income you have. You have the option to enter an income-generating endeavor that you’ll love because you have the finances to keep you afloat.
- Financial security also gives you the option to spend on some luxuries. Whether you want to go to a spa today or spend some money on new things, financial security lets you do so without fear of missing your bills or being unable to pay for your basic needs.
Financial security is an excellent state to be in. You get to have more freedom in your life because you have the ability to command money to serve you, not the other way. You also get more options so you can spend your resources and time on the things and experiences that mean most to you.
Why it’s nice to aspire for financial security, many people are struggling even to get started. Most of them are stuck in the paycheck to paycheck lifestyle.
How Many Americans Live Paycheck to Paycheck?
It’s almost been a decade since the financial recession, but many people are still thriving with one paycheck to the next. According to a survey conducted by GoBankingRates in 2017, half of the Americans are still feeling the financial pinch.
The paycheck to paycheck lifestyle is a vicious cycle so known to many. The survey found that:
- 41% of men and 56% of women are in some sort of a volatile financial situation.
- 52% of men and 69% of women don’t have enough money that’s equivalent to six months of emergency fund.
Meanwhile, in a separate study conducted by CareerBuilder, it’s found that:
- 71% of full-time US workers are in debt, as compared to last year’s data of 68%.
- 78% of the workers are living one paycheck to the next.
- 56% of the surveyed workers are unable to manage their debts properly.
- 1 out of 10 people who are earning more than $100,000 is struggling to make ends meet.
Additionally, CareerBuilder spokesperson Mike Erwin observes that living paycheck to paycheck has become quite a lifestyle to many. It is not confined for the low-income earners. Even those who make six digits are living paycheck to paycheck. It’s become quite a trend, only that it’s taking the wrong direction.
Tips to Stop Living Paycheck to Paycheck
Financial security consists of processes and systems that help you manage and control your finances so you can maximize it to your best interests. Here are the eight steps you need to take to achieve financial security.
Create a Budget
First and foremost, you need to know where your money goes. Your finances come in a cycle – you earn a living then spend to live. Not knowing how much your income and expenses are, as well as your assets and liabilities are a recipe for financial failure.
Budgeting may seem like a tedious chore, but it’s one event that opens your eyes to the realities of your finances. To create a budget, you first need to know how much you earn. You also need to determine how much you need to spend. Subtract expenses from your income, and you get a ballpark figure telling you whether your finances are in fact in order and manageable.
A budget is also an essential tool in allowing you live within your means and shy away from the paycheck to paycheck cycle. The budget guides you as to how your money should be spent on a regular basis, creating a semblance of order of the ins and outs of your finances. And since financial security does not just address your current needs such as shelter, transportation, food, healthcare, and education; but also of your long-term goals, like retirement, your budget should be customized to address both short-term and long-term financial aspirations.
It can’t be emphasized enough how important a budget is for financial security. It is the very foundation for your financial planning. If you don’t have a budget or the current one is not exactly working as you desire, create a new budget that’s designed to meet your current and future needs.
Keep Track of Your Spending
Are you aware of your money’s outflow? Many people don’t realize that they’re spending too much on frivolous things and when they look back in retrospect, they tend to forget where all the money went. Without proper documentation, it is always easy to go overboard, resulting in a shortage or even a negative, even before your next paycheck comes in.
Tracking your spending creates financial awareness. When you have daily records of all your purchases, you also begin to realize what areas you were overspending on. For instance, if having a $5 coffee every morning seems like the norm to you, when you need to cut back on some expenses, you’ll soon see that you could have saved at least $50 from every paycheck if you brewed your own coffee at home. But without this record, you will overlook these small, petty things and you’re bound to continue with your overspending habits.
Additionally, tracking your spending will help you build more wealth. When you can identify the areas where you can back on, you also get the opportunity to throw in more money towards the more important financial goals. Or, you could put the extra money towards savings and investments. The bottom line is, when you are unaware of your spending habits, you’ll always be vulnerable of going overboard. And tracking your spending allows you to see the realities of your finances and present to you the areas where you can potentially reduce expenses and improve wealth.
Cut Back on Your Spending
Creating a budget and tracking your expenses put you two steps forward towards financial independence. However, if you still find yourself in monetary shortage before each paycheck, then you need to reduce some of your expenses.
The best thing about reducing your spending is the fact that it’s within your control. You can implement it right away if you want to. And the results are also just as instantaneous. The amount that you’re able to save from reducing your expenses can go directly to your savings and other financial goals.
What makes some people hesitant about reducing their spending is the fact it will change their lives to some extent. However, you don’t have to start cutting a large chunk of your budget right away. Financial experts suggest making small reductions from your budget, focusing on things that you feel you can live without.
You can start cutting back on some luxuries, like your daily Starbucks coffee and lunches out. Instead, you can brew your own coffee at home, put it in a thermos and bring to work. You can also brown bag your lunch. To save even further, consider recycling last night’s leftover into meal the next day or cook a huge batch of lunch that you can just heat and pack.
Once you get into the habit of cutting back on expenses, you’ll soon realize that you can actually live with some of your perceived “needs” that are actually wants. You might realize that you don’t need cable after all, or that unused gym membership is a waste of money. Soon enough, you could begin making radical reductions in your finances, such as downsizing your home or transferring to a cheaper neighborhood. All of these reductions, whether small or huge, can make a lot of difference to your financial security.
Save SOME Money Each Month
Saving is mandatory to attain financial security. Without savings, you will continue with your paycheck to paycheck and dig deeper into your debts. What many people fail to realize is that saving is still spending, but only for the most important matter – financial security.
Following the principle of living below your means, you need to tuck away a portion of your income before you even use your money for spending. This way, you are sure that you are paying yourself first, and that you are consistently allocating funds to your financial goals. To do this, you can start small, say 5% of your income, and increase the figure as your income increases or when you’re able to reduce some of your expenses. It also helps to automate your savings so that it goes safely into your account and avoid the temptation of spending it.
Another important consideration when it comes to saving money is saving up a buffer for urgent and unexpected expenses. Also commonly termed as an emergency fund, this money is allocated for urgent and emergency expenses only. According to the above survey, more than half of the respondents admit to not having enough emergency to cover six months of expenses. This means that when an unexpected expense comes up, like emergency home repairs and healthcare needs. These people are likely to dip into money they’ve allocated for something else. It ruins your budget, gets you into debt and consequently, throws you off track towards financial security.
Now, it is important to have separate savings for your emergency fund and long-term goals (retirement, college fund, vacation, etc). This way, you are able to manage your money more effectively, keep your budget intact and focus on your goals.
Get out of Debt
We are living in a highly consumerist world and debt has become embedded in our society. From credit cards, personal loans to mortgage and auto loans, debt has made it easy for us to acquire things without paying for them in full and upfront. But if there’s also one thing that keeps you from attaining financial security, it would also be debt.
Getting out of debt is a crucial step in achieving financial security. Debt prevents you from fully maximizing your income because you need to pay what you owe. If you’re debt-free, you could use that money towards your other goals and be able to sleep better at night.
The problem with many people who need to deal with debt is that they’re unable to keep their momentum. When a debt seems to be very unsurmountable, they give up and hand in the towel. It’s easier to think that the debt will always be there regardless of the effort, so why struggle so much?
What you need to remember when it comes to debt is that you don’t have to be in it if you can help it. If you need to go on vacation, you have months of planning and be able to save. If you have an emergency, you can use your contingency fund instead of charging your credit card. Oftentimes, getting into debt is an option, but one that you may regret later on.
Now, focus on paying your debt even if that means paying them one at a time. You may think that you’re making small progress, but when you’re finally debt-free, you’ll feel more secure about your financial future. Plus, with the extra money you have, you have more choices to use it for the more meaningful things.
Don’t Use Credit Cards
Owning a credit card makes you feel powerful. You can make purchases without handing physical currency. However, it’s also a tool that may hinder you from financial security.
Many people don’t realize that using the credit card to finance their purchases expose them into debt. With whooping two digit interests, your purchase actually gets more expensive when charged to the card, especially if you’re unable to pay the bill in full each month. Paying the minimum due amount may make you feel you’re being responsible enough, but it must be noted that you’re still racking up interests on top of the principal amount.
Credit cards tempt you to spend money that you don’t readily have. And if you don’t have the cash for it, most likely you can’t afford it. But since credit cards are convenient, using them can also mess up with your self-control. Wrongful use of the credit card can lead to a domino effect of being unable to control your spending, paying only the minimum and getting into more credit card debt.
The best way to manage your income is to manage what you already have. You can withdraw your budget from the paycheck and simply deal with your expenses in cash. If you feel the pain and hesitation of spending your hard-earned money, you’re also bound to become more thoughtful of your spending.
Look for Ways to Earn More
Cutting back on your spending can only go so far until you’re bare bones with your budget, but increasing your income is another story. Fortunately, there are several ways to increase your income. If you can hustle for a few more hours or work on more projects, chances are, you wouldn’t have to spend this much time in future just to feel financially secure.
Increasing your income can range from simple ways like flipping things on eBay or selling things online; to more complex ones like taking up consultancy gigs or working on side projects. Additionally, you might want to approach your employer and broach the topic of a raise (if that’s possible right now) or simply take a second job.
Another way to increase your income is to invest in education. You might have to spend more money this way, but you can snag better jobs with better pays in the future if you’re able to improve your educational background.
It’s just important to keep in mind that you’re increasing your income today so you wouldn’t have to get stuck in a job you hate for a long time just because it pays the bills. It’s also better to generate income from your own passion as it’s bound to feel more fun and rewarding and not seem like work at all.
Here are 50+ side hustles you can start right now and boost your income.
Achieving financial security does not happen overnight nor is it defined by the X amount of dollars you have in your account. What can make you feel financial secure may not be true to others, and vice versa.
Like what many financial experts would say, personal finance is mostly about mindset. If you’ve been an extravagant person for a very long time, the shift in mindset can feel challenging. From the feeling of abundance, you shift to the feeling of scarcity. But once the initial shock has worn off and you re-commit yourself towards financial security, you’ll soon get used to the new perspective.
You need to be patient with yourself. You need to tell yourself over and over again that you don’t want to spend on frivolous things and that cutting back on your expenses will soon reward you with something more meaningful. You also need to tell yourself that while it’s easy to get into debt to instantly afford a thing you want, you’re also setting yourself up for more financial troubles.
Even if you’ve made some progress in your quest for financial security, you might find yourself giving into temptation. You might overspend on a moment of impulse. Don’t be discouraged and forgive yourself. You just need to take back your focus, discipline yourself better and give yourself a pat on the back for your milestones.
With the steps laid out in this article, it’s evident that financial security is not as elusive as some people make it out to be. Those who claim that financial security is just a dream are also those who don’t want to take action or implement better changes in their lives. As a result, they get stuck in the paycheck to paycheck way of living.
It’s true that you need to have a strategic plan when it comes to budgeting your money, tracking your expenses and even when trying to increase your income. But you also need to bring some intangible characteristics into the table as well, such as perseverance, discipline and focus.
Sure, the road to financial security is not going to be easy. You will be exposed to a lot of things and more than once you might feel the urge to abandon this goal, but stick to it no matter how many times you fail. Re-track your steps, learn from your mistakes and keep going. Sooner or later, you’ll get there and it’s going to be more rewarding than you imagined.
Cary Silverman is a consummate entrepreneur having sold multiple companies during his 20 years of business experience in the financial industry, but for him, it isn’t about the money. His success is rooted in his passion to focus on doing something better today than it was done yesterday. These days, he’s the CEO of Waldo General, Inc. that oversees the operation of King of Kash.