No matter how much money you make, it’s pretty common to find yourself living paycheck to paycheck. And as you probably know, it seriously stinks. If you’d like to take your freedom back — even if you don’t earn much — here are several ways you can stop being a payday slave.
1. Look at Your Debts
Time to take a good, hard look at every debt you owe. Add it all up. How much of your monthly income is going toward those payments (other than your mortgage or rent)? The sooner you can get those debts paid off, the sooner that money will be freed up.
2. Examine Where Your Money is Really Going
Now, look at your bank statement and spending habits, and see where your spending happens. Split it up into 2 categories: essentials and non-essentials. Essentials should include things like your home payment, basic utilities (gas, power, water), medical insurance, food, transportation, and debt payments. Non-essentials are things like entertainment, eating out, cable, Netflix, gadgets, etc.
3. Are You Making Enough?
Subtract your essential spending from your take-home pay. Are you earning enough? Are you able to cover your essential bills, or are you getting further into debt just paying for needs? If so, it might be time to look for a second income. If you’re making almost enough, you may just need to look for ways to spend less on those essentials. You may also need to re-examine, honestly, your definition of “enough.” If you can cover your essentials, technically, that’s enough.
4. Quit Expensive Habits
What habits are costing you money, and how much are they costing you? Stopping for coffee, buying lunch, downloading music or videos, cigarettes…how much do you spend on all these things in a given month? And do you really need to plunk down in front of cable TV every night? Eliminating bad, unnecessary, or expensive habits can free up essential money. When cutting your budget, be totally honest with yourself about what you cannot live without. Chances are, you’ll find you can live better without a lot of things.
5. Pay Off Debt
Use any “extra” money you find in your budget (by cutting) to “snowball” your debt. Star with the smallest loan amount and pay as much per month as you can. If you have to get a second income, do it. It’s only temporary until you free yourself from those payments, which can be done quickly with the snowball method. Once your smallest loan is paid off, take that payment and add it to your next biggest amount….and so on…
6. Build Savings
You might want to do this before you start snowballing your debt, but you can decide that for yourself. We’d recommend that you at least build up a small savings of an extra month of essential bills — whatever that amount is. If something bad happens, you’ll at least have something to fall back on even after you begin snowballing your debts.
7. Stop the Cycle
If you can get a handle on your budget, quit using credit cards, and become debt-free (even aside from your mortgage), it’s time to teach your kids how to do the same. Teach them to appreciate the value of a dollar, and what their financial priorities should be from a young age. Congratulations — you’ve broken the cycle of living paycheck to paycheck!