Earning a good income doesn’t mean that you are financially sound and secure.
Most of the times, people don’t have enough money to handle an emergency, or they land up with insufficient savings for their retirement.
In fact, a common problem faced by majority of individuals during the end of the month is a cash crunch.
By month end, the bank account balance falls to such a level that many times you need to compromise on your basic needs!
This is what is called as living from paycheck to paycheck. Or, should I call it as surviving from one paycheck to the other and so on.
My question is, when you have to compromise on your needs and have to wait for the arrival of you next paycheck to bring your life back on track, then why don’t you plan your expenses beforehand?
It takes a little effort and honesty about where you are spending or are you making enough money.
A more organized and disciplined expenditure helps you reduce your stress at the end of each month and break down this cycle.
Steps that can help you break the paycheck to paycheck cycle
Here are 5 important steps,which will help you stop living from one paychek to another.
#1. Why are you living from paycheck to paycheck?
Before finding a solution to any problem, it is necessary to know the root cause of the problem. Similarly, you should know the reason why you are being stuck living paycheck to paycheck.
Some of the most common reasons are:
- Overspending on things, that is spending without analyzing the available options or spending on luxuries
- Spending without thinking, that is, no track of how much you have spent and on what you have spent
- Expenses are higher than your income
After identifying the problem, try to figure out how you can fix it.
Like, if you are overspending on unnecessary things, then start planning your expenses. Set a limit to each of your expenditure as well.
If mindless spending is your problem, then start keeping a record of your expenditure.
A proper log book will help you get an idea of where you are spending and where you can reduce your expense.
If your expenses are high, and the income is insufficient to cover your budgeted expense, then try finding out other income generating avenues.
This might help you earn more and fulfill your needs.
Basically, planning your expenses, maintaining the records and analyzing your expense is something that should be done by everyone.
This is a good financial habit that each one of us should inculcate in our daily lives.
#2.Focusing on priorities and adding value
If you think that saving money means keeping yourself deprived from all the things you want, then it isn’t so. Saving is like spending efficiently.
To start saving, you need to first prioritize your desires.
Focus on the things that add value to your life, that make you happy and then analyze the amount you need to spend on each of them.
Try to find an alternate option that might give you the same level of satisfaction at a lower cost.
This will help you channelize your money in the most optimum manner and will help you save money by avoiding transactions that aren’t adding value to your life.
#3.Revise your budget
Now that you have a clear idea of the things that are important to you and where you can cut your expenses, you should update your budget.
The point here is to create a budget that reflects your values.
Be creative in making the budget. You don’t have to sacrifice all your wishes.
The budget should be such where you can feel free to spend your money in a way that makes you happy.
You should try to cut the costs that have no importance to you. There are many areas where we spend just because others are spending or just to impress others.
These are the costs that add up to our expenses. They are the unwanted costs that don’t provide long lasting happiness.
Instead, we can cut these costs and make room for more important things in our budget.
#4.Track your spending
After knowing your problem, knowing your values and updating the budget accordingly, the next important step is to track your expenditure.
Just making the budget won’t help if you still can’t keep a track of your spending.
It may be in cash or through credit cards, you must know where and how to spend.
By making this a habit, you can avoid overspending.
You will stop for a minute before you spend your money, and give it a second thought.
Trust me, this will help you put your money in more fruitful things rather than wasting it upon unwanted things.
#5.Crush lifestyle creep
The major problem with most people who live from paycheck to paycheck is that they spend more. Regardless of how much you are earning, this paycheck to paycheck problem applies to countless people.
For example a rise in your salary, a new job, a big client for business, etc has a direct impact on the expenditure bracket.
Here is when you start suffering from lifestyle creep.
With the increase in income, you feel the need to better your lifestyle and then, these luxuries become your needs.
Thus, your expenditure keep on increasing and you just break even every month.
Stop lifestyle creep before it happens!
It is simpler to keep your spending stable, than to let it spike up and cut out the luxuries.
So now you might get a clear idea about how to get rid of the vicious cycle of living from paycheck to paycheck.
You might be scared of how to start cutting off your expenses, how to start saving, etc.
But let me assure you, it isn’t that difficult.
Keep the bigger picture in your mind, think about the importance of saving and investment and start reallocating your funds.