According to CareerBuilder, about 78% of Americans are living paycheck to paycheck, and according to the Federal Reserve Board, 39% more will be unable to pay their bills for the month if they were suddenly faced with a $400 emergency. These are grim statistics for a country reputed to be the richest in the world.
If you are part of the statistic cited above, there’s no need to worry, in this post, we are going prescribe four simple steps to help you get out of the rut.
However, before we share tips on how to get out of the circle of living paycheck to paycheck, we must first discuss how most people get into the problem in the first place.
Why Do People Live Paycheck To Paycheck
It will be easy to ascribe the scorch of living paycheck to paycheck to the high cost of living and low relatively salaries, but that will only be partially true. Here are some of the reasons why people live paycheck to paycheck.
America Has A Consumerist Culture
We are always buying something. For some people, it is not enough to have a home and a car, they want an RV, a vacation home, a new phone every year, designer clothes, and so on. We are always buying the latest trendy item. That’s because the American people are probably the most “sold to” people anywhere. You can’t go anywhere without someone trying to sell you something. When you turn on the radio, TV, computer, phone –everywhere, someone is trying to sell something to you.
The Cost Of College Is Extremely High
Millions of Americans are living under crushing student loan debt. Unlike other kinds of debt, you can’t extricate yourself from your student loan by filing bankruptcy. The average student loan debt payment of $393 a month is a lot of money that could go to other necessities.
Many People Do Not Have Healthcare
It is not uncommon to see families go into bankruptcy because of a medical bill they couldn’t pay. Healthcare and health insurance are very expensive.
Poor Public Transportation System
A poor or non-existent public transport system necessitates the purchase of private cars. The average monthly car note payment is $550 for a new car and $393 for a used car. A very good public transport system will obviate the need for so many people to take on a car loan.
The High Cost Of Rent And Mortgage
The cost of living in America is high, and admittedly, that’s part of the reason why people are living paycheck-to-paycheck. For example, as of March 2020, the median rent for a one-bedroom apartment in the United States was $1,291. This brings to mind a hilarious political party in New York called “The Rent Is Too Damn High” party. The party’s founder ran for Governor of New York and his platform was solely animated by the cost of rent in New York.
Those are just a few of the reasons why people live paycheck-to-paycheck, and below are a few tips on how to break the circle.
Develop A Budget And Track Your Expenses
The very first step to breaking the circle of living paycheck to paycheck is to have a proper accounting of your finances. You can do this by developing a budget.
Your budget will show you how much money you made and how you spent it, but more importantly, it will serve as a plan for how to spend your money going forward.
How To Succeed With Your Budget
To succeed with your budget, you need to allocate all your money to various spending categories beforehand. For example, you may allocate $300 for food, $250 for utilities, $1200 for rent, savings $350, etcetera. You need to allocate every single cent.
Once you’ve done this, try to spend according to the categories for which you budgeted. Try not to spend money on anything that isn’t budgeted, and try not to overspend the amounts allotted to the various categories.
There are tools out there to help you succeed with your budget. One of the most effective ones is YNAB (You Need A Budget).
YNAB (You Need A Budget) is a zero-based budgeting platform that syncs with your bank account and records all you purchases when you make them using a YNAB-linked card.
[READ: YNAB App Review: Pros & Cons]2. Cut Cost And Live Below Your Means
Living below your means does not mean living in poverty. It only means you should take a critical look at your spending habits and cut out non-essential items.
For example, do you have two cars? Do you have subscriptions you don’t use or clothes you don’t wear? Do you buy food you don’t eat or an expensive habit? Whatever it is, try to cut it out and put the savings in an emergency fund.
If you develop your budget using the YNAB app, the app will make it easy to spend your money according to your priorities.
3. Establish An Emergency Fund From Your Paycheck
Nobody knows what the future holds. Having an emergency fund will help assuage the shock of a financial emergency.
If you don’t have an emergency fund, a $1000 emergency will throw a monkey wrench into your carefully winded paycheck-to-paycheck situation. It could impede your ability to pay your rent, car note, credit card or utility bills.
With the YNAB budgeting app, you can allocate a certain portion of your monthly paycheck to establishing an emergency fund.
[READ: 10 Best Budgeting Apps To Manage Your Finances]4. Get A Side Job To Supplement Your Paycheck
Most people who get side jobs get it to make ends meet. However, you can also use a side job as a stepping stone to get out of your paycheck-to-paycheck situation.
You can allocate a quarter or even half of your paycheck from your second job to establishing an emergency fund or a savings account.
There are many places on the internet to find side jobs, part-time jobs, online jobs, or work from home jobs. Whatever your preferred job is, you can find it on websites like Flexjobs.com.
Flexjobs is an online platform for people looking for part-time jobs on the side. You should sign up and browse their vast array of jobs.
[READ: Online Jobs: 30 Work From Home Jobs You Can Do As A Freelancer]Final Thoughts On Living Paycheck To Paycheck
Many people spend their entire lives living paycheck-to-paycheck. While this very stressful situation can easily lead to financial ruin, you can also free yourself very easily. Follow the simple tips we provided and you will be on your way to financial freedom.
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