Break Out of the Paycheck-to-Paycheck Cycle - Quicken Loans Zing Blog

Are you living paycheck to paycheck? If so, according to a Bankrate.com survey, you’re hardly alone. Their survey indicates that approximately 76% of Americans fall into this category and have little to no emergency savings. This means that one home- or vehicle-related emergency or health scare could put most people in a serious financial pinch.

I’ve always considered myself to be financially responsible. But after moving from Michigan to Washington, D.C., I found myself living paycheck to paycheck. My cost of living had jumped by $400 a month and I found myself paying more than $120 a week in public transit expenses. To make this move, I also took a pay cut, so I was definitely living on a tight budget. In this time, I found it near impossible to break free from the paycheck-to-paycheck cycle. I want to share some of the steps I took to break out.

Recognize the Pattern

I was living paycheck to paycheck for over a year before I realized that I was contributing zilch to savings or retirement. My routine was money in-bills out without acknowledging that I was on a financial merry-go-round with no stopping in sight. That experience taught me to ultimately acknowledge my financial problem or circumstance. It was a great time to revisit which decisions and influences that got me into my troubling financial situation. Identifying the problem has to occur before change can follow. This step empowered me to make different and better decisions.

Study the Budget

According to a 2013 survey, approximately 32% of Americans use a budget, while everyone else appears to dictate their spending around impulse buys and last-minute planning. During this season of my life, I definitely wasn’t using a budget. I had no idea how much I was spending on food, gas and other utilities from month to month. This was a huge mistake because knowing my monthly expenses would’ve been a great place to start when trimming my personal budget.

If you’re like I was – with no budget – start by writing down your fixed and variable expenses and income. Fixed expenses remain the same from month to month, like rent payments, while variable expenses fluctuate like grocery bills or fuel costs. You may be surprised to see how much you’re spending on eating out, entertainment or other things that aren’t priorities. Consider downsizing your discretionary spending to put away money every month and write out your short-term and long-term financial goals. It may be helpful to divide your spending into needs, wants and savings. This will help you visualize where your money is going and help you begin to track your spending using online banking or by saving your receipts.

Cut Spending

I believe everyone can easily find ways to reduce their monthly expenses. Whether it means switching to a cheaper brand of peanut butter or cutting back on social outings with friends, there’s always room to save.

Here are some things you can do after analyzing your monthly expenses. Implementing these could add up to hundreds of dollars in savings:

  • Shop around to compare prices
  • Trim your cell phone/cable package
  • Take advantage of discounts
  • Shop thrift stores
  • Utilize reward programs
  • Cut out bank fees
  • Look for freebies
  • Became a clearance shopper
  • Use coupons
  • Get creative for ways to enjoy entertainment

Start Saving Now

I think we make saving money harder than it should be. Many people might think that building a savings or saving for retirement means setting aside hundreds of dollars every month, which isn’t true. Starting small is more important that not starting at all. Commit to saving $25 a paycheck and later increase that amount. Build an emergency savings of three to six months of income. Try to use tax refunds, work bonuses, holiday money gifts and other windfalls to build your savings.  The Penny Hoarder has a few easy ways to get started.

According to the National Institute on Retirement Security, the average household headed by a retirement-age adult has only $14,500 saved in a retirement account. Many people feel defeated before they even try to save for retirement because they get hung up on the years of lost time and missed opportunities with compounding interest. Get aggressive now so you have a nest egg by the time you reach retirement age. Standard tax-advantaged plans – like 401(k)s and Individual Retirement Accounts (IRAs) – are a great place to begin.

Boost Your Income

It may be time to take on a part-time job, take on extra work or create a passive income. Passive income is an investment or business venture that generates wealth with little ongoing involvement on your end. Passive income examples include publishing royalties, profit from business partnerships, dividends from equities and rental income.

Consider checking out websites like Gigwalk to get paid for odd jobs from businesses in your area. Or, you may also have a talent like photography or web design that you can advertise on websites like Craigslist under the Gig section. Consider selling some of your unused items on resale sites like eBay, too.

Ask for Help

Living paycheck to paycheck can be a stressful way to live. A cash-strapped lifestyle can leave you coping with high emotions and hopelessness. It can lead to anxiety, depression, weight loss or gain, lack of sleep, smoking, recreational drugs, ulcers and other health problems. For me, I was frazzled trying to keep up with the Joneses by living beyond my means and socializing even when my budget didn’t permit. It’s important to recognize when you’re stretched and seek outside counsel to brainstorm solutions.

It’s easy to start criticizing or blaming yourself about your financial situation, but that won’t help solve your problems. In addition to consulting a financial coach or therapist, ask for advice from someone you trust who can offer some constructive support. The simple act of sharing your financial frustrations can make you feel better.

When it comes to breaking out of a paycheck-to-paycheck cycle, it’s important to focus on what you can control. You won’t have the power to lower all of your expenses but there are a lot of things you can do. Be prepared to make sacrifices in order to improve your financial health. It could mean downsizing to a smaller apartment, carpooling to work or packing your own lunch for a while. Stay focused on the big payoff and the light at the end of the tunnel. Check out these blogs for budgeting ideas and more on living on a small income.

Related Posts

This Post Has One Comment

  1. The issue is we aren’t looking for investments that create a positive cash flow that we can control. 401K only allows a certain amount per month per year. So there is no way we increase the amount once we reach that limit. However if we take for example $1,000 and purchase products that can be resold at a 50% margin or higher, now you just took that $1,000 and made in to $2,000.

    I did this with an $800 dollar investment on a Moon Bounce. And it grossed me $3,000 over the course of 6 months. Get creative and look for a second income that you can even put on auto pilot.

    Try getting $1 – $10 dollars from a million people and you’ll see the difference.

    Check out my video on Salary Advances and how you can use it at seed money to start a business: https://www.youtube.com/watch?v=sHVTp3wugoQ

Leave a Reply

Your email address will not be published. Required fields are marked *