According to a recent report from CNBC, an astounding 63% of Americans are living paycheck to paycheck. If you allow yourself to live paycheck to paycheck, all it takes is one accident to force you to take on debt. Once you take on this emergency debt, potentially at a high interest rate, it can force you to spiral because you are still needing all of your income to live on each day with little to no money left over to pay down the debt. Hopefully, this article provides you with ideas and peace of mind that it is possible to prevent yourself from these situations and the anxiety that accompanies them.
Track Your Expenses - And Cut Them!
The best starting point to get yourself out of this hole would be to start tracking your expenses. This doesn’t mean budget necessarily, just track where your money is being spent so you can have an honest understanding of what your living expenses are. Once you’ve tracked expenses, you should now have an understanding of the typical surplus or deficit each month is. If you’re living paycheck to paycheck, most likely you are breaking even each month with minimal to no surplus/deficit. If this is the case, then the next step is to evaluate where the expenses are going, and make a decision on what expenses to decrease. From here, you will need to make a conscious effort to make sure these expenses stay lower like you’ve planned over the coming months.
Save the Surplus
If you follow the above steps, it means now you will have a surplus each month moving forward. The key to getting yourself away from living paycheck to paycheck is to now put this surplus in the bank, and don’t use it! Continue piling up this bank account without using any of it until the account grows to between three and six times your monthly expense need, which you calculated earlier. Typically if you are in a single income household you should be closer to the six times side of this range.
Don’t Touch It
Now comes the easiest part. Don’t touch this pile of money under any circumstances aside from emergencies. Don’t use it for a vacation, don’t use it to pay the monthly bills, don’t use it period! This pile of money is now reserved for emergencies only. Before this exercise if an emergency popped up such as car repairs or a medical expense, you likely would have had to pay using a credit card or loan of some sort. This debt would then accrue interest and would spiral until you found a way to get it under control. Instead, now you can be sure if an emergency happens you have a fund set aside to immediately pay for the expense. You should no longer have anxiety about any financial problems arising which is good for your health, and the feeling of stringing along your finances until the next paycheck should be gone as well. All of a sudden, you have less financial stress than 63% of Americans, and this is a terrific feeling!
Getting away from living paycheck to paycheck is beneficial both financially, and physically because of the anxiety relief. Furthermore, it can open your eyes to a new way of living and saving towards your financial goals. If you want to talk with a financial planner about putting together your plan moving forward, please call our office at (734) 681-7575 or email me directly at email@example.com.