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Living paycheck-to-paycheck sucks. I think all of of us have been there at one time or another. You know the feeling – the money from tomorrow’s paycheck (and then some) is already spent before you even have it. Many of us are stuck there, and can’t seem to get out.
Here’s how to stop the cycle of living paycheck to paycheck.
Did you get a raise at your job? You might have hardly noticed as the extra money seems to get sucked up by life.
Some have chosen a lifestyle that takes every penny from them in an effort to “keep us with the Jones'”. For others, a lost job or other financial hardship has made it a struggle just to get food on the table. We have been in both camps, and neither is fun. We started in the first camp – buying nice things that we couldn’t afford, and then ended up in the second camp with a job loss.
Is today’s economy harder than in previous decades? For sure it is. Over the past 15 years, wages have simply not kept pace with the cost of living. But that doesn’t mean that we have to spend everything we get. However, sometimes we are dealt a hand that requires us to spend our every last dollar, but it is very dangerous to become accustomed to living that way. So you NEED TO GET OUT OF IT.
The hardest part about getting out of the paycheck-to-paycheck cycle is that the drawbacks of this lifestyle, the reason you’re there, and the reasons you’re not getting out are one in the same. That is the textbook definition of a vicious cycle.
But it’s more than that. It’s a CRAZY cycle with everything affecting everything else… all factors working to keep you where you are.
I’ll show you what I mean by giving a few examples.
1.) Drawback #1 of living paycheck-to-paycheck: You forget what to do when you get a lot of money.
Sound familiar? You’ve spent so much time spending every dollar you get that your brain forgets how to NOT spend money when you get it. It’s become habitual.
When we were broke, tax return time was a blessing. But it never got us as far ahead as it should. With our $3,000 windfall, we would use some of it to pay off debt, some of it to “treat ourselves”, and then the rest would just sit there in the checking account and get piddled away. A month later it would be gone, and we would be back to square one.
And since we didn’t have an emergency fund set aside, that debt we paid off would eventually creep back the next time we had to fix the car or pay for a root canal. And wouldn’t you know it… next year at tax return time, we were in exactly the same spot and will repeat the cycle again.
Most of the time, not knowing what to do when you get a windfall is what got you in this situation to begin with. But it’s also keeping you there.
2.) Drawback #2 of living paycheck-to-paycheck: A small emergency will lead to financial panic.
The car breaks. A trip to the ER leaves you with a $1,000 deductible to pay. Your sewer backs up. Every single day brings a risk that you will have to shell out more money just to fix something.
When your budget is on a razor thin margin, just about anything can send it into a tailspin. The only solution available is usually to accumulate more debt, which leads to additional monthly payments and even tighter budget.
You might have once been in a position where you made more money than you need, but a streak of financial catastrophes means that that is no longer the case. If you’re not planning for emergencies, sooner or later you will be living paycheck-to-paycheck.
3.) Drawback #3 of living paycheck-to-paycheck: You have trouble planning for the future.
How can you even begin to think about being debt free, planning your retirement, or helping pay for your kids’ college when you can hardly guarantee that your current months’ bills are paid? During those years of financial hardship (which we hid well, by the way), I remember listening to friends and co-workers discuss their retirement investments and what retirement age they were targeting.
I sheepishly nodded along pretending like I was on the same page. But there were a couple years where I couldn’t even afford to contribute to my own 401k! Yes, there was a match, and I left that money on the table (I am hanging my head in shame as I write this).
A total lack of financial freedom… a prison that I wasn’t ever going to break free of. Not being able to plan for my family’s future was a horrible feeling. But again, my lack of foresight about the future was one of the contributing factors leading me into the situation. And it was also keeping me there.
So how did we stop the cycle? And how can you stop the cycle?
Any number of financial experts can give you some great lists of what steps to take, and trust me, you need to have an action plan. You need to get an emergency fund, you need to proactively budget, you need to spend less, and you need to try to make more money. But chances are, you already know this.
What you don’t know is that you can do it. For any plan to work, it all starts in your mind.
1. Start thinking differently and set a budget. If you need help getting started with a budget, please let me help! I want you to download this FREE budget pack – just click below:
2. Stop being comfortable.
4. Get an emergency fund!
A natural human tendency for any situation is to accept it and cope. But just because you make enough money to pay your bills does not mean that you are “doing ok”. Ask these questions either to yourself, or your partner:
Do these questions make you squirm? If so, good. Let that uncomfortable feeling propel you towards making different choices in the future than you have in past. Recognize the decisions and circumstances that led up to your current financial situation and make different ones. Resist the temptation to be comfortable and do not accept your current financial state as the norm.
Here’s how to start: Stop spending every dollar you get. Trust me, I understand what a tight budget is like, when every dollar (and then some) is accounted for by your monthly expenses. But you can find some money, it might just be $50 or $100 a month. Find it and don’t spend it. This money will be put to use by saving for an emergency fund, or paying down debt.
So why is an emergency fund so important? It’s the first actionable step that breaks the cycle. It is money you set aside so that when those small emergencies occur, it won’t cause financial panic. Just $1,000 in the bank can CHANGE YOUR LIFE. This first step can break the crazy cycle.
Did you get a tax refund? Are you having a garage sale? That’s where the money should go if you don’t have one in place.
No matter what your paycheck is, the money is there… somewhere. You just have to find it. There are many like you who have broken free from the paycheck-to-paycheck cycle and you can too.