For anyone who would rather listen to the post, here’s the SoundCloud version.
Having no extra money, or living paycheck to paycheck, and not knowing how you are going to pay for everything is tough. The stress of it can wear you down and not only just affect you, but also your family. I know that it seems like you can’t get out of it and things won’t get better. But, I’m here to tell you that it can. It’s as simple as following some steps that anyone can do. Here are the first things you should do when you’re living paycheck to paycheck.
1. Starting Point
First, you need a starting point. You can’t start the race unless you have a starting line. That’s what a budget is, your starting line. If you haven’t set up a budget yet then you can go to my post, how to budget your money for beginners. (Also, there’s a free budget template that you can print if you don’t have one yet.)
If you have all ready started a budget then make sure you’re following through with it. You can’t jump over the next hurdle if you’ve tripped over the first one. (I also don’t know why I’m using track references, I guess I just want you to see what I’m talking about visually also!)
Mastering the budget does take a little bit of time if you’re doing it right. Like I talked about in my post, Setting Goals for your Budget, it’s important to figure out what you’re over-spending on and adjust those categories accordingly. If you don’t know what you’re spending in each area how do you expect to know what to cut back on?
2. Evaluating
You have your budget set, you know how much you’re spending in each category, now it’s time to evaluate. Is there a category in your budget that you are spending a ridiculous amount on? Some of the key categories to look at here are eating out, entertainment, groceries, etc. Right now just focus on the categories that you can control.
Now, is there any way that you can reduce those costs? I hope you answered yes because there is ALWAYS something you can cut back on.
What you can Control
For example, if your grocery bill is high then check out my post on the 5 Ways to get you Excited to Save on Groceries.
If you are eating out too much then start a meal plan. Even though it ups your grocery bill a little (although after you look at my grocery post you won’t have to worry about that!) you tend to spend twice as more eating out then you would if you made a home cooked meal.
The next category to look at is entertainment. I know that this is always a category that I can reduce. This is a category that you can do without, and if you’re living paycheck to paycheck I suggest you do. I know that it can be tough because it’s nice to just take the family out, but I know that you and your family will be a lot happier when you actually have the money to take them out. There’s no need to go into debt for things that you can do away with.
Those are just some of the main categories I look at to change first. Go through each category that you can change and try to figure out what else you can cut.
What you can’t Control (or can you?)
After you’ve looked at some of the categories that you can control, like the ones mentioned above, look at the ones that you typically can’t. These are things like mortgage, utilities, insurance, etc.
These are categories that typically stay the same every month. Or do they?
I know you’ve probably read and heard a lot of ways to reduce your fixed expenses and, if you haven’t all ready, I’m going to challenge you to try it.
Look at the fixed expenses that are a little bit easier to reduce and aren’t so dramatic, such as your TV or cell phone bills.
I know you’ve all ready heard it before, but Hulu and Netflix are great options if you’re wanting to reduce your TV package. Hulu especially has all of the recent shows so I get to watch my Bachelor and Pretty Little Liars the next day it airs. It costs a little less than $100 a YEAR. I know people who are paying their TV providers $100 a month! If you are spending an outrageous amount to your TV provider than look into switching to Hulu, or even to another provider who may give you a better deal. I have been very satisfied with Hulu, and another plus is it has fewer commercials.
Another is your cell phone bill. This is the area where I see most people trying to keep up with the Jones’s. If you are living paycheck to paycheck, you have no money in savings, you have no retirement, you have no college fund for your children and you have a ridiculously high cell phone bill then you definitely need to change it. I know that everyone wants to have the newest iPhone or Samsung, but honestly, wouldn’t you feel better having a little extra money a month instead of a nice phone and no money?
One of the fixed expenses that is a little bit more difficult to manage is your mortgage. It is said that no more than 28% of your income should be spent on your house. That’s including mortgage/rent, insurance, property taxes and fees. If it is over that 28% and you’re not able to save any extra money then you may need to consider a different option.
You don’t necessarily have to move. Look to lower your home insurance, see if you can refinance if you’re paying 6% or more interest on your mortgage. Try to see if there are things that you can do to lower that percentage.
3. Extra Income
You probably cringed a little bit when you saw “Extra Income” didn’t you? It seems like nowadays everyone is like, “Just make extra money, it’s easy!” The thing of it is, it is easy. If you are reading this right now, I’m assuming you’re on a computer or mobile device. If you are then you can make extra income. We are in a technology age that is amazing in so many ways. You need to utilize that, especially if you’re living paycheck to paycheck.
Now, I’m not saying to go out and find a second job, and you may all ready have one. I’m saying that you should consider finding something you can do at home.
For instance, in my spare time I like to transcribe. I work for a really great company, Rev, as an independent contractor and I get to work when I want. They even let me pick the projects that I want to work on.
I have also worked as a social media evaluator with a company called Appen. Again, I worked when I wanted. Figure out what talents you have and look for simple ways that you can add income.
Maybe you’re crafty, consider making and selling items on Etsy. Anything extra is going to help out.
4. Evaluate even Deeper
We have now found our starting point, evaluated what expenses we can reduce in our budget, and figured out a way to make extra income.
We’re now at the second to last hurdle. This one is a little bit more tricky, I have seen a lot of people just skip this step completely. You need to evaluate even deeper. By this I mean look at things that you all ready have in your life.
One of the things I see the most is brand new cars. If you’re living paycheck to paycheck there is absolutely no reason that you need a new car, if you are making the payments on it. But, if your car is all ready paid off then just skip down to the next heading.
If it isn’t, you do not need to be paying payments on a fancy car when you have no money. The more you try to keep up with the Jones’s by buying new fancy cars the more you understand that the Jones are in debt and are not financially stable. You will be there too if you keep up with them.
You should not be spending more than 10% of your monthly income on your vehicles. Again, this includes the car, gas, insurance, maintenance, etc …
If you are spending more than that than look to see if you can reduce your car insurance rates by going through a different company. Try to see what you can change first without changing your car. If it just so happens that your car payments are the thing that’s breaking the bank for you then you need to consider downsizing. Look into trading in your car for something that is less expensive or even better on gas mileage.
Don’t worry, once you get back on your feet and have money SAVED UP for the brand new car, then you can go ahead and purchase it. WITH CASH!
Next to look at is any toys that you may have. A little side note, I grew up in the country and know how important it is to have expensive “toys”. We would go camping and four-wheeling all the time and it was definitely our favorite thing to do as a family.
Now, I know that these items can be important to you. But, the same thing with the car, if you are making payments on any of it then there is no reason you need it. Once you have money saved up and are financially stable then by all means, get what you want! (responsibly, without going back in debt.)
You can do it!
You know how I said most people skip this category? The reason is because people (myself included) are so attached to material things that the financial stability of their family doesn’t matter to them. The need to have items overrides the need to support your family.
I have been guilty of this many times, but if you want to save money and be financially free then you need to take a long, hard look at what is in your life. What is it that you don’t need that could be saving you money? What could you sell that could earn you some extra money to pay off those credit cards, or loan?
Figure out what you can stand to get rid of to make your family better.
5. Figure out your Debts
I know that that was a tough section above, I feel worn out just after writing out! If you’re still with me then you’re doing awesome! We are almost there, you can make it through! Just remember how amazing you are that you’re taking the initiative to change your life for the better and become financially free.
Our next topic of discussion is the dreadful subject of debt. Dun, dun, dun!
I won’t put you through the ringer in this section like I did the last one. Simply put, you are going to evaluate again. Evaluate what debt you have, write everything down. Now, figure out what ones you can pay off first.
I have one favorite way of paying off debt, it’s called the snowball method and I personally use and like how Dave Ramsey does it the best.
Write down all of your debts starting with the smallest amount first and going in order. This includes any little thing you need to pay such as medical bills, loans from family members, overdue cell phones bills, etc … Make sure to include absolutely everything!
Once you have all that down you are going to figure out the minimum you can pay for each payment. Now, with your extra income or any extra money that you cut out of your expenses, any extra dollar, you are going to put that extra cash to the SMALLEST debt due.
Say you have a $100 dollar medical bill and you have exactly $100 dollars extra that month, then use that $100 to pay off that medical bill!
After you pay off the smallest one you go to the next one, then the next one, then the next. You will see that as you pay off these bills you are finding even more extra money each month to pay for the next debt you have, hence the Debt Snowball.
6. Make the Changes
You did it! You’ve made it through what seems like the longest post ever, you didn’t think you’d ever get through it did you? Well you did, and again, you’re awesome.
My last step is to make the changes. You can read all day about ways to save money, make money and even handle your money. But, if you don’t do anything about it your life will never change.
80% of money and personal finance is your behavior and only 20% is having the knowledge of it.
You have to want to change and be financially free to get there. And let me tell you, it is so possible. There are so many people who are doing it just by implementing simple changes like the ones mentioned above.
I have mentioned this in a couple other posts but my husband and I are currently debt free and saving up for a down payment on a house. We are financially stable and yet live on less than $40,000 a year.
It is completely doable to stop living paycheck to paycheck and to start saving your money. But it starts with you. You have to be the one to change. If you and your family wants to be financially free then you will have to put the work into it. And trust me, the reward is so much greater than the work.
How are you becoming financially free?
Ashley says
Great tips. I’d never heard of those extra income companies before. Thanks for sharing!
McKenzy Potter says
Thanks for the read 🙂 It’s crazy how many companies are out there that are super easy to do for when you need a little extra moolah!
Tot Jones says
Thank you for sharing this invauable info!!!
McKenzy Potter says
Thanks so much for reading! Hope you were able to learn a thing or two from it 🙂
Plushy says
Great read with useful tips! Thanks for sharing!
McKenzy Potter says
You’re welcome, hope it helped! Thanks for the read 🙂
Dee says
This article was so helpful and I am ready for the challenge.