2/24/2014 4:15 PM ET|
How to stop living paycheck to paycheck
Changing your spending habits can lead to financial freedom.
Living paycheck to paycheck is stressful, and it doesn’t take much to turn a paycheck-to-paycheck lifestyle into a financial disaster. What if your car breaks down? Or, you need to take extended sick leave from work? Or, your company lays you off?
If scenarios like these strike fear into your heart, it’s time to change your financial situation. It won’t be easy. Yet, the peace of mind will be worth the effort and sacrifice. To get off the paycheck-to-paycheck treadmill to reclaim your finances and your life, try these four steps:
1. Take a survey
When it comes to personal finances, many people try to make changes without knowing what they need to adjust. You might think you’re spending too much on groceries, for instance, but maybe you’re really overspending on entertainment. Or, you may assume paying off your credit cards will be the fastest way to free up extra money, when you really need to downgrade your car. So before you set any financial goals, take time to do a thorough personal financial audit. What are your biggest bills each month? Where are you spending money that you don’t even realize you’re spending? You might be surprised at how much you don’t know about your spending habits. Arming yourself with knowledge is a great way to get started.
2. Set attainable goals
You won’t get anywhere financially if you drift along aimlessly, trying only to put food on the table and pay the electric bill on time. But you may start to see progress if you simply set some goals. Goals will focus your efforts and lead to success. Start by setting smaller goals that are easily achievable. Reaching these small goals will give you the confidence you need to tackle larger, longer-term goals. A few goals you might start with include saving $100 a month for the next three months, paying off $1,000 in credit card balances by March, trimming $50 a month off your grocery bill and tracking every dollar’s worth of spending for 30 days. These goals are baby steps, but any one of them will help bring your journey toward financial freedom. Once you achieve a tiny goal, set a slightly larger one.
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3. Make your budget realistic
Now that you know where you’re overspending and what your first financial goals are, it’s time to budget. But don’t go about this the wrong way. Too many people budget based on fantasy rather than reality. If you’ve been spending $800 a month on groceries, you’re not going to whittle your grocery budget down to $400 a month overnight. Start by setting a budget based on what you’re already spending. If you’ve spent $750 to $800 on groceries for each of the past three months, budget that much each month. You know you’ll have enough, and you won’t go over budget.
4. Be pound-wise
Have you ever heard the phrase “penny wise, pound foolish?” It’s a phrase that refers to our tendency to get wrapped up in the small things, so that we miss the larger, more important ones. If you spend all Sunday afternoon clipping 25-cent coupons, but then order $30 worth of pizza for dinner, you’re probably being penny wise but pound foolish. When tackling your financial problems, it’s important to look for the areas of biggest impact. Eliminating your $80 a month cable subscription will have a bigger impact than cutting out that $3 a week you spend, for instance, on the occasional drive-thru coffee. You’ll save even more money if you drop your cable subscription and drive-thru coffee, but the cable subscription has a much bigger impact.
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So to begin this journey, look for the three biggest changes you can make in your finances among such things as: refinancing your house, paying off high-interest credit card debt, downgrading your car, eliminating several restaurant meals a month.
These changes could lead to significant progress, more than smaller changes you may make later as you gain momentum in your financial freedom journey.
More from U.S. News & World Report
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In this economy, it's easier said than done for even some of the most frugal people. A friend, who is a CPA, has always had a good-paying job, and who is one of the biggest tight-a**es in the world when it comes to money, is struggling to keep his family supported. He's been let go from 2 good-paying jobs. The first was because of the gas crunch that helped to devastate the economy. The last was because of Obamacare. (his boss flat-out admitted that was why). Now he can only find part-time employment, (in large part because of Obamacare... very few companies are hiring full-time employees). A man who used to support his family with ease, who has never been a big spender, is now struggling financially just to make it from one week to another.
How's that "hope and change" looking...?
This article does make some good points. Prioritize your spending. I know people who can't make their mortgage payment, but have a new smart phone every 6 months, unlimited data, digital HD cable, internet, PS3, 20+ games for said PS3... their cable and internet and cell phones never get shut off, but their mortgage goes unpaid... priorities.
We all 'want' nice things, but we don't 'need' nice things. Thank goodness my wife is stingy with our money... I have a tendency to 'want' more than we 'need'. Then again, I do have to force her to do something for herself every now and then.
If you're living paycheck to paycheck, cut back on those things, cable, cell phone (what??), X-Box Live subscription, internet... (what??), yeah there was life before cell phones and home internet. People will have to learn to leave a message on your land line, and you may have to visit the library more often or borrow your neighbors wifi every now and then to check your email. I used to drive to my parents house, sit in their driveway and use their internet to do my on-line class and turn in assignments when I couldn't afford internet while I was unemployed.
refinancing your house, paying off high-interest credit card debt" This is an extremely UNwise thing to do. Why trade unsecured debt for secured debt? If you default on Credit Card debt the worst thing that happens is you will have bad credit. In rare cases in some states you may risk having your wages garnished. However if you default on a 2nd mortgage you face the real risk of foreclosure. Never consolidate your unsecured debt with secured debt.
Moreover if you are an undisciplined spender which most are that have to get consolidation loans, that extra money at the end of every month will burn a hole in your pocket and you will just spend/waste it anyway. Or worse, you will . open up those paid off credit cards again, then you will be in worse shape than before .
ASK yourself, when tempted to buy something, "Can I Afford It" That is also the title of a good segment on the Suze Ormon Show, Sat nights at 9:00PM on CNBC If you cant pay cash, you cant afford it. Say NO to your kids and yourself on all the 1001 things that you don't need. Then you will soon NOT be living paycheck to paycheck.
Live below your means.
Everyday you see people with these nice "things" cars jewelry, houses, newest cell phones ect. but then at work you hear them complain of bills and debt and what not.
If people would just realize you don't need a new car when a used on of the same model will work just fine, or the hottest new phone has no new feature they'd use over the previous one they would be in better shape.
Also if you have direct deposit break your check into different accounts I put 7% in an emergency fund account and another 7% in another account to save for a house, car ect .
#1: Stop voting Democrat
#2: Never lease, buy 2 year old used.
#3. Buy store brand products
#4. Drop the gym membership, you're fat, accept it.
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