Are you sick and tired of living paycheck to paycheck? Do you get to the end of the month feeling as if you have just scraped by and desperate for your next pay packet? If so, you’re not alone. Over 11.5 million people in the UK are living this way, according to a survey by Fincap.
In this post you’ll learn how to break the paycheck to paycheck cycle once and for all, leaving you with more money to reach your financial goals.
Table of Contents
What is living paycheck to paycheck?
Living paycheck to paycheck means that all of your money comes in and then goes right back out again by the end of the month.
You may think that this is no big deal, but it can be an extremely stressful way to live; always wondering if there will be enough money to pay each bill. It also means that you are unable to plan for the future, as there’s never any money left to save.
But even if you’ve been living this way for years, it doesn’t mean it always has to be like this. Let’s take a look at how we can break this vicious cycle.
Create a budget
Creating a budget is a crucial element of financial health. It will ensure that you are telling your money where to go, instead of just letting it slip through your fingers.
The key to successful budgeting is to create a budget that is realistic and works for you. There is absolutely no point in creating a budget so stringent that it leaves you with no pleasures in life at all. So, make sure you allow yourself a little ‘fun’ money, even if it’s just enough for a fancy coffee to look forward to, and you will be much more likely to stick to it.
Live below your means
Living below your means, spending less than you make, is a sure-fire way to free up money within your budget. Even if you get a pay rise, try not to increase your spending. Use the extra money to either pay down any debt or grow your savings.
Living below your means will ensure that you’ll never have to go into debt to pay your bills and will always have that extra buffer there in case there’s some kind of emergency.
Track your spending
This is a must! Track every single penny you spend. This is the only way to see exactly where your money is going. You can use a dedicated expense tracker, an app, or just good old pen and paper.
Go through your list and see where you’re wasting money. When you’re aware of where your money is being wasted, you can take steps to stop it from continuing.
Reduce your expenses
There are so many ways you can reduce your expenses. Can you save any money by negotiating your insurance policies? Can you swap your expensive phone contract for a cheaper SIM-only deal?
There more you are able to bring your monthly expenses down, the more money you will have to last until the end of the month and the more likely you are to be able to build savings.
Increase your income
If you have cut your expenses back as much as you can and you still find that you’re struggling towards the end of the month, it may be time to start thinking about ways to increase your income. Can your boss offer you extra hours? Can you get an additional part-time job? How about doing something from home? I took up matched betting to help pay off debts and it was one of the best things I ever did. I also completed surveys online and sold things from around the home.
Create short term and long term goals
Setting financial goals, both short-term and long-term, will help to keep you motivated and on track. Ask yourself where you want to be in two years. And in ten years. Then think about what you need to do in order to achieve those goals.
For example, if one of your short-term goals is to pay off a credit card debt of £1,000, work out a realistic timeframe in which you can do this. Then work out how much you would need to pay back each month in order to achieve that goal. If your aim is to have the debt cleared in two years, you will need to pay back £41 each month. If this isn’t doable, can you further cut your expenses or increase your income?
Long-term goals include things like saving for retirement or saving up for your child’s education. By knowing your end goal, you will find it easier to stay the course, rather than bumbling along aimlessly.
Pay yourself first
Make yourself your priority. Every time you are paid, set aside a portion of your pay for your savings/investments.
The general consensus is that 20% of your total salary is the ideal amount to save, but if you aren’t at that stage yet just saving 1% is a great start. It will get you into the saving mindset and you can always increase the amount as you progress.
If you’ve been living paycheck to paycheck, you’re probably thinking ‘I don’t have any spare money at all. How on Earth can I pay myself first’? But if you’ve taken the time to create a budget, you’ll find that there are many things that can be cut out. Do you really need to buy a sandwich every day? Couldn’t you just make one instead? Can you cancel your gym subscription and work out at home instead?
Setting up a monthly automatic transfer will make paying yourself so much easier. Simply treat it like any other bill. Set up the payment and then forget about it.
Learn to say no
Sometimes, as much as we’d like to do something, we just have to say no. Be honest with friends and family – tell them why you’re saying no. They will understand. Explain that you would love to go out but that you just can’t afford it this time.
It’s even harder when you have to say no to your children. Maybe they want to start a new after-school activity, or maybe they want a toy or pair of trainers they’ve seen. The guilt will kick in as we feel that we are depriving them in some way. But you will be teaching them a valuable life lesson – we can’t have everything we want.
Saying ‘no’ is hard. But living paycheck to paycheck is also hard. You have to choose your hard.
Pay off debt
Nothing works harder at keeping you living the paycheck to paycheck cycle than being in debt does. Do everything you can to get rid of your debt. Once it’s gone, all of that money that was being sent to the debt can be used to build wealth.
Save up for big purchases instead of using your credit card
We live in a society that craves instant gratification. We have normalised wanting something and getting it straight away, instead of saving up and waiting until we can afford it. This was a huge factor in my husband and I building so much debt and struggling to meet our bills. We wanted a newer car – so we took out a loan to buy one. We wanted the latest buggy for our children – so we put it on a credit card. It never occurred to us to save up for these things and no one ever showed us that there was another way.
Now, if we want something, we save for it. We use sinking funds to do this and it’s been a game-changer for us. We work out how much money we need for a purchase, give ourselves a timeframe, work out how much we need to save each month to reach that goal, and then set up an automatic transfer for that amount to our savings account.
Do a no-spend challenge
Taking part in a no-spend challenge is a great way to save up a large amount of money quickly. You can then use this money as a buffer or as an emergency fund.
Understand the benefits
If you don’t understand the reasons why you are doing something, you are likely to fail. Try to get a really good idea as to why you want to stop living the paycheck to paycheck life.
- Less stress, as you know you will always have enough money to pay your bills
- Better sleep as you won’t be constantly stressed about money
- You will be able to work towards your financial goals
- Less conflict over money with your spouce/family
- Knowing you will be able to help your children financially if they need it
- Feeling more content
- No more worrying about the future, as you will be able to start saving money
Final thoughts
I hope that after reading this post you feel more confident about being able to break that cycle. By following these steps, you will be able to free up some of your hard-earned money and take those first steps in working towards your financial goals.
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