If you’re like many Americans you live from paycheck to paycheck. We can empathize because we’ve certainly been in that position. But when you’re living this way, you’re skating on thin ice and peace of mind becomes a very elusive goal. One recent study revealed that 38 million American households live like this – spending all of each paycheck. Of course, many of these 38 million households own their homes or have retirement accounts but very little or no cash on hand.
What happens when the unforeseen occurs?
The biggest problem if you live from paycheck to paycheck is what happens in the event of an emergency. You could have an auto accident or lose your job. There could be a natural. If you have no cash to fall back on what do you do in the event of an unforeseen occurrence? The fact is that if you live from paycheck to paycheck this can be a disaster. It’s not good from an emotional standpoint, either. When you do have an unforeseen event your only option is to get into or fall further into debt. Debt has a way of ballooning and your stress level can balloon along with it.
How can you break the cycle and quit living this way? Here, with our thanks to Lifehacker, are 13 real life stories of people and what they did to stop living from paycheck to paycheck.
We started a small emergency fund
One couple said their first step was creating a small emergency fund. They felt this gave them some peace of mind in the event of an unanticipated problem. They said this was the biggest part of stopping the paycheck-to-paycheck cycle. They understood that it requires time to create a true emergency fund but felt that even a small one could help them whenever unexpected expenses came their way. They kept the money in an easily accessible savings account. It was in a separate account because that almost made it “out of sight, out of mind.” When they check their account balances on their main accounts the money isn’t there so they aren’t tempted to use it. However, they did know that it was there and available if they needed it.
For this couple, step two was to start paying down debt. They felt this was another big part of getting out of the paycheck-to-paycheck cycle.
Finally, this couple said that a large part of breaking the paycheck-to-paycheck cycle was creating a spreadsheet to track daily expenses. This allows them to keep track of all expenses and income on a day-to-day basis. This also permits them to plan ahead as they can see exactly how much money they will have in two months or even two years.
I opened a second bank account
In addition to just “saving” and “making a budget” another guy we’ll call John calculated just how much money he would need to live plus a few additional bucks to make things comfortable. He then had his direct deposit salary split into two bank accounts. He put the money he needed to live comfortably directly into one account and the extra money into a new secondary account. He knows like the previous couple that there is other money available should he actually needed but that it’s a mental thing — that it’s just much easier to save money when it’s not in the same bank account he uses every day.
We flattened our monthly spending
A second couple sat down and calculated what their annual expenses were, which included things such as Christmas spending, school fees, car repairs and maintenance, vacations and so forth. They totaled these expenses and then divided it by 12. This resulted in a “monthly payment.” As an example of this if they budgeted $1200 for vacation and divided it by 12, they knew they had to save $100 a month. Once they knew this monthly total, they deposited that amount into their “Annual Savings” account. What this did for them was flatten their monthly spending so that they knew exactly whether or not they had enough to eat out that month or do something that wasn’t in the budget. It also made it possible for them to pay off their mortgage years early so they now use cash to pay for everything they need and even a few things they just want.
I paid off my student loan debt
One young man said that his finances had been a struggle mostly because of his student loan debt and that he wanted to get rid of it as quickly as possible. He has a graduate degree but works in a nonprofit so his paycheck barely covers his living expenses. Despite this he tries to save a couple of hundred dollars a month out of his main income. He is trying to build an emergency fund so that he won’t be wrecked by an unexpected expense or forced to use credit cards. He is eating very cheaply including a lot of lentils, beans and rice. He watches for supermarket deals on meat and lives in a small studio apartment. All this has helped him not only save money but also break the paycheck-to-paycheck cycle.
I started doing freelance writing
A really good way to break the paycheck-to paycheck cycle is to find extra ways to make money. One woman did this by doing freelance writing. She is unable to do this full time to develop a client base as her regular day job often requires 60+ hours a week. But this certainly does help. In addition her boyfriend will soon be moving in with her. They make about the same amount of money so if they share the rent, car payment, utilities and food costs they will be able to lighten their financial load considerably. She reports that this should allow them to start saving in earnest fairly soon and break out of that cycle for once and for all.
I cut the cable
Do you spend somewhere in the neighborhood of $100 a month for cable TV? A guy we’ll call Robert totaled this up and realized he was spending $1200 a year to watch TV just a few hours a day. He eliminated his cable service and changed his cell phone plan, which got him down to $15 a month while his friends were still paying from $50-$100. He also stopped eating out and learned to cook. He found that this also helped him make new friends. He discovered that when he shopped at farmers markets and places where you can get real food, it opened his eyes to a lot of tastes beyond cheese, sweet, salt and deep-fried – and he has save massive amounts of money.
My wife is becoming an electrician
How would you feel if your wife became an electrician? A woman in Oregon got sick and tired of working retail. She was earning the maximum for her type of job at $14.50 an hour and couldn’t earn any more without going into management, which she felt was its own special hell. Her husband encouraged her to get training that was offered for women interested in the trades. She took this training and is now three years into an apprenticeship as an electrician. The schooling she got to learn her trade was free and she gets paid about two times as much now as previously, and will make even more after she’s completed her training. Her husband advises people to look to trades and trade schools instead of colleges these days. They need more people, pay really well and offer great benefits. It’s way better than what the service industry and retail jobs offer and at the same time you end up with a profession you can be really proud of.
I live off of other people
One man admits that he makes ends meet by living off of other people. He also rents rooms dirt cheap instead of apartments. These rooms are usually cramped and small but they cost less and sometimes there are odd rules like the time he lived in a commune where everyone shared everything. He preaches you should watch what you spend and spend only on those things you really need.
I have a small savings habits
While you might be able to save big by cutting out those large expenditures like cable or entertainment, it’s also possible to do as this man did and develop small savings habits. He learned to cut his hair with a buzzer rather than paying for a haircut every month or so. He asks his friends and family to give him Amazon gift cards for Christmas and his birthday and uses them when he needs to replace something such as work shoes. He also learned the value of eating an early dinner and buying his drinks pregame instead of at the sporting event where you pay lots more. He also now walks to work.
YNAB or You Need A Budget is a program designed to help people create and stay on a budget. “Jim” says it has been a godsend. It helped him go from being in serious trouble every month to having a surplus and a savings account for expensive trips. He found that it was amazing how much control he had over his finances when he could see where his money was going. He feels YNAB is better than most other budgeting systems because it links his home computer to his cell phone enabling him to enter all information about this spending immediately. If he sees that one of his budget items has gone red (spent more than he had budgeted) he just moves money around to fix it.
I had a “realization”
One person commented that his break through was when realization stepped in – and he realized he was just living from paycheck to paycheck. What he did to break the cycle was to first learn minimalism — that possessions don’t make you happy. He had always hated the thought of having to stay accountable but has learned the benefits of it. He tracks every single dollar he spends. He reports that there are plenty of apps out there that do the job very well. He also maintains a large gap month in and month out. This is the gap between his income and his expenses and, of course, the larger the gap the better.
One person stopped the paycheck-to-paycheck cycle when he realized that his money was being spent on a lot of little things over the course of a month. He stopped buying little trinkets because they were just a dollar or a shirt because it was on sale. He eliminated cable TV and switched to a cheaper phone plan. He said he has also gotten better about shopping for groceries. By doing all this he was able to save several hundred dollars a month and used the money to pay off his debts. He was able to buy a car and pay it off three years early. He now makes sure that he has at least $2000 in the bank for unexpected emergencies. He found that one of the best things about paying off his car is that he could then raise the deductible on his insurance to a higher amount, which has also saved him money.
I pay myself first
This is an idea that was popularized by Warren Buffett. The secret according to one commenter is to make savings and investments part of your budget. Know how much you’ll invest each month in your 401(k), in paying down your debt and putting in your savings account. Put these funds into their respective categories immediately. If at all possible set it up so that the money is automatically withdrawn from your checking account and deposited into those other accounts. He found that if the money isn’t just sitting there all month he’s less tempted to spend it on a whim.