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Budgeting & Saving

Living Paycheck to Paycheck? Regain Your Financial Independence

If you aren't currently living paycheck to paycheck, chances are you know someone who is. A 2017 survey by CareerBuilder found that 78% of U.S. workers are living paycheck to paycheck, and more than 25% do not set aside any savings each month.

Separately, a new study from CreditLoan.com shows that 86% of Americans say they've been "broke" in the past or are currently broke.
But here's the good news: You can have financial independence, or at least start saving some money every month, after making some relatively minor changes. The key is to pinpoint overspending, find strategies to cut expenses and boost your monthly income.

If you're living on the fringe of the economy, or know someone who is, read on for a way out.

1. Analyze Your Expenses

People live paycheck to paycheck when their expenses equal their income. To put it simply, that means no money is left over at the end of the month. The first step to getting out of that cycle is to figure out what your expenses actually are.

Most people think they know how much they spend, but even consumers who actually tracked their spending underestimated the numbers by 20%, according to The Wall Street Journal.

Make a list of all your bank and credit card accounts and look at your last month's statements. If you've never analyzed your expenses, it can be shocking to see where your money really goes. Divide all your expenses into separate categories, such as:

  • Housing
  • Health insurance
  • Childcare
  • Loans
  • Utilities, internet and cable
  • Groceries
  • Personal care
  • Transportation
  • Entertainment
  • Miscellaneous

2. Lower Your Monthly Fixed Expenses

Once your spending is classified into categories, you can see where the money is going and if you're spending too much. Go through your expenses and what you can remove or reduce. Have a Netflix, Hulu, and HBO Now subscription? Pick the one you use the most and cancel the rest. Going to out for lunch three times a week? Start meal planning the night before so you don't have to get takeout.

You don't need to eliminate all fun from your life, but you should find ways to make your lifestyle more affordable. If you love going to the movies, try matinee showings to save a few bucks. If happy hours with your friends are a weekly tradition, invite them over to your house instead of going to the bars.

3. Create a Budget

Now that you know how to track your spending, it's time to create a budget. A budget is the best map to financial independence, so trying to become financially independent without one is like planning a road trip without directions.

Make a budget based on your current expenses and include categories for future goals, like saving for retirement or replacing your car. You can use a paper and pen budget system or an online tool like Mint.

Compare your spending to the budget at least once a week to make sure you're staying on track. It's OK if you splurge and veer off course every once in a while. A detour won't stop you from reaching your destination if you stay focused.

4. Earn More Money

After you've slashed unnecessary expenses and created a budget, it's time to address the other half of the cash flow equation: earning more money. It's easier said vs. done, but making more money is an equally important part of breaking out of the paycheck-to-paycheck cycle.

You can make more money via the traditional route, like asking your boss for a raise or signing up for overtime shifts at work. Side hustles are another popular option, like driving for Lyft or Uber, renting out a spare room on Airbnb or delivering food for Postmates.

You can even make a side hustle out of a special talent, like painting houses, tutoring kids or grooming dogs. The more specialized your skill set, the more money you can charge. Don't be shy about wanting to make more money. Advertise your hustle on social media, tell all your friends and ask them to spread the word.

5. Keep an Emergency Fund

Now that you have more money coming in, it's time to set up an emergency fund. An emergency fund pays for all the unforeseen expenses you can't plan for, like a new battery for your car or a trip to the vet for your cat. A rainy day fund keeps you from taking out a payday loan or relying on credit cards, both of which can lead you right back into the paycheck-to-paycheck cycle.

A basic emergency fund should have at least $1000 and be kept in a savings account where you won't use it for concert tickets or a new purse. Once you have $1000 in an emergency fund, your next goal is to start saving three month's worth of expenses. That will keep you afloat if you get laid off or your child has an unexpected medical emergency.

Follow these tips consistency for a couple months, and you will be surprised how much money you can free up to regain your financial independence.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
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