Are you dreaming of a life of financial freedom? While it may sound impossible, it’s more achievable than you think.
If you’re living paycheck to paycheck, your money probably comes in and out quickly. However, you need to get out of this cycle — failing to learn this important lesson can bring everything crashing down the moment an emergency occurs.
In this blog post, we share the secrets you need to know if you want to know how to stop living paycheck to paycheck in 11 steps.
Step 1: Get Out of Debt
Debt is one of the biggest hurdles you'll face when you first take a step towards financial freedom. This is what's setting you back, so you need to learn how to live without it.
If you're stuck paying for the gifts you got last Christmas until June, you'll see that you're going nowhere fast. The same thing applies if you're paying off your beach vacation last summer — you won't get ahead like this.
Moreover, debt is getting even more tricky, with many installment payment companies offering an "easier" way to pay. They tempt you by offering installment payments but make you pay for months at a time for things you don't need.
Living with any kind of debt is one of the biggest reasons why you're still dependent on the paycheck-to-paycheck cycle.
To get out of debt, you need to do the following:
- Stop taking up new debt, which means stop using credit cards.
- Don't take up loans to purchase things like furniture or cars.
- Ignore sales that claim you're saving 10% when you'll save 100% by not making a purchase.
- Rid yourself of debt by paying off all your debts starting from the smallest to the largest.
Think of it this way: every time you pay your debts, the same amount of money will go straight to your pocket once the debt is gone. This is the fastest way to make progress towards being financially free.
Step 2: Apply for a Part-Time Job or Do Something on the Side
If you’ve paid off all your debts but still find it hard to make ends meet, then it’s a good idea to find another source of income that will supplement your salary. While this may sound hard at first, keep in mind that it will only last for a few months.
Be sure to find a second stream of income for now, but once you get some money together, you can go back to your regular schedule.
There are plenty of great options for a side hustle, such as:
- Driving for Lyft or Uber
- Waiting tables at cafes or restaurants
- Working as a barista
- Working as a substitute teacher
- Work-from-home jobs
Step 3: Make a Budget and Stick to It
Ask yourself: do you know where your paychecks go? Do you spend more on bills, groceries, or debt? If you’re simply keeping your family fed and things paid on their due date, then it’s time for you to go on a budget.
Maybe you’re asking why you need to go on a budget — doing this will allow you to track where you spend money instead of seeing it magically disappear. When you develop a budget, you’ll see your spending habits better and make appropriate changes that will help you reach your goals.
Budgeting is the building block on which both your short-term and long-term goals will be provided with a foundation. When you include budgeting as a part of your daily life, you’ll be taking the third step towards ending your paycheck to paycheck lifestyle.
Step 4: Take Care of Your Basic Needs
Once you’ve set up a budget, be sure to jot down your income then subtract your expenses. If you’re unsure which expenses to cover first, start with your essentials which are:
- Food
- House
- Utilities
- Transportation
These four necessities should be your top priority, so be sure that you have enough in your budget to cover all of the above. Once you’ve taken care of these, you should make a list of everything else and number them according to their importance.
Remember: Once you have no money left to spend, stop spending. When you’ve paid all the basics stated above, you’ll know that you’ve done right by your budget, so there’s no need to buy anything else.
Step 5: Live Below Your Means
This is the next important step if you want to achieve your financial goals, so make sure to give it some thought. There’s no sense in having a six-figure salary if you keep living a lavish lifestyle where you end up spending everything.
If you’re not careful, just a slight bump in your pay can push you to spend even more money. This is called “lifestyle inflation,” where you can suddenly afford more things.
While it can be tempting to spend money when you have more of it, try to remember not to do this. Try to remember why you took another job — stay on top of your game, pay attention to what you spend and always stick to your budget.
Step 6: Set Money Aside for Emergencies
When starting an emergency fund, you’ll want to have at least $1,000 — this should be enough to cover a lot of situations where you’ll need money fast. You might ask yourself why you should be saving this amount when you can barely make ends meet.
The answer is that having this amount between you and everything that could potentially happen in life can bring a lot of security and peace for you. This works as a safety net for times when the unexpected occurs and can save you from a lot of trouble down the line.
Should anything happen, you can feel safe knowing that you can pay in cash without worrying about how to cover things in the next few weeks. To achieve this goal, be sure to set aside small, but intentional amounts every day, week, and even every month to get started.
Step 7: Cut Down on Expenses
When you're living on a paycheck basis, eliminate the expensive dinner nights, the fancy vacations, and the latest gadgets. This is when you should cut your spending, and look for other options where you can save more money.
Another way to cut your costs is to stop your cable service. Call your phone and internet provider and ask to stop or downgrade your service.
You can also try going to parks and libraries rather than spending money going out. Keep in mind not to spend any money no matter the kind of entertainment you want.
While making these sacrifices can certainly be hard and may not feel good at first, remind yourself why you’re doing this. These are all temporary and your plan to live in financial freedom will be your permanent goal, where you will be in a much better position for the rest of your life.
Step 8: Sell Things You No Longer Need or Use
When you’ve settled on a budget, have an emergency fund going, and have cut back your expenses, you can now find ways to bring in extra cash. One of the easiest ways to do this is by selling anything you can.
These can range from clothing;
- Jewelry
- Gadgets
- Unused car inside your garage
Think about it — if it’s not something you’re always using or something you need daily, it’s not that important.
The bottom line is if you can part with something and get cash for it, you hit two birds with one stone. It not only gives you more money to put in the back for more security, but it also frees up space in your home from something that’s not being used anyway.
Step 9: Set Up a Meal Plan
This step goes back to taking care of one of your basic needs, which is food. However, if you’re not careful and buy everything you think you want to eat, this category can push you to spend more than you can afford.
When you set up a meal plan, however, you can encourage yourself to skip the restaurants and drive-thrus because you’ll have a planned dinner at home. Moreover, it will help you spend less on your groceries once you know exactly what you need to buy each week.
When you stick to a meal plan, you no longer need to suffer from impulse buys or fruits and veggies that you don’t have the intention of cooking or eating. This step can effectively help you spend less and waste less while allowing you to save up even more money to push you forward.
Step 10: Plan Out Big Purchases
If you just blew out a ton of cash on a huge purchase, you’re most likely counting down the days until your next payday. So the next time you have a big purchase to make — perhaps you need to have your washing machine replaced — be sure to save up and pay in cash.
In this way, you can set aside a small amount every month until you need to make the purchase, rather than blowing away a whole month’s worth of salary. Furthermore, if you’re still living paycheck to paycheck, there’s no reason why you should buy expensive things that you don’t need.
This not only refers to vacations but also things that you might want but don’t need, like a new video game console. Even if you find one on sale, now isn’t the right time, so just let it go and stay focused on your goals.
Step 11: Remind Yourself Why You’re Doing This
When you live according to your paycheck, it can feel like your money controls what you do, rather than you controlling what money can do for you. It can make you feel stuck like you’re going nowhere and therefore, unable to live your life to its fullest.
However, because you were sick of the routine, you decided that you want to break out of this pattern, which is why you decided to start with step 1. Yes, it can be slow, and there will be days when you don’t think you can keep going.
Don’t give up. Whenever things get harder, you need to think back and remember why you started. Think about your plans — it could be the freedom to travel to wherever you want, paying off your children’s college tuition, or it could even be buying your dream home for retirement.
If you’re feeling overwhelmed, look a few steps ahead of time and think about the life you always wanted: a life where you won’t worry about money. Focus on the bright future ahead of you because, with these steps, you can be sure that it’s coming.
Financial Freedom is Only a Few Steps Away
By following the steps outlined above, you can slowly but surely learn how to stop living paycheck to paycheck. What’s best about this guide is that you can do things at your own pace, and can help you take control of your finances.
Instead of wondering where your money went during a whole month, you can tell your money where it’s meant to go. The first few steps are there to lay out the foundations of your new lifestyle, while the latter steps help to reinforce the financial freedom that you’re trying to achieve.
However, don’t be discouraged because this new routine is only temporary. It will eventually transition to the life you dream of once you’ve built up your emergency funds and established your savings.
Get the help you need from 121 Financial Credit Union, where we serve everyone across Northeast Florida by providing guidance for repairing or building credit, starting a business, buying your dream home, and more.
We can help you make money work smarter, not harder, for you to achieve your financial goals.
It’s our job to help you get out of the paycheck to paycheck cycle and make true progress into the future. Secure your finances today with 121 Financial Credit Union and get started today.