15 Steps to Stop Living Paycheck to Paycheck
Nobody wants to live from paycheck to paycheck. But the reality is many people are in this situation, especially now that we are in a pandemic.
About 53 percent of Canadians are living paycheck to paycheck, according to a 2020 poll by BDO Canada. The majority of them have little to no savings and would not be able to meet their financial obligations if they become unemployed.
How to Stop Living Paycheck to Paycheck
If you belong to this group, don't lose hope just yet. There are several actions you can take right now to improve your financial situation. This post will discuss steps you can take to stop living paycheck to paycheck and get better control of your money.
1. Track All Your Expenses
The first step to improving your financial health is to track what your money is usually spent on. You can do this by listing your monthly expenses on a spreadsheet-like Microsoft Excel or any similar free app.
Be honest with yourself and never leave any expenses unturned, especially if you have a vice or an expensive hobby. The purpose of doing this activity is to find out why you usually spend your salary and come up with a plan to save some money.
2. Create a Budget and Stick to It
Budgeting is the main cornerstone of all money management and is key to getting out of a financial rut. You lead where your money goes whenever you budget instead of wondering where your paycheck went at the end of every month.
After tracking all of your expenses, you need to create a budget that prioritizes the most basic of your needs. Then, allocate what you think is a fair amount on food, rent, transportation, and utilities. You can spend money on recreation and other stuff, but only after you have enough money to spare.
While creating a budget is easy, sticking to it is hard. Thus, you need to learn self-control or find someone to make you accountable should you break your budget. If you have a partner or spouse, you can help one another by ensuring that everyone in the family follows the budget.
3. Start an Emergency Fund
No one is exempted from experiencing a rainy day. You should expect it and prepare an emergency fund that will cover unexpected events such as someone getting sick in the family. You need this buffer fund, especially if you find yourself in a compromising situation that requires a sudden increase in your spending.
Starting an emergency fund of $1,000 is a good start. But most financial coaches usually advise full-time workers to store at least three months' worth of living expenses should they resign from their current job or get laid off from work.
4. Pay Your Debts
Debt is much like holding a glass of water. It might seem easy for the first few minutes, but the longer you keep having it, the heavier it feels. Hence, paying off your debts and loans, especially those with high interest rates. Please start with the smallest debt you have right now and work your way to the large ones until they are all paid off.
Aside from an extravagant lifestyle that's not proportionate to your salary, a huge debt is one of the reasons why most people live from paycheck to paycheck. So, the next time you want to purchase a new smartphone, think twice before using your credit card. Or, if you're going to buy a car using financing options, make sure that the deal won't put you in financial quicksand.
5. Sell Unnecessary Stuff
One of the challenges of paying debt is where to get extra money for it. Selling items that you don't usually use is one of the fastest ways to generate cash. It can be your old car that's been sitting in the garage, some pieces of jewelry, or even your extra running shoes.
You can even find items in your home that you don't need at the moment, but at some point, you decide to buy them. But before you sell an item, ask yourself first if you are willing to part with it or if it's worth keeping just a little bit longer.
6. Emulate the 70-20-10 Rule
Most financial advisers tell people who want to get out of the paycheck-to-paycheck cycle to make the 70-20-10 money management rule. This edict means to allot 70-percent of your salary to your basic needs, 20-percent of it should go to savings, and the remaining 10-percent for leisure.
This advice will help you better budget your money while not devoting you to the freedom to enjoy your hard-earned salary. There are other variations of this Rule, such as giving more portions to savings and less to basic needs and leisure. However, they all strive to teach people to save and live within their means.
7. Learn to Save Money
Some people who are living paycheck to paycheck may find it challenging to save money. However, if you can live below your means and make it a habit to stick to your budget, saving money will be much easier.
Of course, sacrificing some purchases comes with the territory of saving. You may have to delay that dream vacation or hold off upgrading your PC. Cooking your food instead of dining out or relying on deliveries can save you a decent amount of money. You might even have to downgrade your lifestyle temporarily until you have enough money saved or invested.
8. Study How to Invest Your Money
You might have heard of the phrase "pay yourself first" after receiving your paycheck. Some people misinterpret this as a signal to treat oneself to fancy dinner or new clothes. However, the actual interpretation of that adage is first to invest your money, keep some for your basic needs, and spend what's left on leisure.
There are numerous investment opportunities, such as stocks, bonds, mutual funds, annuities, retirement plans, and even cryptocurrencies. Each one requires some research work and an understanding of how the market works.
9. Practice Delayed Gratification
With all the savings and investing, you will eventually learn the valuable lesson of delaying gratification. If you want to stop living paycheck to paycheck, it's essential to plan for the long term and learn to roll with the punches of life.
10. Avoid Big Purchases
Most people reward themselves for working hard by making big purchases, such as a new PS5 or a fancy coffee maker. While this can certainly boost your morale, it's also one of the common traps why they often end up in credit card debt.
Sometimes you might even be tempted by a friend or relative to buy an item you don't need. But because you want to save face, you purchase it from them anyway. Avoid being trapped in these situations by telling them your actual financial situation.
11. Get a Side Hustle
If your schedule still permits it, you can apply for an additional part-time job or a side hustle. If your weekends are free, you can spend it on driving an Uber or even waiting tables instead of watching Netflix all day.
It's also vital that you learn a new skill that can help you get promoted or remain relevant in your industry. The Internet is also filled with job sites with work-from-home positions, which you can do with your PC or laptop.
12. Start a Business
If you have an entrepreneurial spirit, you can also start your own business. Some of the most successful companies in the world were created in a garage. Of course, there are often risks involved in a business, but you can mitigate them if you have great advice from successful business owners, especially those in your area.
13. Learn How Loans Work
At some point, you may need to get a loan to purchase materials or machinery for your business. Before you get a loan, make sure that you have researched the company and the details of the loan itself.
Magical Credit is one of the leading credit providers in Canada. Unlike payday loan companies and banks, Magical Credit is willing to take risks for bad credit personal loans to the right customer. You can loan up to $20,000 at reasonable rates, simple payment terms, and fast approval.
14. Take Advantage of Tax Break
Another area that most people neglect when they want to save money is their taxes. Canadians can take advantage of numerous tax returns, including childcare expenses, medical expenses, vehicle expenses, interest paid on student loans, and more.
If you can hire an accountant to review your taxes, that will be a great way to get started. If you can't hire one, there are numerous platforms online that help people take advantage of tax returns offered by the government. You can also join online groups dedicated to helping taxpayers.
15. Remember Why You Started
Finally, the most crucial step to stop living paycheck to paycheck is to remember why you started this whole process. It might be that at a certain point in your life, you've decided that you've had enough of such a vicious cycle of constantly being in danger of falling on the edges of financial ruin. Always remind yourself of why you are sacrificing and the fruits it will bear in the future.
Many dream of financial security, but only a few take action. The fact that you are reading this article means you are one of those few. Magical Credit wishes you luck in your financial matters and all your endeavors.
