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Tired of counting down the days until your next paycheck arrives? If so, you’re not alone. More than half of Americans live paycheck to paycheck.
That struggle to keep up with regular bills is real. Thanks to high inflation, everything costs more, from housing to everyday expenses. Many Americans — especially Gen Zers — don’t have enough savings and rely on credit cards to get by. This can keep you locked in a cycle of debt and living above your means.
But there are still things you can do to break the cycle. Here are six tips to stop living paycheck to paycheck and start feeling better about your cash flow.
1. Analyze your spending habits
While you’re waiting for your next paycheck to arrive, it’s time to look at where all the money from the last one went.
“Look through your recent statements, and you might uncover subscriptions you forgot about,” says Ted Rossman, senior industry analyst at Bankrate. “Perhaps you’ll see how much you can save by bringing lunch to the office or cutting back on some social engagements.”
Your bank may automatically track your spending for you. You can also use an app to help you track your expenses.
2. Tell your money where to go
Let’s face it: Budgeting isn’t the most exciting thing in the world, but it’s a game-changer when it comes to financial stability. Create a budget that reflects your income, expenses, and savings goals.
Be realistic, but don’t be afraid to cut back on those non-essential expenses. What can you do without this month? For example, could you downgrade your streaming account to a free version and save some money? Or cut back on takeout and grocery shop instead.
This doesn’t mean you have to cut out all your fun from your budget. You just need to consider what’s important to you when it comes to spending.
“Match your spending habits with your values,” Rossman says. “What are the areas you can cut back on without impacting your quality of life?”
Remember, a dollar saved is a dollar earned. If you have a regular savings account, you may be missing out on higher interest rates. Here are some alternatives.
3. Get your debt under control
Debt is the gift that keeps on giving – in the worst way possible. It can feel like an enormous weight dragging you down.
Borrowing costs have skyrocketed in today’s high-rate environment. This means high-interest loans like credit cards have gotten much more expensive.
For example, the average credit card interest rate is 20.72%. If you carry a $10,000 balance on a credit card with a 20% APR and make only the minimum payment of 2%, it will take you almost 74 years to pay it off.
Prioritize paying off these high-interest debts. Consider consolidating your debt or negotiating with creditors for better terms.
If a decent chunk of your paycheck goes to your credit card, Rossman recommends exploring balance transfer options. Balance transfer cards help you merge your credit card debt onto one card, often with a 0% introductory rate for an initial period between 15-21 months.
“If you can avoid paying interest for nearly two years, you have a lot more runway,” Rossman says.
4. Build an emergency fund
Life is full of surprises, and not all of them are pleasant. That’s why having an emergency fund is crucial.
As you spend less, focus on setting aside any money you save in an emergency fund. The next time you have to deal with a car repair, a broken air conditioner, or some other bill that wasn’t in your budget, you’ll be ready.
Start by setting aside a small part of each paycheck until you have at least three to six months’ worth of living expenses saved up.
If you also have credit card bills, it may be a good idea to save and tackle your debt simultaneously.
“Rather than focusing on one or the other, it’s wise to pursue these goals simultaneously,” Rossman says. “Even with a small emergency fund, you can avoid putting an unexpected expense on your credit card.”
Where should you stash your cash? Some of the best high-yield savings come with interest rates over 5%. This means your money will grow faster – all you have to do is let it sit there.
5. Try a savings challenge
Saving money isn’t the most thrilling thing to do. If setting up automated transfers and looking at your budget makes your eyes glaze over, it’s time to have some fun.
Savings challenges gamify the task of saving, making it more engaging. Breaking goals into smaller, achievable steps keeps motivation high. Reaching milestones creates a sense of accomplishment, reinforcing the saving habit. Here are five viral savings challenges to try.
While these challenges can help you start saving, you still need to do the work. Think of it like taking a fun workout class: While it can make working out enjoyable and help you build the habit of exercising, you still need to show up the next day (and the day after) to keep up your progress.
“Slow and steady wins the race in personal finance,” Rossman says. “While we often want to feel success overnight, staying the course over the long haul will help you pay off your debts and save for your future.”
6. Adjust your mindset
No matter what you do, trying to stop living paycheck to paycheck might still feel impossible. That’s why adopting a positive mindset around breaking free from the paycheck-to-paycheck cycle is crucial.
Believe in yourself and your ability to achieve financial freedom. Surround yourself with positive influences, educate yourself about personal finance, and stay motivated. Remember, Rome wasn’t built in a day, but with determination, you can conquer your financial goals.
If you’re really struggling, consider working with a reputable debt counseling agency. Having another set of eyes to scrutinize your personal finances can make a huge difference.
The bottom line
Just because you’re living paycheck to paycheck today doesn’t mean you’re stuck there. While the rising cost of living can feel daunting, there are many ways to spend less, save more, and feel better about your finances. When your next paycheck arrives, sit down and start strategizing how to stretch every dollar a bit further. If some of the tips above won’t work for you, don’t worry: There are plenty of other ways to start saving money today.
Want to see how your savings stack up? Here’s how much the average American has in savings.
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