Do you live paycheck to paycheck? Most Americans do. Money comes in on payday, and in two weeks (or sooner) it’s gone. When you don’t have emergency savings, or even a cushion in your checking account, the smallest unexpected expense can put your personal finances in a tailspin. But with a little planning and some discipline, you can stop living paycheck to paycheck and start building financial security—no matter how little you earn, or how much debt you have.
The key to getting away from living paycheck to paycheck is to reduce your spending each week so that there is a little left over. Just like you can’t get in shape without starting to exercise, you can’t get financially fit without tracking—and trimming—your spending.
Start tracking your spending
Get started by tracking what you spend. For just a few dollars a month, budgeting tools like Mint or Mvelopes can help. Budgeting isn’t the most fun thing in the world, but it’s vital if you want to get ahead. Once you have an idea of where your money is going, it’s time to start trimming the fat.
Find ways to cut back
Next it’s time to look for less obvious ways to cut back on your spending. Chances are, if you are living paycheck to paycheck, you’re going into debt. After all, if you don’t have savings, when an unexpected expense comes up, you’ll use a credit card or loan to take care of it. Then, when the credit card bill comes, you can’t pay the balance off in full because you’re limited to your paycheck, which is already earmarked for this month’s expenses. Not good.
Lower your credit card interest rates
If you have good credit history (need to check it?), take a long hard look at any credit card debt you have. Kicking this debt out of your life should be your number one priority! If you haven’t paid attention to your credit cards, you may be paying way too much in interest. These days, a credit card interest rate over 12% is too high for somebody with excellent credit.
Compare credit cards and transfer your balances to a card with a low regular APR or credit card with a low or 0% balance transfer offer. The Discover® More® Card, for example, has a 0% APR for 12 months on balance transfers and a 10.99% regular APR. Put your balances on that card and make more than the minimum payments every month. And don’t use that credit card—or any other card—for new purchases!
Save money on everyday purchases
Next, find bargains on things you have to buy anyway. Find coupons, shop online, or buy used from Craigslist or eBay. See if you can save money on car insurance by shopping around. All those Geico and Progressive ads are on TV for a reason. Insurance is a competitive business, and the chances are good you can cut your payments.
Next, keep an eye on bank fees. Do you get dinged with overdraft fees? ATM fees? Ask your bank if you can open an overdraft line of credit that will protect your checking account if you should overdraw it. You’ll pay a small interest rate on any amount you dip below zero, but it’s far cheaper than a $30 fee every time.
Save on ATM fees by taking out all the cash you’ll need for the month at once, or shop for a checking account that refunds other bank’s ATM fees. (Many credit unions offer this).
Keep your money safe (mostly from yourself)
Once you’ve trimmed expenses, sock that money away so you aren’t tempted to spend it. I can’t recommend enough getting a high yield savings account for this purpose. FNBO Direct is my current favorite. You can open this high yield account with $1 and automatically transfer a few dollars every paycheck. While you can get at your money anytime via online transfer or ATM card—I recommend you don’t. Set it, and forget it.
Follow these steps and you’ll be on the road to financial security. You’ll be amazed how fast a few dollars a month can add up to $1,000 or more in savings. Not too mention how fast your credit card balances will drop if you get a 0% balance transfer, pay as much over the minimum as you can and—most importantly—do not charge any more!
What’s your favorite tip for getting out of the paycheck to paycheck rut?