Realistic Personal Finance Tips That Make A Big Difference
For many, the struggle of living paycheck to paycheck is real.
Furthermore, breaking out after getting stuck in the cycle is difficult. The good news is that it’s not like getting trapped in quicksand, where the more you try to get out, the deeper you sink.
No, not at all.
Learning and following basic money management practices will improve your finances and eliminate the stress of living paycheck to paycheck.
So, let’s review today’s 7 steps on your path to financial stability.
Best Ways To Stop Living Paycheck To Paycheck
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
1. Build Your Budget And Stick To It
Set a budget every month and do your best to stick to it.
Break your spending down into categories such as:
- Housing (rent or mortgage)
- Utilities
- Groceries
- Transportation
- Entertainment
- Travel
At the end of each month, compare your spending to your budget for each category. Reflect on your progress and make adjustments as needed.
Don’t beat yourself up if you overspend. Learn from it and strive to do better in the future.
Step 1: Create a monthly expense budget in a spreadsheet or online financial app. On the first day of every month, review your actual spending against the budget.
Related post – Financial Habits of People Who Always Have Money
2. Fatten Up Your Paycheck By Boosting Your Income
Your income is the engine that propels you to financial stability. Thus, consider ways to make more money. For example,
Ask for a raise. Get paid more for doing what you do today.
Earn a promotion at your current employer. Seek higher levels of responsibility and the compensation that comes with it.
Change jobs. Pursue more money for the value you provide by working for someone or someplace new.
Work more if you get paid by the hour, and seek premium pay for overtime.
Start a side hustle or small business to earn extra cash.
Step #2: Set a financial goal to earn 10% more money in the future than you make today.
You will like – 14 Easy Ways to Improve Your Finances.
3. Trim The Fat: Practice The Art Of Spending Less
Financial stability comes only to those who live below their means. Thus, your expenses must be less than your earnings.
Housing, food, and transportation will typically consume most of your budget. Seek ways to reduce expenses in these areas.
Next, think carefully about what you value in life. What you love may include travel, movies, home renovations, dining out, wine, sporting events, or something else.
What you value is unique to you. So, whatever it is, allocate money in your budget to only what you love and value. Then, reduce or eliminate expenses everywhere else.
Step #3: Reduce your spending. Target dining out, streaming services, or other non-essential spending.
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4. By Spending Less, You Can SAVE The Rest
Emergency expenses are the enemy of getting off the paycheck-to-paycheck treadmill. Thus, assign any extra money from your monthly budget to emergency savings.
Most financial experts recommend having 3-6 months of living expenses available. Review your budget’s essential monthly expenses to determine your optimal emergency fund balance. Put the extra money in a high-interest-bearing savings or money market account.
Reserve your emergency fund for unexpected and vital expenses like:
- Medical bills
- Auto repairs
- Home maintenance
Step #4: Accumulate an emergency fund in a savings account equal to 3 months of living expenses.
Step number 5 follows. Before you continue, PIN IT so you can return later:
5. Double Down And Ditch The Debt
Identify and itemize your debts. Reduce your non-mortgage debt by using any excess cash identified from your monthly budgeting process.
Most people owe money for:
- Credit cards
- Student loans
- Auto loans
- Personal loans
Pay off your credit cards first. Then, target any other loans you have. Making timely payments will improve your credit score.
Step #5: Pay off all outstanding credit card debt. Then, target other debt for reduction.
6. Follow The Smart Money And Invest Wisely
If, at this point, you have money left over each month, congratulations. You have broken the ugly cycle of living paycheck to paycheck.
However, your work is not done. Effective money management requires investing money wisely.
Your first three investing goals should be:
1. Maximize contributions to your employer’s 401(k) or 403(b) plan.
2. Fully fund an individual retirement account (IRA).
3. Make additional investments outside of your retirement accounts.
Focus your investment on stocks or low-cost exchange-traded funds (ETFs) invested in the broad stock market for long-term capital appreciation.
Step #6: At a minimum, sign up for your employer’s retirement plan and have $50 deducted automatically from each paycheck.
Helpful Investing Tips – 7 Best Investments for Beginners
7. Review, Reflect, Adapt, And Improve
Review the results of your financial planning efforts at least annually. Make an honest assessment of your current state and how you are doing against your financial goals.
Ask yourself hard questions, such as:
Did I stick to my budget? If not, why and what can I do to reduce my spending?
Am I making as much money as I deserve? How can I make more?
Is my emergency fund adequate?
Am I steadily reducing my debt?
With any money left over, am I investing it wisely? What types of investments should I have at this stage in life? How are my investments performing?
People on a path to financial freedom routinely ask themselves these questions.
Step #7: At the end of each month, spend two hours reviewing your budget, spending, remaining debt, and investments.
Must read – How To Stick To Your Financial Goals
7 Steps To Stop Living Paycheck To Paycheck – Wrap Up
You now have the steps to lead you to financial security and break the paycheck-to-paycheck cycle:
- Build your budget
- Maximize your earnings
- Reduce expenses
- Increase savings for emergencies
- Reduce debt
- Invest wisely
- Review and reflect often
Good luck. It’s time to get busy and take control of your finances.
That’s all for today, but before you go, PIN IT:
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.