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What Does it Mean to Live Paycheck to Paycheck?

Today is the day that you've decided you want a change! You're tired of working every month just to be in the same situation next month no matter how hard you try by yourself. Living paycheck to paycheck is the normal life for most Americans these days no matter their financial status or ranking. 

You get that glorious bi-weekly deposit and it's off to the races! You've got bills to pay, food to buy, mouths to feed, cars to gas, and many other items on your to-do list that leaves the bank account a little on edge after a few days.  

Now everything is taken care of, for the moment, but now we just wait another 2 weeks to repeat the cycle all over again. Is that how it's meant to be? Does it feel right barely having enough to get through to the next big payday and then it just drains out as fast as it came? You're not alone, but that certainly doesn't mean you have to put up with it anymore!

What does it mean to Live Paycheck to Paycheck?

As I kind of got into above, living paycheck to paycheck is actually fairly straight-forward. You make a certain amount of money each month and you use that as a guideline to define your spending habits and monthly expenses. You even make a nice little budget to go along with it. 

You've got the $1,000 mortgage payment, $300 car payment, $250 utilities, $250 phone bill, $100 in gas, and $700 miscellaneous for food and entertainment. This brings your total expenses to $2,600 a month. That's fine, because you bring in $2,800 a month and life is good. The rest generally disappears in the fog throughout the month, but you're not worried about that because your expenses are taken care of. 

However, you were playing football at the park the other day having a great time and tripped over a rock spraining your ankle. That's not good. You try to walk on it, but it's impossible. After a quick doctors visit it's decided you can't be on your feet all day and need to take up to a 3 weeks off to let it heal properly. Now $100 deep thanks to the doctors visit AND you have to be out of work? Didn't you just use up your last vacation/sick day the month before? 

What's going through your mind at this point? Could you possibly even imagine being out of work for several weeks? What would your finances look like at that point. You'd end up being at least  $1,800 behind and most likely need to put that on a credit card. Where does the money come from to pay this credit card. What if we shift some things around and can squeeze in the $40 monthly minimum payment. It's a slippery slope and a downhill battle. The smart move is to work to avoid a situation like this from the beginning by learning smart financial habits from the beginning and teaching our kids the right way to do things as well. 

How to Stop Living Paycheck to Paycheck in America?

This isn't something that happens overnight. You hear it all the time in life and this is no different. This is a lifestyle change. It's not something you can do differently for a few months and everything will be back on track. It's gradual changes in your lifestyle that will confidently take you through the rest of your days. 

The big secret, if you get nothing else out of this, is to spend significantly less money than you make. All those people on TV with big nice houses, or your aunts and uncles down the road with a brand new $40k car, you don't have to do those same things. You effective can't, because you're not at the same point in life as them. In fact if your lifestyle looks anywhere near theirs, then you know you need to start making some changes. 

Increase Income

The first thing you should begin focusing on is increasing your income. I put this one first because believe it or not this one is always harder for people to wrap their minds around than reducing their expenses. You'll be working on getting this right for a very long time. 

  • Start taking certification classes to improve your standing at work.
  • Look around at different jobs to see if someone else is willing to offer more
  • Request a raise, because lets be honest we're all underpaid.
  • Change career fields to something that makes more money
  • Start a business! It doesn't have to replace your current income or cost $20k to get started. 
This are just a few options for the many different ways to begin getting your finances back on track. If you do all of this stuff over a year or two you should start seeing some major changes in your left over money each month, just make not to slip back into the trap.
Reduce Expenses

This is easily the most important part of this whole conversation. Without reducing your expenses everything we're doing to increase our income will have been for nothing. You'll start spending slightly more and get nothing out of the situation.  Reducing expenses is what will make everything else possible even if you aren't able to squeeze out anymore income. What this looks like is evaluating your current life and seeing what needs to change or what you shouldn't have at this point in your life. It'll be a shock, specifically to your ego (believe me, I know). 

  • Ditch that $300/m car payment for something a little more economical at around $200/m or less. Certain jobs and freelance gigs help if you have a nice vehicle, but outside of that you need a reliable ride that gets you around and that's it. You can put a brand new 2020 Chevy on your fridge for a few years down the road once we get that extra income sorted out, but for right now we know we need to be a little more conservative. It may not seem like much, but that extra $100 could be all the difference. 
  • It may be a good idea to downsize your housing for a few years. If you're younger it's expected to either live at home or live with a roommate for quite a bit of time to save money so having a small apartment or house isn't the worst thing in the world. If you're spending $1,000/m on a home, that's over 35% of your income and completely unnecessary outside of major housing locations like CA, NY. It's recommended to spend less than 30% and even over 25% of your income is pushing it. Remember if you're buying a home banks only tell you what you qualify for. They tell you the maximum amount you could spend, NOT how much you should spend. Getting that down to around $600-$700 could definitely give you extra savings and investing power. 

Save the Difference

This is the next most important thing you need to do after you get some of this under control. There are a ton of different expenses that most people don't account for and just pay out of extra money in the account or from a credit card. Getting those under control is a great first step to getting everything under control. Things like yearly property taxes on your car, any HOA fees, yearly back to school shopping, and anything else that doesn't happen that often that you know is coming up. 
Once you get this stuff organized you can move onto setting up an emergency fund for expenses you can't plan for like car maintenance, broken household appliances, or even a new TV when yours randomly stops turning on. 
Whatever it is you decide and whatever method you choose you need to do something here. Having something going into savings to take care of the different expenses that come up in life is huge and can be substituted if something were to happen to a job.

What percentage of people live Paycheck to Paycheck?

If you're curious how this ever happened to you, know that you're not alone. Nobody teaches proper financial education or how to make smart choices with your money. Everybody at one point in time deals with this same struggle, and everybody is at different stages of trying to make the proper changes. 

The key is to get started and make positive changes in your life any chance that you can. Don't worry about keeping up with everybody around you because they're most likely dealing with all the same stuff you are and finances is not something to shy away from or to be embarrassed about

Remember to spend within your means and put savings as one of the biggest expenses that you have to deal with. Make saving money a bigger burden than paying your mortgage and you should come out ok. Eventually you'll notice you have enough cash on hand to not worry about a mortgage payment anymore and that's where things get really exciting. 

Increase that income anywhere that you can, by taking on odd jobs or side hustles. Reduce your expenses at every chance, be it your mortgage, car payments, or even that motorcycle you haven't ridden in 2 years. Just starting making positive changes and keep the momentum. Happy Spending!


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