Tired of living paycheck-to-paycheck? Here's how to end the vicious cycle
Do you know where your money is actually going every month? If not, then that’s a huge warning sign that it’s time to start paying attention.
Many people avoid “budgeting” because they’re convinced they have a good handle on their money. But very often, people who are making a decent salary still can’t seem to get out of the vicious cycle of living paycheck-to-paycheck.
In fact, more than half of Americans (57%) have less than $1,000 in savings — meaning one unexpected emergency could easily cause long-term financial damage.
On top of that, a MetLife survey found that 49% of employees are “concerned, anxious or fearful about their current financial well-being.”
This is a big problem for American families — and what’s worse is that many people who are making good money are still living month to month, rather than saving for both short- and long-term needs.
Think about it this way: how often do you reach the end of the month and realize you spent the money you had planned to save?
If you’re like most Americans, it’s probably pretty often.
What’s keeping Americans in this vicious cycle
Very often, the problem is that people really have no idea what they’re actually spending all of their hard-earned money on — and without paying attention, it becomes very easy to waste the money you planned to save.
Even worse, many people end up racking up big credit card debt just to maintain their current lifestyle.
So if you want to get ahead of your money and start taking control of your own financial life, both now and down the road, it’s time to make some changes.
Until you decide to start paying attention to where your money is going, the cycle will never end — and eventually, it will prevent you from doing the things you want to do, when you want to do them. Credit cards only last so long, and the deeper in debt you go, the harder it becomes to dig out — and that’s a stressful situation to get yourself in to.
So now that you have a better idea of why it’s so crucial to pay attention to your money, there’s one very easy solution to keep your finances on track and avoid getting sucked back in to that paycheck-to-paycheck lifestyle.
The #1 way to stop living paycheck-to-paycheck
Tracking your expenses is the best way to get control of your money — for several reasons.
First, if you want to stop living paycheck-to-paycheck, you have to know where your money is going, and you have to give every dollar a purpose. Tracking how much money is coming in versus how much is going out — and where exactly that money is going — is the only way you’ll really be able to understand your finances. Having a confident relationship with your money is crucial — it’s what allows you to make the right decisions at the right time.
But in order to do that, you must understand your patterns and routine — and what adjustments you need to make.
Knowing exactly what’s going on with your money every day, week and month is the key to making smart financial decisions that have a big impact on both your life now and your future.
If you don’t pay attention, it becomes very difficult to make sure that you’re adequately prepared for each of your big goals — including retirement savings, building an emergency savings fund and saving for big purchases like buying a house or a car.
How to get started
If you want start managing your money better, here are three steps to get started.
1. Set goals
Figure out what your priorities are for both the near and long-term future. For example, buying a house, buying a car, a big vacation, emergency savings, retirement etc.
If you don’t know why you’re saving, it often gets put on the back burner. So identify what your big goals are and then start taking steps to reach them.
2. Create a budget
Start by figuring out exactly how much money you have coming in and how much is going out.
Go through all of your monthly expenses and figure out exactly what you’re paying each month for all of your recurring bills and obligations — housing (rent or mortgage), utilities, insurance, transportation, other recurring monthly bills (cell phone, tuition, subscriptions like Netflix etc.) and any monthly debt obligations (like credit card bills).
Identify any areas where you can reduce what you’re paying each month, and then create your budget based on what you should be spending on everything — including recurring expenses, those you’ve reduced and those you have to pay every month, as well as other expenses like groceries and extra spending money.
Then divvy up your paycheck to cover each part of the budget. If you want to go the old-fashioned route, pay in cash for whatever you can, using envelopes to split up your money and keep you within budget.
You can also set up different accounts for each area of your budget and have your paycheck automatically split among those accounts with enough money to cover all the expenses. Then whatever is left should go automatically into savings.
If you need guidance on creating your budget, here’s a step-by-step guide and more resources below.
3. TRACK EVERYTHING: Tools to help you stay on top of things
So you’ve set your goals and created a budget, which is a great start, but if you don’t track it, that’s when actually sticking to the budget becomes nearly impossible.
Making a mental note of your spending is not a reliable way to keep your budget on track, regardless of how good of a memory you have.
There are great tools available that can help you stick to your budget by tracking how much you’re spending on each area and the progress you’re making toward reaching your bigger goals. And you can do all of it right from your smartphone (or tablet or computer — whatever you prefer).
Organizing your bills
FileThis is a great way to keep track of all of your bills and account statements in one easily accessible place.
Just link your FileThis account with all of your online accounts to get a complete overview of each account, download account statements and get alerted with bill due-date reminders. Pretty much any online account can be synced with FileThis, including banks, wealth, health, auto, utilities, communication and retail.
The app keeps track of your account statements from the past three years and downloads new statements as they become available. You can choose to have the documents downloaded to a number of different storage sites, including Dropbox and Evernote — or have them downloaded to your computer.
Creating a budget and tracking your spending/savings goals
Level Money keeps track of your spending and gives you a sense of how you’re doing. If you’re looking for a free app to take your financial temperature all the time, this is it. It will probably work best for those who have relatively simple and linear financial lives.
Mint is a very popular app that helps you create a budget and then tracks your spending, monitors your credit score and keeps up with potential fraud by automatically downloading transactions from bank, credit card and investment accounts. The service allows you to combine all of your finances in one place — giving you a constant overview of your financial status. You can also set up alerts and automatic bill-pay.
Budget Boss is a highly visual app that uses graphs and charts to track your budget and goals. It also estimates your future account balances, depending on your current spending habits. Seeing positive progress and potential savings growth can be a great motivation to stay on track!
HomeBudget (iPhone only) is an app that lets you manage account balances, budgets and bills. You can set up credit and debit accounts and track balances, and it syncs data with other iPhone users and can export to a desktop. Users can take a picture of the receipt and associate it with a ‘family sync’ feature that allows members of the household to exchange information and work together within a single budget. It’s very visual and lets shared users see information quickly.
Wally is a tool that gives you a ‘360 view on your money’ — what comes in, what goes out, what you have saved and what you have budgeted. The tool helps you get a better understanding of where exactly your money is going, and then helps you set up — as well as track and achieve — various financial goals.
Paying off debt
Pay Off Debt is a great app for people with multiple debts and who prefer an interface that’s simple, user-friendly and will help organize the details of those debts for you.
Ready For Zero is a great tool if you need help coming up with a realistic plan that’s suited to your spending habits. The app is free and helps you customize and track your get-out-of-debt plan. After you add your financial info, RFZ analyzes your finances and suggests a debt-payoff plan that’s optimized for your needs and spending. Your plan can be based on what you are able to pay each month, and the tool will help you focus on the highest-interest accounts first, in order to get out of debt as fast as possible, you’ll also get a graph of your progress so you can see your debt dwindling as the weeks go by.
DebtTracker Pro lets you organize loans and then create, manage and maintain a payoff plan. Once you sync all of your accounts, the app will: Track where you are in your debt repayment and tell you how long it will take until the loan is repaid; Allow you to play ‘what-if’ scenarios by showing the effect of increasing principal payments; Show how much credit is left on debts that have a line of credit, which can be beneficial for maintaining your credit score since credit utilization is a factor. Downside: You may have to adjust some of the data frequently. For example, if it’s tracking a credit card you use often, you’ll have to adjust the balance a lot.
AllPoint is a tool that helps you avoid paying ATM fees, which are a huge waste of money! Whether you’re in an unfamiliar part of town or traveling somewhere new, this app will locate a surcharge-free ATM nearby and give you directions, along with landmarks to get you there.
Key Ring keeps all of your store loyalty cards in one place so you never miss out on any rewards or discounts while out shopping The app also displays sales, coupons and other special offers available through those merchants and even tracks your loyalty points.
Coupons.com lets you add grocery and drugstore coupons to your store loyalty cards and automatically save when you use them at the register.
Swagbucks is an app that allows you to earn points for certain activities like shopping online, watching videos, searching the web and taking surveys. Then app then allows you to redeem your points in the form of gift cards to your favorite retailers or even get paid in cash via PayPal.
PriceGrabber helps you comparison shop by finding you the lowest prices on everything from computers and electronics to groceries, health and beauty products, clothing and more.