How to Stop Living Paycheck to Paycheck

If you had to label your finances, how would you describe them? Good, bad or indifferent, perhaps.

One of the more negative and undesirable ways you can frame your financial situation would be with the label that no one wants, but far too many fall under.

“Paycheck to paycheck.”

This phrase is the proverbial kiss of death from a money perspective because it conjures up visions of poor planning, lack of budgeting and having little means of managing what money comes in from one paycheck to another, suggesting that the money you get on payday is often spent before it hits the bank account.

You’re either behind on old bills or have so many stacked up waiting to be paid, that the money is often more of placeholder in preparation to write checks to creditors more so than actually save.

The paycheck to paycheck dilemma is one that is hard to overlook since it ravages the hopes and financial dreams of the masses. Recent polls and studies alike suggest that living paycheck to paycheck isn’t so much a choice as it is a way of life.

A stunning 75 percent of Americans who are considered full-time workers say they live paycheck to paycheck, with 10 percent making more than $100,000 who say they are struggling as well.^[1]

The six-figure income commentary is equally disheartening when you consider that amount of money, and what it should translate to in the way of being able to pay your bills and have more than your fair share leftover as a result.

The idea that someone in that income bracket would need to depend on one paycheck to the next is astounding in the most negative of ways.

Making six figures or a “comfortable salary” often is more mirage than reality, when it comes to living paycheck to paycheck, more specifically the debt that is involved with those who make more each year.

The sad truth is that the more people make, the more they spend, whether it’s their own money or going further and deeper into debt.

Consider that of those making $100,000 per year 59 percent of that group admittedly is in debt, with 56 percent classifying the debt as being “heavy.”^[2]

Often times, debt and paycheck to paycheck living is associated with those who aren’t making much in the way of income. That can be a little misleading when you look at salary versus debt, and also consider age groups as well. That’s not to say those considered “poor” aren’t also struggling, too.

First, let’s start with age.

The age group with the biggest debt isn’t the fresh out of college crowd; they’re only carrying $67,000 (under the age of 35). Where you start to see debt amass is the 45-54 group with more than $130,000 in debt.^[3]

That would suggest that most debt is taken on when you have house repair, are raising kids or, quite frankly, simply living ahead of your means.

And that’s where you find most of your paycheck to paycheck living: those who aren’t budgeting what they make and simply charge or borrow at every turn when money is tight, rather than adjusting spending or eliminating expenses.

That misguided spend more than you make philosophy also applies to those who aren’t making six figures, too. On average, of 5 American families who fall into the $41,000 or less category annual income wise, still have a 40 percent debt to income ratio, not something that is desirable.^[4]

Whether it’s amassing debt, spending money you don’t have or just a lack of budgeting or planning that goes into your income, you don’t have to be defined by your paycheck and being the person who gets paid on a Friday and is broke by Monday.

You can get away from that vicious cycle of spending and lack of saving but making a few of these changes:

Budget or Bust: Eliminating paycheck dilemma starts and stops with tracking

If you had to think of the most logical way of eliminating living from one paycheck to the next, what would come to mind?

Hopefully, the next word out of your mouth was “tracking,” followed closely by “budgeting.” Those two words are synonymous with one another as far as why those who aren’t depending on their next paycheck, mostly due to the idea that your income and expenses work off one another, and if you are aware of the former, then the latter follows suit.

The issue isn’t so much understanding conceptually what is on the table but more so the implementation of said budget.

Consider that more than 60 percent of the population doesn’t have a budget.^[5]

Imagine for a minute what not having a budget means.

That would be the definition of “obligatory” as far as tracking spending and understanding if you truly make enough money in order to cover your expenses. This simple math equation somehow eludes more than half of the population, so seeing that nearly 80 percent of the same group is living paycheck to paycheck shouldn’t be that alarming.

Equally alarming is what not having a budget means to not only paying your bills and not getting behind but also saving money, on average.

The average household, to the tune of 63 percent, doesn’t have $500 in an emergency fund in the event you’ll need to fall back on cash on hand for repairs, medical bills or anything else that could surprise you from one month to the next.^[6]

You should be starting to see a pattern of dominoes falling at your financial feet between not having a budget, thus not having money saved because of that and then having to go into debt because of (see parts 1 and 2).

The one element of a budget that discourages most from doing it is that it isn’t realistic, on two separate levels.

For starters, your budget has to allow for expenses that are non-negotiable first, and that should account for 50 percent of your income, with another 20 percent toward saving money and 30 percent to “wants,” thing you don’t need but can enjoy.

This system makes sense, and those who say that 50 percent or any of the other suggestions aren’t in line with reality, that is where cutting expenses is key. If something doesn’t fit in your budget, it goes, so you can make those 50-30-20 rules work.

Expensive Taste: Living beyond your means is a sure-fire paycheck problem

When something comes out that is new, what is your first reaction, whether it’s a car, smart phone or a piece of furniture (or really whatever suits your immediate taste).

If you’re someone who looks at the current car, current smart phone or current couch or dining table and say that what you have is serving its purpose and isn’t falling apart or outdated, so there really is no reason for an upgrade.

Then, you have everyone else.

The moment a flashy, new product hits the marketplace, they jump on it, because “new” is better and more reliable, whether it’s that same car, same smart phone or same piece of furniture.

The truth is buying new is nice, but it also comes at a price, and while that seems relatively understood, consider that overspending isn’t just about buying too much but also buying what you really don’t need, trying to keep up with trends and stay so current that everything looks like 2018 except your bank account.

More than half of the population live “beyond their means,” and that can be explained by having expensive taste or wanting more than they truly can afford, with 57 percent stating they aren’t prepared for a financial disaster if one were to occur.^[7]

What you should be doing is thinking in terms of a side by side comparison.

If the average new car payment per month is now just above $500 ($503 to be exact), that’s going to cost you a cool $6,000 per year.^[8]

So take the average amount of a used car payment: $361.^[9]

The difference of $122 can be added into a savings account and grow toward nearly $1,500 in a year. That is money you can use for emergencies or just to pad that savings account you are watching stay stagnant from one month to the next.

Going overboard on your spending feels good, and you’d be hard pressed to find someone who doesn’t enjoy spending money and having nice things. But “nice” is a relative term in that it should connote functional, affordable, quality and other words that suggest you’ve spent plenty, without going too far with your finances.

That $1,500 from the example between new car and used car per month is only $122, and often is ignored by the new car smell and single digit miles they see on their car. But $1,500 is significant because the average person has less than $1,000 in a savings account, roughly 57 percent fall into that category.^[10]

If you think about one example, a car, can deliver you above the national average, try and think about how a few additional moves of that same ilk are going to mean to your personal bottom line.

Implementing changes are a start, and some have already started down the path of better money management.

That hope comes in the form of recent studies showing accumulation of debt has slowed quite a bit in recent years. The years between 1980 and 2007 debt was at an annual rate on average of just above 5 percent growth, with that number falling by 11 percent in the last 10 years (or a growth of 1.4 percent now annually).^[11]

While that is positive change, you still can’t overlook the paycheck to paycheck phenomenon that has been instilled in the majority.

Most of what plagues the general population is an affinity to have what others do, even if it doesn’t run parallel with what they make. That philosophy, often referred to as “Keeping up with the Jones’ “ gives you the illusion that things and spending equate to happiness, but in actuality you’re bogging down any thoughts of a bright financial future, retirement or having money put side for your kids, grandchildren, etc.

More than two-thirds of those aforementioned six-figure income persons are worried about the financial future.

What does that mean for the average salary individual or family that is just above the household media, income wise? What it means is you have to be wiser, smarter with your purchases, buy what you can afford with cash and steer clear of added debt.

That starts with budgets that are realistic and raw (and in some cases painful) but with an end game that is geared toward longevity, not the new car smell and luxury we’ve convinced ourselves is more important than the label that truly matters.

Reassurance, when it comes to our money.

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