Tired of living paycheck to paycheck? You've just found your handbook to break that cycle. In this guide you'll learn how to gain control of your income and actually save some money for your next unexpected event.
Are you living paycheck to paycheck right now? It can be hard not to be with the current state of the middle class and how millennials have been so squeezed.
We go to college believing we’ll graduate, make good money and live happily ever. Unfortunately, we were sold BS.
College is not some magic wand. As much as it helps, sometimes it hurts us just as much.
They charge exorbitant rates for out of dated classes that we often don’t even need for our profession. They tell us, “that’s so you’ll have a well rounded education.”
Wrong! Its outdated universities sticking to status quo while burying us further in debt.
Once we finish college, we begin looking for jobs at these so called “wonderful” corporations that will pay you “wonderful” living wages.
What we find instead is barely livable wages. Our parents and grandparents generation that run these companies hire us at the lowest wage possible to retain their bottom line.
They leave us millennials buried in debt with an outdated education, working extended hours for a barely livable wage, and beginning our adult lives living paycheck to paycheck.
On top of that, they have the nerve to call us and our generation, entitled. Ha!
Maybe we should change their name to the greed generation. They certainly have earned it.
Enough of that though. You are likely a millennial or maybe you are a bit older but experienced the same thing and you are living paycheck to paycheck as most millennials are.
We could complain all day, but the results wouldn’t be much different. What we can do is take action now to help ourselves and stop living paycheck to paycheck.
No one is stopping you! Just because we live in a system that often works against us, that doesn’t mean we can’t beat it and we are going to do just that!
My motto in life is, “Get Shit Done.” So let’s get shit done.
I’m going to teach you how to stop living paycheck to paycheck right now with actionable steps. Let’s roll.
You probably already know your income. For most it may just be a single source of income like your paycheck from work.
Others may have multiple sources of income like social security, child support, business income, rental real estate income, etc.
Make a list of all your monthly income. Here is an example:
Job Income: $2,400
Side Hustle Income: $200
Child Support: $300
Total Monthly Income: $2,900
Next, make a list of all your monthly expenses. This will probably be a little harder than listing your income.
Think of everything you spend money on each month and about how much. List them just as you did for your monthly income.
Here is another example to get you started:
Mortgage / Rent: $600
Car Loan: $250
Credit Cards: $200
Lines of Credit: $100
Student Loans: $300
Cable TV: $50
Home Insurance: $50
Car Insurance: $100
Phone Bill: $75
Total Monthly Expenses: $2,810
Emergency Fund / Savings
In addition to your monthly expenses there are many other expenses that come up unexpectedly. These are a huge pain if you're not ready for them and you are living paycheck to paycheck.
I came home a couple weeks ago and it didn’t feel as warm as it usually does. The HVAC systems wasn’t working!
$550 dollars later my heat was back on. That can be devastating without an emergency fund or savings account with cash ready to go for these unexpected expenses.
How much do you currently have in your emergency fund? If it’s below $1,000 we have to fix that and I’ll teach you how later in this guide.
Your Actual Income
Now, let’s find your actual income. To find this we have to figure out the difference between your monthly income and your monthly expenses.
All you have to do is subtract your monthly expenses from your monthly income. To continue with the above example here is an example of how to do it:
Total Monthly Income: $2,900 - Total Monthly Expenses: $2,810 = Actual Income: $90
If you’re actual income is less than $500 or even negative, you’ll have to make some drastic changes to fix it. If you have a good amount of Actual Income, congrats!
How to Increase Your Actual Income
There are 2 ways to increase your Actual Income:
#1 - Increase Your Total Monthly Income
#2 - Decrease Your Total Monthly Expenses
So, how do you do that?
Well, there are many options. Let’s start with how to Increase Your Total Monthly Income.
How to Increase Your Total Monthly Income
#1 - The first step would be to increase your job income. If you work at a job you’ll have to ask for a raise. It may sound scary, but it shouldn’t be.
Even a small increase can make a huge increase in your income over the year and even the rest of your life. You may be leaving a huge amount of money on the table by simply not asking.
Here’s a great guide by Ramit Sethi that will teach you how to ask for your raise: The Ultimate Guide to Getting a Raise and Boosting Your Salary.
#2 - Just change jobs! You may be perfectly happy at your current job and if you are stay right where you are because most often happiness trumps money.
However, research shows most people are not satisfied with their jobs. On top of that, the longer you stay at a job the more your salary is likely to lag behind what you should actually be earning.
If you’re not happy with your job and you need more income start looking for a job now. You’re likely to find a better job and get a nice increase in salary on top of that.
Ultimate CV has a great guide to finding a new job you will love and how to get it: How to Get a Better Job: The Ultimate Guide to Get Your Dream Job.
#3 - The next step is to decide if a side hustle is for you. Side hustles are a great way to make extra income!
Basically they are small business you run in your spare time creating an extra stream of income. They may not be for everyone though.
Do you have time to start a business? Do you have the endurance to work and run a small business?
Some people have the passion, the endurance, and the free time. Some people don’t.
Some side hustles may create the opportunity for you to work on them as your primary job in the future. You have to decide if it is for you.
If you do, the extra income possibilities are endless and can greatly enhance your Total Monthly Income and your Actual Income.
Here is a great guide that lists a ton of side hustle options from Side Hustle Nation: 99 Side Hustle Business Ideas You Could Start Today.
How to Decrease Your Total Monthly Expenses
Aside from increasing your income, decreasing your expenses is the next best step to increasing your actual income. Is pretty easy to do and sort of satisfying to clean up your expenses occasionally.
I try to review my expenses at least once a year if not more. You’ll probably be surprised how much money you can save during a review.
Over time you begin to accumulate all sorts of monthly expenses and if you don’t track them you may have way more that you expect. It’s kinda like cleaning out the junk.
#1 - The first step is to simply pull up that monthly expenses list you created earlier. Take a look at all your monthly expenses.
Ask yourself, “Is there anything I can just cancel?” Maybe you are no longer using that cable subscription since you discovered the wonders of Netflix.
Maybe you subscribed to a monthly box in the mail type service you no longer need or care about. Look at each and every expense and determine if it is actually adding any value to your life.
Ask yourself if you could live without it. If so, cancel it.
Cancel it immediately! Call the company or log in to the website and remove it so it’s no longer charging you.
Even something as small as a $15 a month subscription adds up big time over time. That $15 dollars per month is $180 over the year.
That’s a huge waste if you aren’t using it or don’t value it anymore.
#2 - The next step after removing any unwanted or unneeded expenses is to review the remaining expenses to see if you could get the amount you are paying lower.
Say for example, your internet bill. Maybe you’re paying $55 per month. Could you switch to another internet provider and get that bill lower?
Take a look at alternative providers. I like to look at least 3 to determine if I can get a better price. If I can’t I then look to see if I can lower that bill by calling them and simply requesting a price decrease and letting them know I may take my services to another provider.
If you have many debt accounts like student loans or credit cards, look into consolidating those loans to reduce your monthly payment and interest. Interest payments is a huge waste of money and simply consolidating or transferring those balances to a 0% balance can save you huge amounts of money over time.
The Hard Reality of Actual Income
So, you’ve increased or are working on increasing your total income. You’re eliminating and reducing your expenses that you don’t need and are overpaying for.
You have or are stretching that actual income to the most you can. If you’re actual income is still small, IE less than $500 per month, it’s time to make some hard choices. If you are making $500 or more you're doing good and don’t need to worry too much about any drastic changes.
You are going to have to make sacrifices to stop living paycheck to paycheck. Here are a list of things you can do that will help you breathe again but may not be something you want do:
Sell your expensive car and buy a much less expensive car. A used car with around 100,000 miles will cost much less each month even with possibly more maintenance.
Stop eating out. Buy inexpensive meals from the grocery store and eat at home and pack your lunch for work.
Downsize your home or if you are in an apartment, move into a smaller 1 bedroom if possible.
These three changes alone can significantly increase your actual income and they don’t even have to be permanent. When you can increase your income over time, you could consider reverting back when you have the actual income to afford it.
The Emergency Fund
Once you’ve got some actual income coming in each month, it’s time to create an emergency fund. Even though you’ve got some actual income rolling in, it only takes a major car expense or household expense to put you back to negative actual income.
An emergency fund is basically a pool of money you can borrow from when life happens. Instead of reaching for a credit card or some other terrible loan option you can simply pull from your emergency fund and keep your actual income on track.
So how much should you have in your emergency fund? Start with a goal of $1,000. That may seem like a lot and not possible but I’ll tell how you can easily and automatically reach it in the next section.
Once you’ve hit $1,000, you can handle normal emergencies like a car breaking down or house repairs without sweating it. For now that’s all you need to worry about, but later once you’ve hit $1,000 you’ll expand your goal to 1 month of living expenses, 3 months, 6 months, and eventually even a year of income.
I know. Sounds impossible, but I’ll show you how.
Paying Yourself to Build the Emergency Fund
It’s time to start paying yourself!
Once your actual income is positive, you need to start paying yourself before everyone else. Some people call this saving your money, but what you are doing is paying yourself first.
Many people struggle with this, but you don’t have to. Putting aside money can be difficult when there are so many things competing for your money, but there are easy ways to automate this process.
Start with one of the easiest apps to get started saving. Download Digit and connect it to your bank account at www.digit.co.
If you haven’t already heard about it, basically, you connect Digit to your bank account and it will automatically pull small chunks of money and put into savings for you with you even having to think about it! You don’t have to think about it or worry about it, it’s all automated!
In addition, they guarantee they will never overdraft your account. Best of all it’s totally free!
If you struggle to save money this is an automated way to get started, eliminating the struggle to build that emergency fund.
There are many other apps out there, but you can’t go wrong with a free app that can automate the paying yourself first without you having to worry about it.
Ok, we’ve covered significant ground. Here is a summary of everything you need to do to stop living paycheck to paycheck:
List all your monthly income
List all your monthly expenses
Write down how much you currently have in your emergency fund
Calculated your actual income
Find at least one way to increase your monthly income
Find at least 3 ways to decreases your monthly expenses
If you have less than $500 a month in actual income make a hard choice on what you need to eliminate in your expenses
Begin building your automated emergency fund
If you haven’t already, get started! Don’t wait for your money problems to magically change. Only you are in charge of your money and only you can change it.