Knowing how to stop living paycheck to paycheck provides you with extra cash to build an emergency account and increase your savings. It enables you to allocate more money to debt repayment so you can reach financial freedom sooner.
What does living paycheck to paycheck mean? You have barely enough money to cover your monthly expenses, and no money is left over to be added to savings. That’s a tough position to be in, which can cause frustration, stress and other mental conditions.
The good news is that it’s within your control to form new money habits that will put you on a path to achieve your financial goals.
Why You’re Struggling Financially
The two biggest reasons people struggle financially is because of status and comfort. It’s likely that your motivation for shopping is those two factors. You should never finance a vehicle, but many people do because others being impressed by their car makes them feel a certain level of status.
The car’s heated seats and sound system provide them with comfort. But comfort is also associated with more affordable purchases such as a subscription to a video streaming service or the fifth pair of shoes you have to own otherwise you’re going to die.
Status and comfort are not only the causes of your financial struggles, but they’re the reason you’re still struggling. Most people don’t want to lower their standard of living because it means lowering their status and being less comfortable.
To stop living paycheck to paycheck, STOP WORRYING ABOUT YOUR STATUS AND BECOME UNCOMFORTABLE!
Do you know what percent of Americans live paycheck to paycheck? Just over 60%. In the so-called richest country in the world, more than half of the population has no money after paying their monthly expenses. Yikes.
Living Your Life for Other People…..
It’s likely that you’re worried about what your family, friends or partner will think if you downgrade to a more affordable vehicle, move to a cheaper neighbourhood and no longer wear designer labels. Imagine what they’ll think of you when you’re homeless. If you don’t have any savings, you’re one paycheck away from being on the street.
That actually happened to me.
I had invested all of my money into a nightclub I opened. After selling a portion of my shares to my partners, I became the minority shareholder and got fired from the business I started.
With no savings, I was evicted from my apartment and had nowhere to go. I parked on the side of the street and lived in my car. The two financial management degrees I obtained at university didn’t help me avoid homelessness.
I learnt that being broke makes you not care about what others think of you.
The reason you still care about what others think of your possessions is because the extent of your pain isn’t too severe. With me living on the street and not having food, you can imagine that my pain was extremely severe and reached its threshold.
That’s when I made a change.
I decided to learn about getting out of debt and saving money. If you follow the advice I will dispense in this blog, I have no doubt that your financial situation will improve. The extent of the change you make will determine how much money you save.
I recommend you take drastic steps, which will require you to stop worrying about what others think and say about you, and become uncomfortable.
A Money Saving Challenge
I learnt that money management is about how much money you keep, not how much you make. My belief used to be that a higher income would heal all my financial wounds. I was wrong.
I actually received a few raises, yet I made no financial improvements. The reason is that I had conditioned myself to be a spender, and savings weren’t high on my priorities. I’m willing to bet you’re the same. If I’m wrong, why do you not have savings?
The key to saving extra money is to recondition yourself to become a saver. This gives you the highest probability of staying on the savings path and not reverting to spending habits.
Habits are formed after remaining disciplined for weeks and months. Eventually, you should reach a point where spending money is painful. Now, you probably get satisfaction from buying items because you’re wrapped up in status and comfort.
It’s time your ego took a blow.
Here’s a money saving challenge that will take you from struggling to savings:
Live way below your means. Be a minimalist for a prolonged period. It will change your life for the better and enable you to save a lot of money. That’s what happened to me. I went from the street to paying off $40,000 in debts and saving up $50,000.
You have to go all in. There’s no bargaining with me when it comes to compiling a minimalist budget. Your only option is to reduce all expenses. It sounds impossible, but it’s not.
Step 1: Compile a list of your expenses
To get the most accurate figure for your expenses, you need to keep all receipts for a month. Enter them into a money-saving app or an excel spreadsheet. Ensure that every expense is recorded—parking and movie tickets, clothing and especially takeaways.
Keep each expense on its own line item.
I recommend inputting the receipts immediately after purchase so you don’t lose them. You may be overwhelmed with the number of receipts to record at the end of the month, so it’s best to do it right away.
Step 2: Scrutinize your expenses
This is where the change takes effect. All of us can reduce our expenses. You need to look at each item on the list and come up with a solution to reduce it. Notice I said, ‘solution’ and not, ‘see if you can’. Every expense can be reduced.
Let’s start with the biggest expenses most people have—housing and transportation.
If you work remotely, moving to a cheaper place is easy. You can be anywhere in the world. Your goal with a minimalist budget is not to live in a cool neighbourhood but to save money. This also pertains to office workers. If you cannot move too far away, reduce your living expenses by moving to a smaller place within the neighbourhood.
Rent out a room or move in with someone. I did it, and I saved a lot of money. I realise that an adjustment to your living situation affects your privacy, but it’s time to be uncomfortable.
Keep in mind that not all changes are permanent. Eventually, once you’ve built up a healthy savings account, you can be more flexible with expenses. But right now, become less comfortable by moving to a more affordable place, or share your living space.
Cars
Ahhh, that piece of machinery that depreciates and is a bottomless money pit. Your vehicle is sucking all the money from your wallet, and because of status and comfort, you hang on to it. If you live in a metropolitan city offering public transport, there’s no reason for you to own a car. The only time it makes sense financially is if you use it to generate an income such as being a taxi driver or a sales rep.
The average car payment in America is almost $700. That’s bananas. You wanna hear something crazier? My car payment was higher than my rent. Yes, I was a financial moron, which is one of the reasons I ended up on the street.
Even if your car payment is $300, that’s not the only expense it carries. Other costs are registration, maintenance, tire replacement and gas.
YOUR CAR EXPENSES ARE ONE OF THE BIGGEST REASONS YOU’RE LIVING PAYCHECK TO PAYCHECK.
Get rid of your car ASAP. At the very least, downgrade to a more affordable one. I haven’t owned a car for six years, and I’m coping just fine. I saved a tremendous amount of money because I don’t own a vehicle.
Food
Stop eating out and getting takeaways. Just stop it. Not only are you likely consuming unhealthy food, but you’re spending a fortune on it. If you cut restaurants and takeaways out of your monthly budget, don’t be surprised to have an extra few hundred dollars at the end of the month.
Even if you don’t eat out, you can reduce your groceries bill. Look at the food that you’re buying and the supplier. Instead of having steak often, substitute it with macaroni and cheese. Buy your food from farmers’ markets. It’s likely to be cheaper and healthier than supermarkets.
Subscriptions
Say goodbye to your video streaming subscriptions. The golf club membership? Cancel it now. You can’t afford it. It’s as simple as that. Every dollar counts, and you need to exclude any expense that isn’t necessary for survival.
SUBSCRIPTION CANCELLED
I’m prepping you for a hardcore financial makeover, and you’re either onboard or not. But your decision will determine if you keep sinking financially or take massive leaps to a savings account.
I haven’t owned a TV for more than 10 years. If I can do it, so can you. Read a book instead. It will provide you with knowledge and make you a more interesting person.
Other items
Keep scrolling through your list and find ways to decrease each expense. Reduce the number of times you go out with your friends to places where you spend money. Instead, opt for a barbecue at each other’s houses.
Clothing is another big expense, especially for women. There is nothing wrong with wearing the same clothes numerous times. Steve Jobs and Mark Zuckerberg did it all the time.
Stop buying gadgets and other stupid stuff from Amazon or other retailers. I don’t have anything against those companies, but I do have a problem with you wasting money.
Final Thoughts on How to Stop Living Paycheck to Paycheck
If you think I’m crazy for suggesting you follow all my guidelines, I think it’s crazy that people can barely wait for their paychecks to feel some relief. I can’t imagine living from one month to the next. The mental torment such people feel must be excruciating. Not having money to cover an unexpected expense can feel degrading.
Do yourself and your family a favour by making a savings goal to live like a minimalist. You’ve been comfortable and a spender for far too long. Improving your financial situation will require a drastic change. I’ve shown you how to stop living paycheck to paycheck. Everything I mentioned is what I followed. That’s how I know it works.
If you want to start by saving $100, check out my article How to Stop Being Broke. It provides practical advice that will recondition you to become a saver.
Just know that the way you’ve been doing things has brought you the results you have. If you want different results, you’ll have to manage money differently.
You should have at least one year of all your expenses covered. It can take six months or longer to replace an income. At the very least, have cash for six months in the emergency fund to cover food and rent.
Yes. By living on a minimalist budget I propose to reduce all your regular expenses, you’re likely to have a minimum of several hundred dollars to pay credit card debt, a student loan, a personal loan and eventually build a savings account. If you follow my saving money challenge and reduce your housing expenses and sell your car, you could potentially have at least an extra thousand dollars.
CHECK OUT MY NEW BOOK — From Homeless to Debtless with Savings
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