Living paycheck to paycheck is stressful. Each month, you’re scrambling to make ends meet. There’s also watching money run out as the end of the month comes around. Not to mention the fear of having some unexpected expenses coming out of nowhere.
The good news is, you don’t always have to live like this. There are ways to get you out of this predicament. And, there are many ways to approach the probable.
By following the steps below, you’ll be able to learn how to save money while living paycheck to paycheck. And, in doing so, breaking that cycle.
- How to Save Money Fast on a Low Income
- How to Save Money Using the Cash Envelope Method Budgeting System
- 15 Little-Known Household Hacks to Save Money
- 45 Money Saving Tips for Couples
How To Save Money Living Paycheck To Paycheck
Make a List of Priorities and Goals
Start by making a list of goals and priorities. Your goals will be the things you’ll be aiming to achieve in the near and distant future.
Some examples of goals could be:
- Pay off all your credit card debt
- Save for retirement
- Get out of debt
- Create an emergency fund
- Pay off the mortgage
- Take a vacation to the Bahamas
Ideally, you should have short and long-term goals. If you don’t know where to start, begin with these four.
- 6-month goals (very short-term goals/immediate things to do)
- 12-18 month goals (short-term goals)
- 3-5 year goals (medium-term goals)
- Long term goals (more than 5 years)
If you aren’t living paycheck to paycheck, you can do without the 18-month goals. But, if you find yourself struggling to make ends meet regularly, adding the 1.5-year goal really helps.
When you’re tight on cash and all your earnings goes into expenses, it’s better to keep a close tab on important things. So, the more detailed you are, the more likely you’ll be able to fix the situation before it blows up into something less manageable.
At this point, most of your focus will be in the next 6 to 12 months. The goal of which is to turn things around. At the very least, lay the foundation that will help you live the life you want after that.
On the other hand, you can be less specific about your long term goals. But, it’s a good idea that you have them there because having them written down and being able to see them every day lets you keep in them in the back of your mind. This prevents you from losing track of them or veering off their course.
Things like saving for your kids’ college education and retirement maybe 15 to 30 years away. But, it’s good to be aware of them. That’s because it takes time to save up for them.
Also, since you don’t see them or need to achieve them in the immediate future, it’s easy to get too caught up with all the things happening today, such that you forget to set some funds aside for them.
Fast forward 10 or so years later, the large sum that you suddenly need to save can become very overwhelming.
In general, you’ll want to make your short-term goals definitive. That is, the more specific they are the better. That lets you know exactly what you need to do.
As you go further out, you don’t need to be as detailed. The goal is to have them there. Because they’re so far out into the future, a lot of things can change, including some of the goals themselves.
But, knowing what they are and if you need to start contributing to those goals now is essential. This way you don’t completely forget about them.
Finally, print out a copy and tape it somewhere you look daily. It can be in your planner or stuck on your fridge door.
Track Your Expenses So You Know Where All Your Money is Going
Having goals written down really helps in keeping you focused. But, it won’t do any of the work for you.
You have to get off your butt and start taking action.
The first thing that will instantly help you save money is tracking all your expenses.
I can tell you from experience that this really helps because it does a few things.
1. It shows you exactly how much you’re spending.
I’m not completely sure why, but for some reason, we tend to underestimate our spending and overestimate our savings.
Maybe it’s just our brains trying to make us feel better about ourselves.
In any case, this becomes a big problem if you don’t know exactly how much you’re spending. That’s because you’ll think that you’re saving more money than you’re actually spending.
Keep All Your Receipts
The best way to avoid nasty surprises in this situation is to track every expense. That means to keep all the receipts of everything you paid for.
If you don’t like keeping all the receipts, you can use an app or even a jot them down on a small notebook. I always bring a small notebook with me in my pant pocket to write down ideas and take quick notes of expenses for each day. This really helps a lot when it comes time to tally everything up at the end of the day or week.
I can tell you that making mental notes of your expenses is one of the worst ways to remember all of them. I’ve tried doing so only to realize that I underestimate my total spending almost all the time.
One word of warning with receipts. Many stores use thermal paper where the ink disappears after a while. This can be irritating especially if the receipts were for high-value items or can be used for warranties.
Two ways I deal with this problem are:
- Scan them or take a photo of the receipt with your phone and upload it to an expenses folder on your laptop.
- Use a hair dryer to lightly heat the thermal paper. This will restore the ink. Really cool trick too! But, be sure to point the hair dryer towards the back side of the receipt. If you blow the heat on the front side, it will blacken out the contents, rendering the receipt useless.
Use Your Credit Card Statement to Track Your Expenses
Besides keeping all your receipts, you can also use your credit card to track expenses. This can be dangerous if you’re living paycheck to paycheck. The reason is, if you aren’t able to pay the entire amount by the due date, the balance is going to accumulate interest.
This increases your expenses making it harder to get out of living paycheck to paycheck.
That said, your credit card statement lets you easily track every expense. This saves you the effort of having to do it manually.
Use cash instead. It keeps you grounded in that you’re always aware of your situation.
That may feel disheartening especially when you go to the ATM and withdraw only to see there isn’t much cash left there.
But, it also reminds you to focus on your goal. Every time you unload cash from your wallet to pay someone, you feel the pain of parting with your hard-earned cash.
This habit helped me value money more. And, in the process, you start to always think before you buy anything.
2. It tells you what you’re spending your money on.
The second important thing about tracking your expenses religiously is that it tells you exactly what you’re spending your money on.
This makes it easy to create a budget. And, subconsciously, your mind will be aware of the things you’re spending most on.
You’ll easily realize this when you tally the costs at the end of the day or week. I like using a simple spreadsheet to do so.
One way to make this easy to notice is to group the same types of expenses together. When you group all the receipts of a certain type of expense together, say for example food, you’ll see how much or how little you really spend on food relative to other things.
I remember my surprise when I realized that I accumulated so many Starbucks receipts just for a week. That made me stop visiting coffee shops and use my boss’ coffee machine instead. It’s free! And, he doesn’t mind at all.
3. It makes you accountable for everything you spend.
Going back to how our minds work, you probably know how exactly how much money you take home each month.
But, it’s less likely that you know how much you’re spending per month.
Strange, but it’s something that almost all of us suffer from.
This is why religiously keeping track of all your expenses makes you more accountable. After a while, it becomes something like a grocery list. You’ll have a rough idea of how much each item is. And, how much everything should come out to.
If the total is high or low, you’ll know automatically instinctively. And, you’ll try to figure out what caused the difference.
This same accountability is something that was a (good) side effect of keeping a close eye on all my expenses.
Finally, tracking everything you spend also keeps you from spending on vices and things that you don’t really need. Both of which prevent you from getting out of living paycheck to paycheck.
Learn to Create a Budget
Another side effect of keeping track of your expenses is that it makes creating a budget much easier.
While it’s a hassle to have to tally all your expenses on a daily or weekly basis, I urge you to do so.
When I started doing this daily, I soon realized that I had certain spending habits. After 3 or 4 weeks, you’ll quickly see a pattern in the things you buy.
Doing this regularly will help you “memorize” your expenses without even trying. It’s like driving a car or riding a bike. You’ll just know.
So, come time to create your budget, you already have a good idea of how much you spend on each item. Better yet, you can just organize the expenses you tallied up in your excel spreadsheet to get a complete picture of all your expenses for the month.
Your earnings are probably less of a problem because chances are you know exactly how much you’re bringing in monthly without even having to try to count.
Steps to Create a Successful Budget
With those to pieces of data, you’re ready to make a budget. Here are the basic steps.
- Step 1: tally your expenses, group them together and list the groups down. Make sure to include any debt and interest payments here.
- Step 2: make a subtotal for your expenses by adding them all up
- Step 3: add up all your income (only use your take-home income, not your gross pay)
- Step 4: deduct the total costs from your total take-home pay
- Step 5. See if it balances. That is, income minus expenses should be zero or a positive number
If It’s positive, you’re done! You can keep repeating this for the upcoming month taking into consideration any new expenses. For example, there may be an insurance premium due next month or your child’s birthday. These situations will add a new entry for that month in your expenses section.
Anytime a new cost comes up, add those potential expenses to see if things still balance out. If not, you’ll need to figure out how to get the balance back to zero again.
Making Adjustments to Your Budget
If the final figure is less than zero, don’t worry. We just need to do another iteration.
This means, going back to your expenses to see which items you can cut down on for the next month. Adjust this until you get the final balance to zero.
If you can’t find anything else to cut in your expenses, it’s time to find a way to increase your take-home pay.
That brings us to the next step below, making extra cash on the side.
How Having a Budget Helps You Stop Living Paycheck to Paycheck
In any case, the goal of creating a budget is to:
- Get the balance to ZERO. This means your total take-home pay is able to cover all your potential expenses.
- You’ll know what and how much you’re spending and making.
- This will let you adjust each category to make sure you don’t end up living paycheck to paycheck anymore!
Over time, as you get better in adjusting and cutting expenses, your lifestyle will change and meeting your budget and achieving that ZERO balance will become easier.
That’s when you know you’ve made it!
Make Extra Cash on the Side
If you’re struggling to make ends meet every month, you probably have a problem in one of two things.
- You’re not making enough money
- You are spending too much money relative to what you’re making
In the previous sections, we covered the second point. By tracking your expenses and putting them into a budget, you will be able to effectively cut down on excessive spending.
It will also let you get rid of unnecessary costs.
But, that may not be enough. Life can be tough that way.
For example, you’re supporting your parents in addition to raising your kids. Or, someone in the family has special medical needs that cost a lot of money.
In those cases, it isn’t practical to try and cut those expenses. Often, they’re big ticket costs as well.
When this happens, it’s time to put on your money-making hat.
What’s great about the time we live in is that there are many ways to earn extra cash from home. In fact, according to a NY Times article, a Gallup survey found that 43% of employees spend some time working from home.
Better yet, there are many ways to earn money online.
This means you can stay home with the kids while you make extra cash. Of course, you can always get a part-time job. But, depending on your skillset, the option of being able to do side gigs from home is a luxury.
Here’s a list of some awesome ways to make extra cash working at home.
- Start a blog
- Do freelance jobs, including writing or data entry
- Edit articles or proofread them
- Be a virtual assistant
- Teach a course or do tutoring online
- Take part in surveys that pay you for your opinions
- Test websites for other people
- If you’re artistic, sell your creations
- Use apps that pay you or give you cash back for things you buy
Pay Off Debt
Debt takes a big chunk of your money every month. This includes your credit card bill, student loans, and mortgage.
The problem with debt is that it accumulates. While the actual principal amount of the debt doesn’t really change, the total amount you end up paying does.
That’s because debt accumulates interest. The longer you hold on to that debt, the more expensive you end up paying. The reason is that the borrowers charge you for the “time value of money”.
Basically, they’re lending you time to pay back that money. But, that time extension will cost you in the form of interest.
So, here are a few ways to cut down on debt.
- Pay off your credit card in full every time it’s due. This is very important because credit card companies are notorious for charging very high-interest rates for late payments. When you pay the minimum balance, which they want you to do, they’re able to charge you interest for the remaining balance until you pay that in full.
- Stop using your credit card. This ensures you will never incur interest charges. More importantly, it prevents you from spending money you don’t have. If you stick to cash, you won’t be able to buy things that cost more than the amount in your wallet. But, you can do so with a credit card which leads to unpaid balances and extra interest costs.
- Refinance your student loans. Student loans are awful. They’re usually very big. And, you’re stuck with them for the rest of your life or until you pay them off. So, if you have the chance, try to refinance your student loans in order to get lower interest rates. This will help reduce the amount you have to pay in terms of interest.
- Refinance your mortgage. If you took out your mortgage during a time when interest rates were high, try to see if you can refinance them as well. This will help reduce the amount of interest, so you pay less every month.
With debt, it’s always important to pay them as soon as you can. That’s because the longer they stay, the higher the total amount of interest you end up paying. That means you’ll be plunking down hard-earned cash just to pay for the interest.
A good way to remind yourself of your debt is to put the total on a sticky note and post it on your fridge. This lets you see it every day.
While it hurts and can be disheartening, it helps you focus on getting rid of your debt.
And, think about how much extra cash you’ll have when you finish paying them off.
Scale Back on Daily Expenses to Save Extra Cash
Earlier, we touched on tracking expenses and cutting them. This helps you when creating your budget since your goal will be to get the balance of your budget to zero on a monthly basis.
In this section, we’ll take a closer look at some ways you can optimize your expenses.
Typically, your largest costs are likely to be housing, food, and transportation. Debt is also somewhere up there. But, we’ve talked about that above.
That means that a lot of your spending is linked to your lifestyle.
- The size and location of your home are related to the cost of rent and mortgage.
- Eating out often is great. But, it easily costs two to four times more than making your own food.
- Driving a car is likewise more expensive than commuting for the most part.
- More importantly, a nice car costs more and means you’ll be spending more on insurance, repairs, and maintenance.
The point is, all these things are linked to lifestyle choices.
And, they may be what’s keeping you from getting out of living paycheck to paycheck.
One good rule of thumb when trying to save money is to live below your means.
Doing so helps a lot because you’ll spend less on everything. Sure, your lifestyle may probably take a hit. But, that’s all about comfort and ego, not necessity.
After a few months or years, you’ll be rewarded with more savings. Then, you’ll be able to live the way you want.
The lesson is, it’s just temporary. By hustling now, you’re sacrificing for a better future.
Here are some ways to get this done.
- Downsize. Can you live in a smaller house or less expensive part of town? This will help cut down rent significantly, which can result in at least a few hundred or even a thousand dollars in savings per month.
- Make your own meals. Restaurants charge at least 3 times the cost of the food. It’s the only way they can profit from their business because of their overhead which includes rent and employees.
- Commute instead of drive. Depending on where you live, commuting may be an option. If so, try it. If it isn’t too much of a hassle, doing so will save you in gas costs, parking fees, repairs and maintenance expenses.
- If you need to drive, get a used car or one that’s reliable and economical. Used cars are much cheaper than brand new ones. Additionally, instead of buying a flashy car, go for the old reliable brands like Toyota and Honda which will last you a very long time with fewer repairs along the way. Finally, look for one with low gas consumption.
These are your big-ticket expenses. But, you can also cut down on smaller things like skipping your morning coffee run. Just think about it, buying one $3 cup of coffee daily for a year comes out to over $1,000 annually. And, that’s just one cup a day.
So, small things do add up.
Set a Portion of Your Earnings Every Month for Savings
One of the best ways to limit your spending is to not see the money at all.
So, automating things so that a portion of your paycheck goes directly to your savings account keeps you from getting your hands on the money.
In doing so, you’ll be able to make sure that you increase your total savings because a percentage of your paycheck automatically goes to your account.
Here, you don’t need to start big. Even 5% or 10% of your take-home pay is great! As you make more money from your side gigs or reduce your expenses, you’ll be able to gradually increase the amount you directly deposit into savings.
This is one way to make sure that something always goes into savings.
And, don’t forget to shop around to see where you can put those savings to make it work for you. If your bank’s savings account is giving you close to 0% interest, transfer the money to another bank that offers more.
While it won’t be earth-shattering, you’ll be able to get extra cash from the money that’s parked in the bank.
Create an Emergency Fund
This is something everyone should have. In an ideal world, you may not need an emergency fund.
But the reality is, bad things happen. And when they do, they usually happen at the worst possible time.
I know because that’s happened to me time and time again.
The only way to avoid getting caught by these situations is to have an emergency fund.
This ensures that if anything happens, you have a few months of extra savings to go on.
So how much do you need?
According to Dave Ramsey, it depends if you’re a two-income household or a single income household.
- Two income households need a minimum of 3 months worth of emergency fund.
- A single income household needs to shore up 6 months worth.
Why the difference?
If your family has two income sources, if one loses their job, there’s still some income coming in. However, in a single income household, the moment you lose that source of earnings, you’re instantly dipping into your savings with nothing coming in.
Don’t Forget to Set Aside Money for Retirement
Finally, always pay yourself first. And, the best way to do that is to set aside some money for retirement.
Retirement may seem like a long time away. But, it will come around sooner than you think. More importantly, the cost of retirement is getting higher as the world is becoming more expensive.
So, how do I pay myself first by saving for retirement?
Think about it…
- The average human lifespan today is around 80 to 85 years old. So, if you retire at 65, you have the next 15 to 20 years all to yourself. Having more than enough for retirement lets you enjoy all that time.
- In addition to that, most employers will match your 401K contributions. Whatever they match, is pretty much a “freebie” for you. That’s much better than having to save the entire amount yourself.
- Also, your 401k contributions are tax deductible. That’s another freebie from the Federal government. You should take them whenever they’re given because the IRS almost never gives them.
- Finally, your 401k earns good interest. Usually, your retirement funds are invested in a mix of stocks, bonds, and cash investments. This helps reduce the risk. More importantly, most 401k plans average out at around 5 to 8% interest per annum. That means if you have $10,000 in your 401k, at the end of the year it the total grows to between $10,500 to $10,800 without you even doing anything. Imagine if you saved up $100,000 in your retirement fund. That interest will make you an average of $5,000 to $8,000 by year-end. And, will continue to compound every year.
The combination of these 4 reasons makes it much more worthwhile to pay yourself this way than to spend it pampering yourself in a fancy restaurant or going to the spa now, right?