Living paycheck to paycheck is not only stressful financially, it also can take a toll on mental health. This issue is something many Americans — burdened with inflation and an uncertain economic landscape — are facing.
A new GOBankingRates survey found that 56% of people run out of money at least half the time.
“Living paycheck to paycheck is the worst, and it’s no way to live. I’ve been there, too,” said George Kamel, personal finance expert and co-host of “The Ramsey Show.” “I went from negative net worth to [being a] millionaire and even paid off my house. And if I can do it, you can do this, too.”
The survey also found that seniors over 65 are the only generation that doesn’t have a major problem with money running out: 71% say chances are low, very low or never that they will run out of money in a given month.
In terms of gender gap, women are slightly more likely to say the chances are 50/50 or better that they run out of money, with 60% compared to 53% for men.
But, with a plan in place, there are ways to break that cycle, experts say. Here are some tips.
Make a Budget
The very first step is getting on a budget — a written plan that will make you feel like you got a raise, Kamel said. This is you telling your money where to go each month instead of wondering where it went, he said.
“Make it a zero-based budget where your income minus your expenses equals zero,” he said. “It’s giving your money a job. This doesn’t mean you have zero dollars in your bank account; you should have a little buffer in there.”
To get started, you need to cover what he calls “your four walls”: food, utilities, housing and transportation. Then, you can make a list of everything else you need to pay and tackle it in order of importance.
Look at Your Expenses and Make Cuts
Once you have a budget in place, it’s time to look at your expenses. If your expenses are equal to or greater than what you’re bringing in, you’re going to need to make some cuts if you want to start building a cushion.
If you can temporarily cut some of the less essential expenses, such as subscriptions and entertainment, then you can start saving toward short- and long-term goals, said Ryan Viktorin, vice president of Fidelity Investments.
“One more pro tip: Maybe you don’t need all your expenses at once,” Viktorin said. “See if there are some you can pause for a month or two then switch to another for a month or two. It’s definitely easier said than done to cut back on non-essential expenses, so I’d suggest also looking at swaps and replacements.”
For example, if you typically buy lunch every day, Viktorin suggests making your lunch a couple of times a week. If you get your groceries delivered, consider doing curbside pickup or going to the store to cut back on delivery costs.
Sometimes, however, making cuts isn’t always enough to stop living paycheck to paycheck and start saving.
“If that’s the case,” Viktorin said, “try putting any extra funds into your savings account — such as cash gifts, cash back from credit cards or cash back services and your tax refund.”
Start an Emergency Fund
Kamel suggests saving $1,000 for your starter emergency fund — “a buffer between you and life.”
Viktorin notes that you should always make sure you have your savings in an account or a fund that earns interest.
“Do not leave extra cash in an account that doesn’t work for you,” he said. “You worked hard to save money, so get that money making money.”
Pay Your Debt
You can use the debt snowball method and pay off all consumer debt, Kamel suggests.
“List all your debts from smallest to largest, regardless of interest rate, and tackle the smallest one first,” he said, adding that you can also pick up side jobs and sell stuff to get to a place where you no longer have to worry about living paycheck to paycheck. On average, people get through this step in 18 to 24 months, he said.
Keep It Up
If you follow these steps, you’ll create more margin in your budget and in your life, Kamel said, adding that margin puts you in a different place, mentally and emotionally, when you’re willing to create it.
“Once you have achieved all of this, save for three to six months of expenses in an emergency fund,” he said. “You did it. You’re debt free with a pile of money in the bank.”
Kamel added that debt is really what’s holding people back. “You’re getting tugged in two different directions when you’re trying to build for the future while you’re still paying for the past.”
Finally, keep it up, as your financial situation likely won’t change overnight, Viktorin said, “And that’s OK.”
“Budgeting works best when you’re consistent. If you’re consistent, you’ll start to see positive changes and you’ll start to save more. Make sure you’re celebrating milestones you hit to keep yourself motivated.”
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