For those of us who are living paycheck to paycheck – which amounts to roughly one-third of American households – we know how frustrating of an experience it can be. It can also turn into a harmful cycle that continues to worsen over time, unless financial boundaries are set to control it. Here are four strategies to help you stretch your paycheck longer between pay periods, so that you can stop the cycle today.
First: Determine whether or not you are living above your means
Create a list of everything that you spend money on in a month, including rent, utility bills, food, magazine subscriptions, and even manicures. No item is too small. You can even go through your checking account statement from the previous month to help refresh your memory. Once the list is completed, write down the amount that was spent on each item. Then, go through each item on your list and circle the necessities. Finally, add up the total of all of the necessities and compare it to your monthly income.
If your necessities equals more than your monthly income, it means that you are living above your means. In this instance, there are two ways that you can resolve your situation – cut back on expenses or increase your income.
Second: Eliminate the non-necessities
One straightforward way to cut back on expenses is to remove certain purchases from your budget, particularly those purchases that are not necessities.
When thinking about your non-necessities, make sure to detach yourself from the emotional aspect of the process. A necessity is something that is unavoidable and that you cannot reasonably live life without. When I did this for myself, I realized that cable television was a non-necessity, while internet – which is essential to my business and my schoolwork – was a necessity. I then made the choice to stop my cable television service, saving me an additional $600 a year.
If you are not ready to give up all of your non-necessities, start with just two. It will require sacrifice on your part and may be uncomfortable in the beginning, but the reward is financial freedom.
Third: Consider a part-time job
Outside of getting a raise at your current job, bringing in additional income would likely require you to secure a part-time job. The goal here is to use your additional income to either pay down outstanding debts or to increase your savings. While it is tempting to use this extra money for other reasons, you’ll be much better served to use it to reduce your monthly expenses and free up more money each month for other things.
Fourth: Create a budget that fits your style
When looking to create a budget, it’s important to remember that budgets are not one-size fits all. In fact, the biggest part of successfully sticking to a budget is first choosing the budget “style” that fits you, your personality, and your lifestyle. Here are three common budget styles to get your wheels spinning:
- The Traditional Budget. You can use the list that you created above to get started with a traditional budget. For each item on the list, assign a maximum spend amount per month. That amount should be less than your total monthly income.
- The Percentage Budget. With the percentage budget, you assign amounts to your expenses based on a percentage of your income. The common percentage split is the 50/30/20 rule where 50% of your income goes to “needs,” 30% goes to “wants,” and 20% goes to “savings.” So if you make $3,000 a month, $1500 would go to your needs (including debts), $900 would go to wants, and $600 would go to savings. This will vary however, if you have large amounts of debt that need to be paid off in a short amount of time.
- The Money-Envelope System. This system requires you to use take the income from your paycheck every payday and separate certain amounts in certain categories, depending on the different categories of your budget. The idea is that once you’re out of money from the particular category, you are not to borrow from the other ones. Using a free budgeting app, which allows you to set budgets for each category and also track spending for each, is the best way to do this. Your income stays safely in your account, you avoid ATM fees and you can pay your expenses easily online, directly from your debit card.
What are your suggestions for making your budget work for you? Tell us in the comments.
All data and information provided on this blog is for informational purposes only. The opinions, conclusions and other information expressed reflect the views of the author and does not necessarily reflect the views or positions of UniRush, LLC.