In a recent
study conducted by the American Payroll Association, 68% of the 30,600 people
surveyed said they would have difficulty if their pay check was a week late. In
other words, more than two-thirds of Americans are living paycheck to paycheck
It is
tough when this happens but I’ve been there, and I know one of the ways to get
out of this situation is to track daily spending; I know this can be difficult.
I advise you to do it, but if you don’t, for whatever reason, don’t let
that stop you from fixing your finances. If you are going to track your income
and expenses then use online tools such as Mint.com to help you or use
software such as Quicken or other online budget tools.
My
recommendation is that, whether or not you track your spending (and you
should), at least do the following:
Adjust your
attitude
For some,
living paycheck to paycheck can be a lifestyle choice To help myself change
your attitude toward money, make a list of goals and rewards and creating
a vision of what you can have in the future made it easier to make better
financial choices.
Start
cutting
Sometimes it
can be painless to cut back -- especially if you've been spending money on
unnecessary things. Even a small income can go a long way if you make minor
changes, such as eating in rather than dining out
Look at discretionary spending. If you
can’t find $100-200 to save per paycheck, then you need to cut some things from
your spending. This is where tracking your spending comes in handy, but even if
you don’t, you know some of the extras you spend on — cigarettes, coffee,
snacks, candy, desserts, eating out, magazines, shopping for clothes or gadgets
or toys or shoes, books, going out … these are just a few of the examples. I’m
not saying you need to cut everything out, but if you can cut a few of them, or
maybe just one at a time, that can add up. Then, take the money you didn’t
spend on those discretionary items, and put that amount into savings each
payday. Increase this over time.
Start saving now! The next
most important step you can take, in the beginning, is to start a small savings
account if you haven’t already. Begin depositing into it regularly, at least
$100 per paycheck
Pay off
Debt.
One of the
most popular ways to pay off your debt is the Debt Snowball method. You can use
the Snowball Calculator to figure out which debts should be paid off first:
List out
your debts and arrange them in order from smallest balance at the top to
largest at the bottom. Then focus on the debt at the top, putting as much as
you can into it, even if it’s just $40-50 extra (more would be better). When
that amount is paid off, celebrate! Then take the total amount you were paying
(say $70 minimum payment plus the $50 extra for a total of $120) and add that
to the minimum payment of the next largest debt. Continue this process, with
your extra amount snowballing as you go along, until you pay off all your
debts. This could take several years, but it’s a very rewarding process, and
very necessary.
Generally
speaking you should attempt to pay off the debts with the highest interest rate
first. This Snowball
Calculator allows you to enter up to 20 different debts with their
associated APRs, and the total amount you want to spend per month servicing
your debts, and it'll work out the order in which you should pay them together
with the monthly payments.
Make a
budget.
I recommend
using a simple spreadsheet. List all your regular expenses (rent, car,
utilities, internet, etc.) and their amounts, and then your variable expenses
(groceries, gas, eating out, etc.), and then your irregular expenses (things
like car maintenance or medical that might not come up every month, but break
them into estimated monthly expenses — if you spend $600 a year on car
maintenance, budget a $50 monthly expense). Now match that up against your
income. The expenses should be less.
Automate
your bills.
As much as possible, try to get your bills to be paid through automatic
deduction. For those that can’t, use your bank’s online check system to make
regular automatic payments. This way, all of your regular expenses in your
budget are taken care of. Make sure that your savings is done the same way –
automatic deduction.
Save for
your irregular expenses. Some call it a Freedom Account, but
the key to ensuring that you have smooth finances and that you stick to your
budget is to take into account all your irregular expenses, such as insurance,
car maintenance or repairs, gifts (think Christmas!), medical and other such
things. List them out, estimate your annual spending, and begin saving for them
each month. Again, if you spend $600 on car repairs, budget $50 a month for
that expense, and put that amount in savings. You could set up different
accounts for each expense in an online bank such as ING or Emigrant, or put it all in one account
and use Money or Quicken or a spreadsheet to keep track of each.
Then, and
here’s the key, when these expenses come up, use that money for those
expenses! That way, you can use your regular budget for the stuff it’s
meant for, not for these “unexpected” expenses.
Use the
envelope system for your variable expenses such as food and gas. This is
optional, but it’s a good tip. I’ve been using it myself, and it works like a
charm. Let’s say you set aside three amounts in your budget each payday — one
for gas, one for groceries, one for eating out. Withdraw those amounts on
payday, and put them in three separate envelopes. That way, you can easily
track how much you have left for each of these expenses, and when you run out
of money, you know it immediately. You don’t overspend in these categories. If
you regularly run out too fast, you may need to rethink your budget.
Start
thinking about your goals, and planning for them. When do
you want to retire? How often do you want to travel? When do you want to buy
that dream house? Do you want to save for your kids’ college education? Think
about what you want in life, and start planning to save for them, especially once
you’ve done all the above.
Watch every day for a week or two, and you're bound to remark a substantial change in the way you
ReplyDeletelook at life. ' She recently used this method while helping a seven year old organise her bedroom.
Marrying in your late teens or early twenties was the norm.
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