Ready to Stop Living Paycheck to Paycheck?
The term “living paycheck to paycheck” has a stigma associated with it: this term is reserved only for people with low paying jobs or people who are of a lower economic status. The reality is that 78% of people and 10% of those who make $100,000 or more are living paycheck to paycheck on a regular basis.
There are a variety of financial issues or situations that lead to living paycheck to paycheck. It does not mean that anyone is being financially irresponsible. Living expenses, including housing, healthcare, and education, have increased, but at a higher rate than the Federal minimum wage. So how do you overcome these issues or make changes to improve your financial health sooner than later?
The Issue: Tracking Your Spending
Living paycheck to paycheck isn’t such a bad thing if you’re putting away 20% or more of your regular paycheck toward emergency savings. However, for most people, living paycheck to paycheck means they aren’t paying close enough attention to their expenditures.
The Solution: Create a Budget
Over the course of four weeks, or two traditional pay periods, take the time to create a budget and document all of your purchases. During these four weeks, don’t try to make any changes just yet. The goal is to understand your spending habits and review them on paper (or in a mobile app). Once you fully understand how you are spending then you can create a budget and eliminate the unnecessary purchases.
The Issue: Easily Accessible Savings
The 20% rule (that is 20% of your take-home pay should be automatically deposited into a savings account) is good in theory. When put into practice, however, savings account linked to your primary checking makes it almost too easy to supplement your checking account when funds get low. So you’re moving money, but you never seem to be able to get ahead in your savings goals.
The Solution: Relocate and Automate
Instead of choosing a savings account that is linked to your primary checking, open a savings account at a different bank or open a new investment account (like a 401(k). This will make it just that much more difficult to access these saved funds. Then, provide your employer with your new account information and ask them to automatically take 20% of your paycheck and deposit it directly into the savings account.
As you continue your journey to complete financial health, EmployeeMoney is always in your corner. In the event of an unexpected expense (e.g. medical bills, veterinary bills, auto repairs, etc.) contact EmployeeMoney. Keep your head up! There is a way out; you just have to dig in to get started.