Here’s what it means to live paycheck to paycheck: All of your income goes towards paying your monthly expenses. There is no money left after paying the bills.
About 64% of Americans live paycheck to paycheck, May 2022 study finds loan club investigation.
You might think this is only a problem for those on low incomes. But it can happen to anyone at any income level. In fact, an earlier version of the study also found that 48% of those earning more than $100,000 a year lived paycheck to paycheck.
The inflation rate for the last 12 months ending in April 2022 was 8.3%. High prices could be a factor in rising consumer revolving debt, which includes credit card debt. The of the Federal Reserve The consumer credit report shows there was a 29% increase in revolving debt in March 2022 compared to February 2022.
For some, increased income may not be possible at this time. But whether or not you can find a way to make more money, here are some suggestions to help you survive until your situation improves.
How to Survive the Paycheck-to-Paycheck Life
Living paycheck to paycheck is full of stress. It is almost impossible to build up an emergency fund because there is no money left. It’s like walking on a wire without a net. If a sudden financial crisis occurs, such as an expensive car repair, it could mean credit card debt because your cash flow can’t cover anything more.
Here are some tips to consider if you’re in survival mode:
- Keep a low interest credit card. If you need to use a credit card as a temporary emergency fund, get the lowest annual percentage rate you can qualify for. It’s not a perfect solution, but it will at least reduce the amount of compound interest on your balance. And you will have the card in hand for emergencies that must be paid immediately.
- Use a 0% spend APR credit card. If you have a sudden expense, but have time to apply for a new credit card, consider a 0% APR purchase credit card. These cards offer the possibility of reimbursing an expense over 12 to 21 months without accumulating interest. It works best if you know your situation will improve in about a year.
- Create a ruthless budget. I recognize that it is a painful choice to make. Think of it as a temporary cut until your cash flow improves. Decrease your discretionary spending, which is the purchases or activities you pay for that are nice to have, but not necessary.
- Look into the secondary scrambles. If you are already working crazy hours, this might not be possible. But if you can swing it, the extra income can give you the relief you need.
- Ask for a raise. I know this won’t work for everyone, but do some research to see what your market value is. If you’ve worked for your employer for many years, you may learn that you don’t earn what you could earn in the open market. Finding a new job that pays your worth is another option to consider.
- Get credit advice: Drowning in debt? You can ask for help. I often recommend contacting the National Credit Counseling Foundation. They’ll refer you to an NFCC-accredited counseling agency, and help is available over the phone, online, or in person at no upfront cost.
Once you’re out of survival mode, you can take steps to propel yourself to financial health.
How to Stop Living Paycheck to Paycheck
As I mentioned before, income is not always the main factor. It is possible to have an income of more than $100,000 a year and still be in a catastrophic financial situation. Maybe you’re spending too much or facing medical debt.
Whatever the root cause of your cash flow problems, if you’re making a lot of money and still can’t make ends meet, here are five steps to take.
Limit your expenses
As you can see, the key to surviving the paycheck life is also a key to getting away from it.
Cut your budget and focus on the needs, but save some cheap treats for your own sanity. You’ll take the money you save from this step and apply it to paying off your credit card debt.
This is a temporary cost-cutting measure, so don’t be shaken. Stay focused on the ultimate goal: financial freedom.
Deal with your credit card debt
When you get out of debt, you will feel liberated. The next step to taking back your financial life is to stop using credit cards. Only then can you begin to get rid of your debts. Here are some effective ways to get out of debt and limit the amount of interest you have to pay.
- Get a credit card with balance transfer. If you still have good credit, transfer balances you have on high APR credit cards to a card with a 0% introductory APR. This is similar to the 0% purchase APR credit card. But with a balance transfer card, you can pay off your balance without paying interest for a year or more.
- Find out about a debt consolidation loan. If you don’t have good credit right now, you can consider a debt consolidation loan. This combines your debt into one loan. It’s easier because you only have one monthly payment at a fixed rate. Most likely, you will have an interest rate lower than the APR of your credit cards.
- The debt avalanche method. If the above two options don’t work, try the debt avalanche approach: pay off the debt with the highest APR first. Then you move on to the card with the next highest APR and so on. You pay less interest with this approach.
- The debt snowball method. You start with the lowest balance and progress to the highest balance. You pay more interest, but those who use it say it motivates them with quick wins.
Create an emergency fund
Start setting aside a little each week for a rainy day fund. Over time this will increase and it will help you deal with emergencies.
It takes time, so hang on to that low-interest credit card you used in survival mode. I hope you won’t need it. But life is unpredictable, so it makes sense to have low-cost options.
Consider a side business
Again, this suggestion will not work for everyone. If you have kids and a stressful job, that’s probably not a good idea. But if you’re in a manageable situation at home, it can generate multiple sources of income. You might even find a side activity that you can do from the comfort of your family room.
Save some treats for yourself
You might think that goes against everything I just said about spending limits. This is not the case !
Add this line item to your budget: budgeted spend. We are talking about little follies.
Instead of a weekly manicure, opt for a monthly manicure. Choose a small treat or two and work it into your budget. Reduce your latte to twice a week and only have one every other week. It would be nice if we could live a truly spartan life and save every penny we could. But depriving yourself of everything usually backfires.