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Break the Paycheck-to-Paycheck Cycle

7 Ways to Live in Control and Within Your Means

-- By Caitlin Boyle, SparkSavings Contributor

As each month drew to a close, Ellen’s stress levels skyrocketed as her bank account plummeted. "I lived in financial chaos," she admits. Even though the 27-year-old marketer brought home a decent income, "there always seemed to be too much month at the end of my money." Like more than 60% of Americans, Ellen survived from paycheck to paycheck and was always on the brink of financial ruin.

"At first, I couldn't figure out how others seemed to be managing. I wasn't buying a lot of materialistic things. I never spent a lot on clothes or make-up and never bough extravagant technology," says Ellen. Tired of the vicious cycle, she took at hard look at her spending--and she was surprised at what she found.

The culprit behind Ellen’s paycheck-to-paycheck lifestyle? Small, frivolous expenses. "My grab-to-go coffees seemed convenient, but I was floored when I realized that I was spending $30 a week at Starbucks," she says. Ellen also spent more than $60 a month on restaurant lunches, more than $30 a month on magazines, and hundreds on brand names at the grocery store.

By cutting out unnecessary expenses and implementing many of the tips described below, Ellen found financial peace. "I am far from rich, but now I can afford the things that are really important to me," she says with a smile.

It’s Your Expenses, Not Your Income, That’s The Problem
Stop blaming your income. For many people, the paycheck-to-paycheck cycle is created by spending money on frivolous things. This habit is known as The Latte Factor. Track your expenses over the course of the month and identify any unnecessary spending patterns, such as ATM fees, eating meals out, coffee breaks, or bloated cell phone or cable bills. Additionally, carefully examine your lifestyle choices for ways to reduce expenses. Perhaps you can get by as a one-car family or don’t really need that gym membership when you can run or walk outside and work out with SparkPeople videos for free.

Instead of expensive haircuts, Ellen now goes to a training school and gets a beautiful ‘do on the cheap. She also makes a greater effort to shop at multiple stores for her weekly groceries, which allows her to get the best deals on individual items. And don’t fret--no one is suggesting you go the rest of your life without a latte! "I still go to Starbucks, and I still buy magazines--but they are a treat and not an everyday thing now," notes Ellen.

Create a Budget That Includes a Savings Plan
Create a budget that compares your anticipated monthly expenses (such as rent, credit card bills, and health insurance) against your income. Create spending caps for the categories you’re most likely to engage in frivolous spending, such as groceries, entertainment, and shopping. Whenever you buy something, study the receipt so you verify you weren’t overcharged. Immediately log each expense into your budget and readjust your spending caps as necessary.

Ellen put any extra money into three savings accounts: a long-term savings account; an allowance account; and an emergency account. "I call my emergency account my 'stupid stuff that sucks' funds, such as burst water pipes and parking tickets," Ellen laughs. "That grown-up stuff hits us all, and you need to be prepared to break the paycheck-to-paycheck cycle." Ellen 'pays' her savings accounts first thing each month; otherwise, she might spend her savings without realizing it.

Automatically Deduct Savings
An alternative to Ellen’s saving plan is to arrange your paycheck’s direct deposit so a certain percentage--such as 10%--goes immediately into a savings account. This way, you’ll never be tempted to skip a savings deposit!

The Envelope Trick
Statistically, people spend more money when paying with plastic than with cash. Paying yourself a cash allowance is a great way to limit your unnecessary spending. At the beginning of each month, review your budget to see how much "allowance" is available after putting money toward your savings account. Withdraw this amount in small bills and save it in an envelope. When you go out, leave the credit cards at home and remove some money from your envelope--but spend wisely! Once the money in the envelope runs out, you must stop.

Ignore the Joneses
Take an honest look at your paycheck-to-paycheck lifestyle and ask yourself if it’s the result of "keeping up with the Joneses." We’re often tempted to spend money to impress other people or fulfill social expectations, but remember that 60% of the country is in the same financial boat as you are! Ask your friends and families to participate in free or cheap get-togethers, such as picnics in the park, walks around the neighborhood, or potlucks at home, instead of expensive dinner dates.

Ask for Assistance
Although many Americans live beyond their means because of frivolous spending, some people struggle with debt despite a frugal lifestyle. There are numerous state and federal programs that can assist you if your income qualifies. One example is the federal WIC (Women, Infants, and Children) program, which provides supplemental foods, health care referrals, and nutrition education for low-income pregnant and postpartum women. Reach out to your local jobs and family services office if you might qualify.

Live in Control and Within Your Means
Don’t feel confined or depressed by your budget--feel empowered! Financial freedom is the greatest gift you can give yourself. "Life is so much simpler now," says Ellen. "My budget is laid out and covers pretty much everything. I live within my means, but it's liberating to know exactly where those limits are, rather than fumbling around in a panic every single month."

 

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Caitlin Boyle Caitlin Boyle
Caitlin Boyle writes a daily food and fitness blog, Healthy Tipping Point, which chronicles how Caitlin balances her busy lifestyle with healthy eating and exercise. She also runs Operation Beautiful, a blog that encourages women and men to replace positive notes in public places to encourage self-esteem and develop a positive body image. She is also the author of the book based on Operation Beautiful.