5 Steps to Get on Track if You’re Living Paycheck to Paycheck
Do you find yourself falling behind and not able to live within your means? If you’re not sure if you’re living beyond your means, check out my recent article where I help you figure out if you need to make some changes.
Here are some solutions to help you live within your means and improve your financial situation:
1. Track Your Spending
It’s easy to lose track of what you spend, especially when you use credit cards, debit cards, and automatic bill pay. While those methods are convenient, they hinder our ability to determine how much we are actually spending. Ideally, you should track your spending for 30 days. Track every penny so that you can get an accurate accounting of where your money is going. Tracking how you spend your money over a 30-day period is useful for creating an accurate spending plan.
2. Create a Spending Plan
A spending plan is a great way to evaluate your income and expenses. To create an effective spending plan, you must be honest about your spending habits. Look for ways to reduce expenses and/or increase income. Read more about creating the perfect budget for you.
3. Set Up Your Emergency Fund Before Paying Your Debt
You need to be prepared for emergencies. If you are using all of your extra income to pay down debt and an emergency occurs, you will end up taking on more debt, the exact opposite of what you want. I recommend saving between 5% – 10% of your net (take home) pay before you put extra money towards debt.
4. Pay Off Credit and Loans Using the Snowball Method
This snowball method is relatively simple and psychologically satisfying. You pay off the smaller debt first and make your way up to the larger debts. This method may not be the most cost-effective, but it helps motivate you towards debt freedom as you feel accomplished every time you eliminate debt.
Note that you should typically pay off high-interest debt first. Credit cards are usually a great place to start due to their high-interest rates. If you’re highly motivated, I recommend starting with high-interest debt and working your way down. This is called the avalanche method.
5. Use Cash
Using cash is a great way to stick to your budget. Why? You can only spend as much as you have. Swiping a credit card is easy, but limiting yourself to a specific amount of cash is an effective way to get your spending habits in line with your spending goals.
With hard work and commitment, you can live debt-free!