Breaking the Paycheck-to-Paycheck Cycle

IMG_4093If you would have trouble coming up with $400 to cover an emergency, you’re not alone. A recent survey by the Federal Reserve Board found that almost half of Americans would have to borrow or sell something for that kind of cash – or not be able to deal with the situation at all. That 47 percent of people are known as financially insecure, but they probably just call it living paycheck to paycheck.

If you’re living paycheck to paycheck, don’t despair. With a little insight, you can change certain habits that are keeping you from accumulating that all-important cash cushion.

Don’t waste time shaming yourself.

Maybe you’ve been socking away your money in a locked-down retirement account that you can’t access without hefty penalties. Maybe you were hit with unexpected medical bills. Maybe you’re just used to a spending-focused lifestyle. Whatever the reason, you won’t change by beating yourself up for it.

The first step is tracking your money.

You might not need to take drastic steps like finding a second job to drag yourself out of financial insecurity. It might be as simple as figuring out where your money is going and making a few simple everyday changes.

• Take your lunch to work instead of going out.
• Think of fancy coffees as a once-in-a-while treat.
• Be more conservative with your thermostat, and turn some lights out while you’re at it.
• Do you really need that highest tier of cable channels?
• Meat can be pricey, so try to go without it for meals, or even entire days.

Figure out how much money you could save with simple steps like these. Don’t give yourself the chance to spend it; set up your direct deposit at work to divert it into a separate savings account. It will grow faster than you think.

Find other ways to make “mad money.”

Don’t be tempted to think of your new emergency fund as a reserve to buy a new TV or take a much-needed vacation. Look around at your current physical assets and see what you’re really using.

Declutter your space of unused stuff and sell it on Craigslist or eBay. If you really want something new, you’ll be willing to depart with the old. But if you’re just itching for a new pair of shoes, reorganize the ones you have, polish them up and make do.

Consider bringing in more money.

If your income just isn’t going to stack up to your obligations no matter how much you scrimp and save, it might be time to think about getting a second job on the weekends until you can get your head above water.

If you’ve had the nagging feeling that you need a more advanced degree to make more in your field or even switch careers, crunch the numbers and think long-term about making it happen. Have a frank talk with your boss or trusted coworkers to figure out what needs to happen to propel you into a higher income bracket.