The major contributing factor to the growing trend of people living paycheck to paycheck is a lack of savings. Across many income brackets, 47 percent of folks can’t even come up with $400 during an emergency.
You may be apart of that 47 percent and despite many efforts, you continue to fail miserably at getting ahead of your expenses, saving a decent amount of money, and putting a dent in your debt.
I know many of you have been led to believe that if you just cut a few expenses here and there, create a budget, and focus on earning more that your money woes will go away. Unfortunately, that is only a part of the equation to help you overcome living paycheck to paycheck.
While creating a budget, earning more money, and living a frugal lifestyle will undoubtedly help you stop living paycheck to paycheck, there’s one important piece that folks often struggle with the most. That piece is understanding why they are living paycheck to paycheck.
We all have behaviors, beliefs, values, and different sets of circumstances that contribute to who we are. These same behaviors, beliefs and such play a major role in how we handle our money.
Without understanding the why of the matter, you’ll never defeat this way of living. This isn’t time to hit the back button. Grab some tea (or vodka) if you will and get cozy. Let’s understand why you tick the way you do and discuss 7 reasons you may be living paycheck to paycheck and how to fix it.
7 Reasons You’re Living Paycheck to Paycheck (And How to Fix It)
1) You don’t understand the basics. Basically, you’re financially illiterate.
If you don’t know anything about money, how are you going to become a better manager of it? This took me a long time to realize considering I come from a financially illiterate background.
I’m no stranger to the struggle. I’ve shared my bankruptcy story and my money miseducation. It took several years of studying, struggling, and learning from financially competent individuals before I turned my finances around.
I literally knew nothing but how to make it paycheck to paycheck. I had no financial goals, I didn’t know how to save, and I used credit inappropriately. Once I learned the financial basics — such as living within my means and paying myself first — I was able to overcome living paycheck to paycheck.
Let me stop here with a few things you should understand (things I basically had to learn before I defeated paycheck to paycheck living):
- Money is a tool, you should treat it as such.
- The amount of credit you have is not an indicator of your wealth. It’s an indicator of your ability to pay your bills on time each month; however, a high credit score does not mean you are balling.
- A true investment in yourself is non-materialistic. Of course, you’ll look cute with that new Michael Kors purse. But what’s really cute is having some money in that matching billfold, not a bunch of maxed out credit cards. (I just had to add that tidbit in there.)
Okay, now we can carry on…
2) You don’t know where your paycheck is going.
You might think you have an idea of where your money is going, but tracking your expenses is an eye-opening experience. If you’ve never done this, it is definitely necessary.
Do I still track my expenses today? No, but doing so for a short period of time helped me to create a household budget that truly reflected my family’s spending habits. Without this information, you could be budgeting too much or too little for certain expenses.
If you budget too much or too little, you’re exposing finances to the unknown. If you think you spend $50 in gas each week, but actually spend $100 — you could be digging a hole for yourself. If you don’t have the extra $50 to cover the true amount you’re spending, you might resort to using debt to cover the expense.
There are plenty of ways to track your expenses. First, you can sign up for a free tool such as Personal Capital and aggregate all of your accounts (checking, savings, retirement, credit cards) in one place. This will help you see spending habits based on your debit, checking, and credit card usage.
You can also use a spreadsheet to track expenses. I’ve created a free expense tracker that you can download for free to help you monitor your expenses on a monthly basis. If you would like a copy, drop your email in the box below and check out this post on how to use it.
Last, you can go old school and track your expenses manually using pen and paper. When I was tracking my expenses, I used a journal and tracked expenses per paycheck until I got a better understanding of my spending habits.
3) You pay everyone first but yourself.
I get it, you got bills. Understandable. However, what’s not understandable is giving your paycheck to all these people and not keeping some of it for yourself. You are the one that works 40 hours (sometimes more) per week for that paycheck.
How fair is it that you have a dollar after paying the light people, rent people, and insurance people?
Nah, that ain’t cool one bit. Instead of paying everyone else first, take your cut off the top and live off everything that’s left. That means if you make $700, you take your share first ($100 for example) and live off the remaining $600.
Related Reading: How to Save Living Paycheck to Paycheck
4) You’re living like the Joneses.
The Joneses reside in every neighborhood. You might even be the Joneses yourself.
Yeah, that new car that Trisha has in the driveway at her 3 bedroom, brick, ranch style home is cute. However, that $400 car payment is beating her senseless every month. And we’re not going to talk about the property taxes homegirl shells out every year.
Oh and let’s not forget your mama/sister/girlfriend/auntie. You know, the one that encourages you to hit those outlet malls with them every other Saturday. The one who you go with to your weekly pedicure and hair appointment.
Now by all means, if you’ve budgeted for it and have the money to enjoy these things – that’s fine. However, if you’re living paycheck to paycheck, you’re subjecting yourself to the struggle life because you’re living beyond your means.
You’re trying to keep up with Trisha, mama, auntie, sister, girlfriend – and this is costing you money you don’t have. My advice would be to pick a few things you can’t live without and budget or them accordingly. Then forget about Trisha Jones, Mama Jones, and all those other Jones and focus on you.
Related Reading: How to Have a Life and a Budget
5) You fail to plan for unexpected expenses.
If you only think of those right now expenses, you’re overlooking those major things that pop up every year or so. I’m talking about those insurance premiums, medical deductibles, car repairs, and home maintenance costs.
The list certainly doesn’t end there, but it’s important to identify your unexpected expenses and plan for them accordingly. The best way to do this is to examine your bank statements over the last 12 months and look for expenses that caught you off guard.
Related Reading: How to Save for Unexpected Expenses
6) You pay only the minimum on your debt.
If you’re paying only the minimum payment on your debt, it’s safe to reason that you have no clear plan to eliminate it. This is a problem because every month you’re paying only the minimum, your debt is accumulating interest.
Related Reading: 6 Step Plan to Pay off Debt and Save Money
The more interest your debt accumulates, the longer it will take you to pay off your debt. The longer you have debt, the more dependent you become on your next paycheck. To keep the bill collectors happy, you’ll be sweating, hoping that paycheck hits the bank on time come Friday morning.
This surely isn’t the way to live and it’s a surefire way to keep you living paycheck to paycheck. To eliminate this problem, you need to find additional money in your budget to put towards your debt. If you don’t have any money left in your budget, it’s time to find ways to earn more money.
Here are several articles that will help you earn more money:
7) You waste time on non-income producing activities.
Keep a log and determine how much time you spend on Facebook, Instagram, or watching television. Once you know how you’re spending your time, you can either cut back on these activities or look for ways to monetize your time.
The way I overcame wasting time watching television was by taking surveys. Anytime I was on the couch watching television, I’d pull up a survey and earn some extra cash. Matter of fact, I’m writing this article right now while I watch television.
Sign up for American Consumer Panel, Harris Poll Online, Opinion Outpost, Swagbucks, and Vindale Research (all of which are FREE) and start earning a little extra to help you stop living paycheck to paycheck.
The money making activity I used may have changed over the course of my hustle journey, but it doesn’t matter because I’m still earning income while watching television. We all have to start somewhere, and earning extra income taking surveys is a great start. You can use this money to offset your usual household expenses or save your money for gifts or holidays.
Beyond surveys, you can do some of the following:
- educate yourself with personal finance books while rocking your babies to sleep
- write articles for your own website or clients while waiting at the doctor’s office (Interested in starting your own blog? You can start your own blog using Bluehost for as little as $3.95 and here’s a guide that will help you!)
- use Ebates to earn cash back when you’re shopping online.
Think of other ways you can monetize your time. You’d be amazed how much money you can earn when you decide to stop wasting time!
Related Reading: How to Get Ahead on Little Income
Wrapping Thangs Up
You may be a part of the 47 percent that can’t come up with $400 for an emergency today, but it doesn’t have to stay that way. To defeat this cycle, you must know why you’re in that cycle in the first place.
As promised, I’ve discussed 7 reasons you may be living paycheck to paycheck. I hope this information will arm you with the knowledge you need to create viable solutions to deal with your money woes.
Now that you know why you’re living paycheck to paycheck, I encourage you to educate yourself, know where you’re spending your money, pay yourself first, plan for the unexpected and stop trying to live like everyone else. Also, don’t forget to knock out those debt payments and monetize your time wisely.
Living paycheck to paycheck will soon be a thing of your past. You now know the reasons why so get busy!
Are you living paycheck to paycheck? Are any of the reasons discussed to blame and if so, what are you going to do about it?