Follow the 10 steps below to stop living paycheck to paycheck and to gain some financial freedom!
Fridays are awesome. They are super awesome for some people because that means they are getting paid, which means they get to buy the stuff that they wanted from the previous week.
Does this sound familiar?
You can’t buy anything until Friday because that’s when you get paid.
What if you could buy whatever you want whenever you want because you aren’t dependent on your paycheck arriving?
Sounds like a dream?
Well it isn’t. All you need to do is set yourself down the path of financial freedom.
It’s Not Easy
This blog post isn’t going to sugarcoat things. Sometimes you are so deep in a hole that you can’t even see the sky anymore.
“Financial freedom” might as well be two words that never have a chance of seeing each other. But no matter the situation there is always a way.
It’s similar to trying to put together one of those massive 1,000 piece puzzles. Initially, it can be very overwhelming and damn near impossible. But over time, you start to see a little bit of progress until the picture becomes clear.
Some people are lucky to work with puzzles that only have 10 pieces while others might be dealing with a million piece puzzle. Either way the steps are going to be the same.
10 Steps to Stop Living Paycheck to Paycheck
There are going to be some tough pills to swallow in this list.
If this process was easy then everybody would do it but some people just don’t want to get a better understanding of their situation.
Ignorance is bliss and all that.
But you want to figure things out once and for all so let’s get cracking.
1. Add Up All of Your Debt
You can’t tackle your debt unless you can see the big picture.
It might feel like you’re only paying a bill every once in a while but 6 credit cards, rent, car payment, phone bill, water, gas, and student loans can all add up.
Write it all down. Even the $50 you owe your mom for that sweater.
2. Where Is Your Money Going?
Next, you need to figure out where your money is going. Hopefully, some of it is going to the debt you uncovered in step 1 but where is the extra going?
Is it going to essential food or $6 coffees from Starbucks?
The only chance you have of making a solid dent in all of this is getting control of the extra money. The extra money is the money left over after you’re done paying the essential bills (rent, car, student loans, etc.).
Even if it’s only $10 that is something.
Track where every penny is spent.
You might not know this right away. You might have to spend a month writing everything down to see where things are going.
You might be surprised to see that those trips to the vending machine can quickly add up.
3. Are You Making Enough?
This one is important.
After you’re done with Step 2, see how much extra money you have. Is it enough?
Do you even have any?
If you don’t have any extra money or you think the number is too low then you need to reconsider how you’re spending your money.
For example, if you’re bringing home $1,000 a month after taxes and $800 of it is going to essential debt and the other $200 is going towards fast food and bars, then you might want to reconsider how you’re spending the money.
Food can be a huge expense for people that aren’t careful.
If you plan your meals and do a little bit of cooking you’d be surprised by how relatively cheap it is. Check out this How to Start Meal Planning post or this Grocery Budget Challenge post where I spent less than $40 a week to buy groceries for six meals to help get you started on this step!
What happens if you aren’t making enough no matter how frugal you get? Then it’s time to either look for a second job or a side hustle (like blogging).
The goal is to get you out of this situation and sometimes that means doing more work.
4. Figure Out Your Bad Habits
Each of us have a money mindset and that can quickly determine how we treat money.
For example, some people feel uncomfortable having money saved up so they spend it without realizing why they are doing it.
Are you the type that instantly spends money the second they get it or do you let it sit for a bit before deciding the best course of action?
Are you an impulsive buyer?
These are things you need to look out for so you can fight against them.
Whenever you get ready to spend money, ask yourself what is making you spend this money? Is this purchase a need or a want? The trick is realize when a purchase isn’t truly a need and then resisting those purchases. Keep your goal in mind to help you remember why those “want” purchases are a bad decision!
Over time you want to learn to cultivate good money habits.
5. Budget Time
You need a budget.
Even rich people need a budget.
It’s important you understand where you can spend your money and what your situation is at any moment.
Don’t have money to go out with friends this month? Then either try to change the plans to something within your budget or see what you can do next month.
6. Start Hitting the Debt
This might be the most painful step starting off because you are “spending” money that you’ll never get to see.
However, if you don’t start attacking your debt now, it will linger with you always.
The less money that goes towards debt two years from now, the more it goes towards more fun stuff.
7. Introducing the Emergency Fund
For some, having an emergency fund sounds like a pipe dream but it really isn’t. Once you’ve got a handle of your finances then it’s time to start saving up a little bit.
You don’t need to aim for $100,000 but it’s nice to have some extra cash for those times you do need to hit the town or fix your car. $1,000 in your emergency fund is a great starting goal, but I would encourage you to continue to add to this fund even after you reach your initial goal!
8. Build a Buffer
Steps 7 & 8 are pretty similar. An emergency fund is only supposed to be used for emergencies while a buffer in your bank account is for those times you have to spend a small amount that you didn’t plan for.
Maybe your friends want to grab $2 wine on Friday. Well, you have $10 of buffer in your bank account so you can get 5 wines!
9. Put Your Money to Work
One of the worst things you can do with your money is to let it sit around doing nothing.
Making some smart investments can really help your money go to work for you.
Why would you want to do this?
Because Savings Accounts don’t even beat the rate of inflation so if you can find a safe way to invest your money then that is your best bet.
10. Pick 1-2 Major Financial Goals
The key to making Steps 1-9 work is to keep your financial goals at the front of your mind.
I have talked myself out of purchasing thousands of dollars of unnecessary items because I remember how much more valuable a larger down payment for a house would be than a new work outfit.
Make sure that your goals are realistic and that they have a time stamp on them so that you can easily measure your success.
Example of a good and measurable goal: I will pay off my student loan debt of $10,000 by the end of 2018.
Example of a bad goal: I will pay off all of my debt.
While the idea of paying off all of your debt sounds good, it isn’t very motivating when it comes to talking yourself out of an unnecessary purchase. These goals will change over time as your get certain debt paid off or if you earn more income and can pay debt off at a quicker pace.
Where There’s a Will…
It’s not easy to stop living paycheck to paycheck.
Everybody’s situation is different but there is usually a path that you can follow.
You aren’t the first person in your situation and you won’t be the last so it’s always good to do some research to see how others have handled things.
Chances are that it will take you a few months or even a year to break your cycle of living paycheck to paycheck but don’t give up! You can do it by following these 10 steps and I promise that it will be worth it!