Paycheck-to-paycheck (P2P) living is very stressful and hard to overcome. It happens when you are regularly waiting for your next paycheck before you make any basic financial decision such as paying your bills or buying groceries for your household. It's a way of life that many people in America have come to accept as a norm, but it shouldn't be so. It's an issue in our society and everyone must learn how to overcome this since it affects not just your finance, but your whole life.
If you're living paycheck to paycheck and can't seem to find a way out of debt, here's an article just for you with advice on how to break the cycle and live a happier financial life.
- Recognize that There is a Problem
The hardest part of all; admitting that there is a problem. P2P living is so common that the majority of us are growing up to believe this is the way of life. We wait and hope that we strike gold in the future to get out of this never ending loop. Acknowledging the issue will help you seek ways to solve it. And trust me, you are not alone in this situation. The sad thing is, it's a problem that we create on our own, but we seek external help to get us out of the mess, immediately.
The equation is very simple, but we all ignore it and blame it on everyone else but our self:
"Money coming in should always be greater than Money going out. The End".
That simple? Yes.
- Capture your current Financial State
You can't fix a problem that you don't understand. Learning where your money goes is the first step in getting out of Paycheck to Paycheck living. Write down all your income (Money In) and all your expenses (Money Out) from smaller ones to the secretive ones. Bare yourself naked financially and capture your current financial state.
- Create a Budget
Once you have your Money road map, you need to create a budget. A budget is simply the same list created above, but organized and prioritized with the goal of making the equation called out above work for you (Money In Greater than Money Out). I recommend a monthly budget. Group all your income in one sum, then categorize your expenses: Utilities, Rental/Mortgage, Credit cards, loans, etc...
There are plenty of tools out there to use, from basic to complex. Feel free to try them all until you find one that works for you. I have used Quicken Software since I'm more on the computer side. Other tools online: Mint.com and my favorite one: creditkarma.com I have them both and prefers the latter. If you're old school, research online about the "envelope" system. I've heard positive feedback on it as well.
- Trim Away Unnecessary Expenses
Now that you have your expenses categorized, you will need to sort them per priorities. Living expenses should always be your #1 (House/Rental, Utilities, and Food/Groceries expenses). Your Loans and credit cards are your contractual obligations that you need to fulfill. Everything else is Open season. Look at the remaining list of expenses and see what you can get rid of in order to make the equation work (Cable TV, cell phone, internet, Netflix, McDonald's, Starbucks, etc...). For ladies, make the sacrifice of not buying extra shoes for a while; you will save a bunch! For guys, lay down the urge of having the latest technology gadgets in the market for a while; it's putting a hole in your pocket.
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