New Year’s Resolution: Break the Paycheck-to-Paycheck Cycle

The new year gives you an opportunity to start fresh. Although you can create new goals at any time, establishing a start date of January 1 can be a mental trick to motivate you to make lasting changes. When it comes to those of us in our 20s, one of the most common resolutions is bettering our financial situation.

The most common money-related goals? According to one study, 30 percent of respondents said they intended to pay down debt. Another 18 percent said their goal was to build an emergency fund. Both are great resolutions, but when you’re just starting out in your career, accomplishing them can be tough.

I’ve been there. During my first job, my paycheck barely covered the basics. I had to budget every penny to keep the lights on and gas in my car. I never had enough at the end of the month to save. One missed paycheck would have wrecked me.

I’m certainly not alone: Approximately half of all Americans live paycheck to paycheck. A single financial emergency — a delayed paycheck or a car repair — could leave you scrambling to find a way to cover your expenses. That might mean racking up credit card debt or turning to expensive payday loans.

It will take some serious sacrifices to stop living paycheck to paycheck, but the peace of mind and security will make it worth it. When 2019 rolls in, here’s how you can break the cycle once and for all:

1. Track your spending

Before you can do anything else, you need to take stock of what money is coming in and what you spend. Review your receipts, bank accounts, and credit card statements to see what you bought in the past month, and compare it to your income. It can be a depressing, but necessary, task.

One free tool you can use to make it easier to see everything at once is Mint. It syncs to all of your accounts to help you see what money is coming in and what you’re spending money on.

When I reviewed my budget, I saw that my spending outdid my income by $10. That’s a small amount, but that meant I was behind every single month and could never get ahead. To fix it, I looked for any corners I could trim. In my case, that was just a Netflix subscription. It was just $10 a month, but it was enough that I broke even instead of racking up a deficit. Those small changes can add up.

2. Make lifestyle changes

If one paycheck is the difference between being able to pay your rent and not, the usual advice like cutting out lattes or shopping sprees isn’t helpful. You’ve already trimmed the fat and stick to the essentials. Instead, you’ll need to make serious lifestyle changes, like:

  • Find a roommate: Rent is likely the biggest expense you pay each month. When you’re on a small salary, that bill can gobble up a substantial chunk of income. Find a roommate, and you can cut that number in half, plus get help with utilities and even groceries.
  • Live with mom & dad: If you have parents who are willing to roll out the welcome mat, living at home for free or with reduced rent can be a lifesaver. You can live in a safe place you can afford and get more wiggle room in your budget.
  • Go car-free: Getting rid of your car might sound drastic, but the average annual cost to own and maintain a car is a whopping $8,698. Ditching the car and relying on public transit, carpooling, and rideshare services can help reduce your transportation costs and free up money for savings.

I get it; None of those options, or other major changes, are very appealing. I went without a car to help stretch my paycheck. It was annoying and tedious. But it was worth it. I saved more than $4,000 in one year by eliminating my vehicle.

Making lifestyle changes, even temporarily, can help you save money and build a more secure financial future.

3. Pick up a side gig

If you need more money, but a raise isn’t in the cards, a side hustle can be a smart option. You can work on your own schedule, and you can take a break when you want. Working just a few hours a week driving passengers, delivering packages, or walking dogs can add up to hundreds in extra income each month.

I’m obsessed with side hustles. I’ve done everything from writing to selling things on eBay. Those little gigs were instrumental in finally building an emergency fund.

Building financial security

If you institute these changes, you can free up hundreds each month. It’s important to treat any savings, whether it’s $10 you get from canceling Hulu to $120 from eliminating a car payment, as untouchable. Move it right away to a savings account that is only for emergencies, so you don’t have a chance to spend it. By doing so, you can achieve your New Year’s resolution and finally end the paycheck-to-paycheck cycle.

Originally published on December 31, 2018.

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