A recent survey by careerbuilder.com said that about 80% of workers live from hand to mouth, including six-figure earners.
One of the reasons for this may be that many people usually spend all their pay, if it's just lying idle in their bank accounts, notwithstanding their income bracket.
If you have goals that you save regularly for and an emergency fund you've been consistent with, it won't be a bad idea to live from payday to payday. But 25% of Americans don't have emergency savings, and about 20% of them have less than living expenses for three months in the bank.
To stop living from paycheck to paycheck, you need a plan and lots of discipline. Financial experts suggest the following steps required for financial independence.
Keep an eye on your spending.
Most of the spending you do that makes you live from paycheck-to-paycheck is because you don’t watch what you spend. If you take a month to document all the things you spend your money on, you'll notice where your money goes and become more conscious about your spending.
Automate your savings
Always save first, whether for emergency or retirement; if you wait till you take care of everything else, you'll never save. It's better if you can set up your savings automatically.
Separate your savings
If you're already putting money aside for saving, make sure your money is where you can't get to it quickly; otherwise, you'll end up spending it from time to time. Try to use an account you can't easily access, preferably one that earns interest.
Assess your necessary expenses
When you live from paycheck to paycheck, it may mean you are living beyond your means. If your monthly housing expenses are over 28% of your gross monthly income, you should move to a less expensive neighborhood or get a roommate. You can do something similar for your car and trade it for a more cost-effective one.
After buying food, paying for mortgage and insurance, the rest of your money is more adjustable. Try to rank your frequently occurring expenses from most to the least according to the level of their importance, with the most important ones at the top and the least important ones last. And how about trading some of them for less expensive alternatives? Like a less expensive gym, membership, or cable package, cut down the eating out, or explore less expensive restaurants.
Save your bonuses.
When you receive any bonus, return or increase in salary, use it to boost your emergency or retirement funds. While some people may get rewards or raises regularly, you may not get them regularly. And it might be very tempting to splurge on it, but it helps to push your savings up a bit more than it usually takes and can help you achieve your goals faster.
Get an accountability partner.
Having someone to help you stay accountable is significant and will drastically increase your likelihood of success. And it's not something you do for just one day. There should be regular check-ups.
Know your “why.”
Why do you want to save? What will saving do for you? Get you a larger house? A car that doesn't have to be repaired all the time? A new business? You should have a desire and believe that you will make it a reality. Believe that the small changes you're making will help make your dreams a reality.
Be patient.
If you are just starting to cultivate the habit of saving, you have to be patient with the process. It isn't easy, and it will take some time to break your bad spending habits and form new ones. It will be hard to dig deep and expose your feelings about money but do not quit.
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