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What to Do If You’re Living Paycheck to Paycheck

You’re grateful for each paycheck — but it’d be nice if there was a little more left over after each one, right? It’s difficult to get ahead when your income and your expenses are nearly equal, or your expenses outpace the money you’re bringing in. This is a situation many Americans find themselves in. One survey found 78 percent of U.S. workers are living paycheck to paycheck.

If you’re just breaking even each month, there are things you can do to make the most of your income and minimize your debt.

Here’s what to do if you’re living paycheck to paycheck.

Try Zero-Based Budgeting

Budgeting is the basis for most personal finance advice these days. But traditional budgeting may be tricky if your paycheck is spent before you bring it home — advice like spending 30 percent or less of your income on “wants” starts to sound like a pipe dream.

Try zero-based budgeting instead. This strategy requires you to make a plan for every penny of your paycheck, rather than trying to stick to broad percentages. It’s named as such because when you subtract your expenses from your income, the total should be zero.

Here’s a simple example: You bring in $2,700 per month. So, you plan your expenses around that amount without a penny left over. Start by prioritizing the most important, non-negotiable costs:

  • Rent: $900
  • Groceries: $300
  • Utilities: $100
  • Insurance: $100
  • Gas: $200
  • Credit cards: $150
  • Student loans: $100
  • Debt repayment: $250
  • Retirement: $200
  • Household goods: $100
  • Emergency savings: $100
  • Eating out: $100
  • Entertainment: $100

You’re still categorizing your expenses, but you’re building your budget from the bottom up rather than trying to divvy up your paycheck by percentage from the top down. Any money left over after the essentials should go toward repaying debt and building your savings.

You’ll notice you’re still allowed to spend a small percentage of your paycheck on fun — this is an important part of coming up with a balanced budget. When you’re planning for these expenses ahead of time, you can avoid last-minute splurges that pull funds away from other important goals.

This approach ensures you have the money you need to chip away at your debts. This is especially important if you’re in a debt settlement or consolidation program with an organization like Freedom Financial Network — or a debt management program through a credit counseling agency. Making your monthly payments is a must if you want your debt relief efforts to be successful. If you know your monthly debt settlement payment is $250, you can subtract that from your income at the start of the month to earmark it for that cause.

Zero-based budgeting can help you make the most of each dollar you bring home, prioritizing the right things and helping you stay organized to avoid money mishaps.

Stop Using Your Credit Cards (Mostly)

Ever feel like your credit cards are begging you to use them and deal with the consequences later? This is an easy trap to fall into. Once you’re stuck in it, interest really starts adding up. The best way to resist this temptation is to stop using your credit cards for the most part.

While you shouldn’t necessarily cancel your credit cards — as this can hurt your credit score — you can switch your spending to a debit card or cash-based system to avoid overspending.

Build an Emergency Fund — Slowly but Surely

You may feel like saving becomes an afterthought when your income is stretched thin. But tucking away some money toward an emergency fund each month, even if it’s just $20, will help you avoid having to take on sudden debt if an emergency occurs. Keep stockpiling as much as you can manage each month until you have at least six months’ worth of expenses saved.

If you’re living paycheck to paycheck, it’s more important than ever to create a workable budget, save for emergencies and avoid living on credit.


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