Are you among the growing trend of households who are high-income earners but are living paycheck to paycheck? It is likely you have little or no savings, except for your retirement account. However, if you had a minor emergency, you would not have any extra funds to pay for it.
You may be wondering what is the trick on how to get out of this vicious cycle. This article will offer five steps you can take to get you off the paycheck to paycheck cycle.
1. Know what you are taking home
You must truly know what you are taking home every month. Depending upon how frequently you are paid, your monthly take home income can change. Also, high-income earners, begin to take home more money around the springtime when the Social Security cap on income is met. Did you notice the increase your take home pay?
2. Small amounts do matter
Certainly, one $10 or $20 purchase is not going to make a dent your wallet. It’s the many small purchases that will cause issues. $10 here, $8 there, and another $5 spent within two days ($23) can easily add up to thousands of dollars a year.
For example, buying food and drinks during the work day can easily add up to an average $15/day or $75/week. If you work 48 weeks a year that is $3,600 ($75 x 48). A significant amount of money.
3. Budgeting is part of the solution
It is not the panacea nor an answer in itself. It is, however, critical to understanding your current situation and it reveals the story of your spending.
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It will highlight where you are spending your money now and all current obligations. Once you understand your current spending, you can make appropriate cost cutting decisions – either permanently or temporarily.
4. Switch to Cash
Cash spending has been proven to have a different effect on your mind than debit or credit card spending. It is not practical to use cash for everything. However, there are many types of purchases that cause overspending which can be kept under control, if were to switch to cash. Expenses such as groceries, eating out, and clothing are a few examples.
5. Reassess your lifestyle
No one wants to feel that they are taking a step backwards. But not all lifestyle inflation matters. It is important to distinguish wants vs needs. Only you can decide whether it is worth losing sleep because you want to drive an expensive car. Think about it. Your home life could improve tremendously, if you have more home cooked dinners instead of spending hundreds of dollars a month to eat out and adding to your credit card debt.
Getting out of the paycheck to paycheck cycle can be done. But it does require commitment and if you are in a relationship, both partners must be involved. If you cannot do it on your own then you may find seeking a professional to help guide you may be necessary.