How do you break the chain and stop living paycheck to paycheck? It’s a vicious never-ending cycle. You get paid, you pay your bills and expenses and you’re back at it again the next month. So how can you stop living paycheck to paycheck? Job security in this ongoing covid season is not guaranteed. So you need to save more and have a source of passive income. You need a backup plan in case it all comes crumbling down.
Here are the certain steps you can take so as to stop living paycheck to paycheck and claim your financial independence.
Learn to Budget
If you want to be financially independent you have to learn how to budget. This is one of the millionaire habits that you should implement in your life. Even before your paycheck hits your account, you should know how you plan to spend every single cent. You can use the 50/30/20 budget rule. This way you focus only on the important expenses. Budgeting helps in compartmentalizing your expenses and your priorities. This is one of the most important steps you can take when it comes to claiming your financial independence. It also keeps impulse buying in check.
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Track your spending
If you live paycheck to paycheck and you’ve been stuck in the cycle for a while, you need to start tracking your expenses. You need to know how you’re spending your money. This way you will start prioritizing your finances. Tracking your expenses will increase your awareness, you will be more intentional about spending your money.
Reduce your expenses
After creating a budget and tracking your expenses, you now have a clear view of how and where you spend your money. The next step is to cut back on your expenses. If you live paycheck to paycheck chances are you’re spending more than you’re earning. Reduce your expenses in certain categories
Look for ways you can reduce your expenses so you can stop living paycheck to paycheck. If you realize you’re spending a lot on takeout or work lunches start carrying your own packed lunch. There are always ways you can reduce your expenses.
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Make savings automatic
Decide on how much you will be saving per month and set up a standing order. This way you will be forced to work with what you have. Do not save what’s left after you have spent your money. It will never be enough. Having a standing order will make sure you save. Set up a savings account where your savings will be deposited after they’re deducted from your account. Ensure that your savings account is not easily accessible. You can save in a fixed account or in a low-risk money market account.
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Emergency Savings Account
As you start getting your finances in order, you should make sure you have an emergency savings account. An emergency account should be at least 3 to 6 months’ worth of your monthly expenses. This will act as a great backup plan in the event you lose your job. You can start small and work your way up, just set savings goals. Be very disciplined and do not withdraw from the account unless it’s an actual emergency.
Get out of Debt
If you’re in debt, you should focus on clearing your debt. Cheap loans and debt can have you living paycheck to paycheck for the rest of your life. You have to be careful before you borrow money. Every time you take a loan that is not guaranteed to making you money in the future, you rob your future self. Come up with a get out of debt plan. Once you clear your debt you will free up more money that you can save and invest.
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Start a side hustle
A job is not guaranteed, you can be laid off, you can be fired, the company can go under. You need to have a foolproof fallback plan. Start a side hustle that will make you an extra income. Just make sure that it does not interfere with your main job. It might be tough at first but once the extra dough starts to roll in you’ll be glad you did it.
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Sell Things You No Longer Need
Rearrange your house and closet. You’ll be surprised how many items you don’t need. Start selling the items you no longer need in your house. You’ll be surprised by how much you can make off of this. You can then use this money to repay any debt you may have or save the extra income.
Live below your means
Adopt a frugal lifestyle and live below your means. The goal is to be rich, not to look rich. Always remember your goal is to stop living paycheck to paycheck. Stick to your goals and to your budget.
Clear Financial Goals
Have clear financial goals as you embark on this journey. If you want to stop living paycheck to paycheck, what’s the ultimate goal? To be a millionaire or to be financially independent? Define your goals and make a plan and a target.