How Can I Stop Living Paycheck to Paycheck?
Dear Carrie: I'm a single mom with a decent income, but I'm always living paycheck to paycheck. How can I break that cycle and start to save, not only for an emergency but also for my bigger goals like retirement and maybe even a home? -- A Reader
Dear Reader: Living paycheck to paycheck isn't uncommon these days. Recent studies suggest many Americans are doing just that, which makes it next to impossible to save and invest. Overspending can be part of the problem, but even more often, people get squeezed through no fault of their own -- low wages, unpredictable income and high costs for essentials like childcare, health care, housing and college. On the other hand, even people with high incomes can find themselves caught in a seemingly never-ending cycle.
When you're in this situation and just barely making ends meet each month, it can seem as though you're on an endless financial treadmill. So how do you jump off? It's a combination of attitude and action. First realize that you can do it. Then take these steps to make it happen.
Start by Tracking Your Spending, With an Eye Toward Saving
To get a handle on your money, you first need to know where it's going. Tracking your expenses -- for at least 30 days -- will give you a realistic picture of how you're spending and help you prioritize and make changes.
Start with essential costs for housing (rent/mortgage, utilities), food and insurance, and work down from there. Is savings on your list? If not, it should be. In fact, it's the essential that's going to break the paycheck-to-paycheck pattern. So one of the first important steps is to make savings a priority. It's OK to start small. Research from FINRA and SaverLife shows that households with as little as $100 in savings are generally more satisfied with their finances. The key is to save consistently.
Now take a closer look. What are you spending on nonessentials? Ordering out or multiple streaming subscriptions may be nice-to-haves, but these are the things you can control and cut back -- and you can move that money to savings.
Take a Good Look at Your Debt -- and Your Attitude Toward It
It's OK to borrow. I've talked before about good debt and bad debt. You can barely get by without a credit card these days. Most students need to borrow money for college. Most homebuyers take out a mortgage. That kind of borrowing can make sense.
The danger comes when you borrow too much or use borrowed money to pay for an unsustainable lifestyle. New research shows that some people get into trouble because they think of borrowed money as their own. But it's not. It's the lender's. And eventually, the lender wants that money back -- with interest.