63% of Americans live paycheck to paycheck, and the cost of living is quickly outpacing wage growth. There are a few reasons people find themselves in this situation, but poor budgeting and overspending are the most common. In this article, we’ll look at what you can do to save money if you’re living paycheck to paycheck.
1. Take a look at your biggest expenses first
The things that cost you the most will make the biggest impact on your overall financial health. Typically, these are your fixed expenses like rent, mortgages, car payments, and student loans. Many people make the mistake of cutting small expenses like Netflix subscriptions or take-out coffee when they’re trying to save money. While every little bit counts, these changes won’t make much difference unless you first cut out your major expenses.
Some of these (such as student loans) can’t be reduced, but others (like your rent) can be controlled. For example, if your rent is $1,800 per month and you’re only making $3,000 per month, 60% of your income goes towards housing. If you can find a way to reduce your rent by even $100 per month, that will give you an extra $1,200 per year to work with.
2. Downsize your biggest amenities
Once you identify your biggest expenses, it’s time to look at your lifestyle and see where you can cut back. If you’re overspending on rent, that’s probably the best place to start. Moving to a place that’s a few hundred dollars cheaper can make a huge difference in your monthly budget.
If you have a car payment, consider selling your car and buying a cheaper one (or no car). Public transportation, walking, or biking can save you a lot of money each month. And if you work from home, you could even Uber whenever you need to go somewhere. A few other areas where you might be able to cut back are eating out, drinking, and travelling. If you’re spending a lot of money in these areas, see if you can reduce your spending or find cheaper alternatives.
3. Make a budget and stick to it
One of the best ways to take control of your finances is to create a budget, which is a plan that allocates your income towards different expenses. If you aren’t good at money management, you can use a budgeting app like Albert to help you track your spending and stay on track. You can also use a simple Excel spreadsheet to create your budget. A few best practices to keep in mind when creating a budget include:
Make sure your income and expenses match up: If your expenses are more than your income, you’ll need to find a way to reduce your spending.
Automate your bills and savings: This will help ensure you’re always paying your bills on time and saving money each month. Give yourself some wiggle room: It’s important to be realistic when budgeting, so make sure you allow yourself some flexibility.
4. Create a plan for your debts
If you’re struggling to make ends meet because of high-interest debt, it is important to create a plan to pay it off as quickly as possible. There are a few different ways to do this, but the most effective is the debt snowball method.
This involves paying off your debts from smallest to largest while making minimum payments on your other debts. As you pay off each debt, you’ll have more money to put towards your next debt and eventually be debt-free.
5. Don’t sacrifice what makes you happy
There’s no point in compromising your quality of life just to save a few extra dollars. If there are things that make you happy, find ways to keep them in your budget. For example, if you love going out to eat, try cooking at home more often and only eating out a few times per month. Or, if you enjoy travelling, look for cheaper destinations or ways to save money on travel costs.
The key is to find a reasonable balance between your happiness and your financial goals, and the reality is that cutting out your five-dollar coffee won’t make much of a difference if you’re overspending in other areas.
6. Put money aside for investing
Apps like Acorns and Robinhood make it easy to start investing with just a few dollars. If you’re unsure where to start, plenty of resources online can help you begin. Investing is important because it allows you to grow your money without doing anything. Over time, your investments will compound, and you’ll be able to achieve financial freedom slowly but surely.
7. Live below your means
This may seem obvious, but it’s worth repeating: if you want to save money, you need to spend less than you make. One way to do this is to figure out your monthly take-home pay, and then create a budget that doesn’t exceed that number. This will force you to find ways to cut back on your spending.
Another way to live below your means is to list your non-negotiable expenses and find ways to save money in other areas. For example, if you have a gym membership that you use regularly, it might not make sense to cancel it. If your gym membership costs $100 per month, you could consider opting for a more budget-friendly option.
8. Find other ways to make more money
If you’re struggling to make ends meet, it might be time to find ways to increase your income. There are a few different ways to do this, such as:
- Asking for a raise at work
- Getting a second job or side hustle
- Selling items you no longer need
- Refinancing your debt to get a lower interest rate
- Freelancing work
9. Prepare for emergencies and upcoming bills
If an unforeseen expense comes up, you could use loans from My Canada Pay in a pinch, but it’s always best to have an emergency fund to cover unexpected costs. You should also make sure you’re prepared for upcoming bills by setting money aside each month. This way, you won’t have to worry about how you’ll pay your bills if something unexpected comes up.
Endnote
If you’re like most Americans, putting money aside for the future can be tough, but it’s important to remember that you’re not alone in this struggle. By following the tips in this guide, you can make headway on your financial goals and be on your way to a more secure future.