How To Stop Living Paycheck to Paycheck When You’re Young
When I wrote Young, Dumb, and NOT Broke?!, one of the main reasons was to help people stop living paycheck to paycheck while you’re young. I had grown frustrated with seeing people that were making good money and not being able to afford something relatively inexpensive like Taco Bell. News flash; I’m still frustrated. While I believe my book covers the topic of personal finance fairly well, it does it at a macro level. This article digs into the details of exactly how, today, you can stop living paycheck to paycheck as a young adult.
So how do you stop living paycheck to paycheck while you’re young? Through conscious choices of separating your wants and needs and then setting a budget accordingly. That is when you will be able to step out of the endless cycle of living paycheck to paycheck. It’s going to take time, patience, and a lot of self-control but it’s more than possible.
It’s not a complicated thing to do but it usually involves building new habits. People form new habits all the time but when it comes to forming good habits with their money, they often struggle. This is where you need to ask yourself: would you rather live your whole life paycheck to paycheck or do you want to have one challenging month where you build new habits? This seems like a relatively easy question to answer and luckily you still have time on your side since you’re young. Here’s how to do it.
Why Do We Live Paycheck To Paycheck
The math to why people live paycheck to paycheck really isn’t very complicated. In fact, a 3rd grader could do it. Now, if you are one of these people living paycheck to paycheck I’m not calling you dumb by any means. Rather, you just need to sit down and figure out why your situation isn’t working in the equation.
When you strip away all the noise of your bills, paychecks and so on, it comes down to two reasons why you are living paycheck to paycheck. They are:
1) You are living beyond your means.
2) You don’t make enough money to cover your expenses
Nothing complicated or ground breaking here. Either you spend too much or don’t make enough.
Some may argue that these are one and the same but not in all situations. For the majority of you that fall into the ‘you don’t make enough’ category, it’s because you have bills that have to be paid no matter what. Also you are probably in an
Don’t fall into the trap of instantly putting yourself in this category though. Often times young people (old as well) are really living beyond their means and just blaming it on other aspects of their lives. This comes down to separating your wants vs your needs and then prioritizing them. In the next section we’ll discuss how to do this but for now, I’d challenge you to self reflect. Think about why you may be living paycheck to paycheck. Are your needs draining your available funds or are your wants causing you to fall behind?
It’s All In The Budget
The most dreaded word in all of personal finance is ‘budget’. I’d argue it makes people more uncomfortable than the word moist and causes a natural reaction that makes them stop listening. Or in your case, reading.
Yes, the answer to no longer living paycheck to paycheck when you’re young is by outlining things in a budget, at least at first. It doesn’t matter how many books you read, podcasts you listen to, or articles like this one that you Google; the answer will always be the same.
If you’re tired of the endless circle that is living paycheck to paycheck, then listen up. I’m going to show you how you can quickly and easily find the root issue and make a plan to change it.
Write Out your Finances
The first thing you must do is get to your financial data. Luckily for you and I, our banks now supply our statements online that are easily downloadable into an Excel document. If they don’t, or you prefer to not use Excel, then just find your last couple months statements and print them off.
From there you need to label everything and add it up. This article isn’t a lesson on budgeting so I’m not going to dive super deep into that topic. But if you need some help look at the example I’ve made below.
Once you have a table like this built, it is time to take all of your expenses and divide them up into two categories: wants and needs. This is where the prioritizing starts. Internally you know which of your expenses you have to have and which you don’t. Don’t worry, you aren’t going to have to cut our all of your unnecessary expenses so label them honestly. We don’t need to be miserable, just responsible.
How To Make Changes
Our one and only goal when changing our current spending habits are to get back within our means. We’ve outspent what we’ve earned long enough.
In the example above, you can see my bank account had a starting balance of $150. From there, I saved $110 in the month of January and then overspent in February by $165, leaving me with $95 in my account. One more month in the negative and I’m broke. Some of you may be looking at this chart and saying it could never happen to you. In reality, it happens to a lot more people than you would think. But it doesn’t have to be this way.
The easiest way to start building new habits is by looking at the expense categories that
What would happen if this individual all of a sudden cut their expenses in the want category by 50%? Well it would look something like this:
The only number you need to look at is the bank account balance at the end of February. With my old habits, I had an ending balance of only $95. Now by cutting wants in half, I all of a sudden have $920 in my bank account. That’s a huge difference! If I continue building this habit, by the end of the year I may have a couple thousand saved up. Think about the peace of mind that would offer!
Cutting your want expenses isn’t such a far fetched idea. In fact, I did it for fast food in October and wrote about it in my article: How Much Money Did I Save By Not Eating Fast Food.
Increase Your Income
If you’re currently living within your means but you’re still falling short every month, it means you just don’t have enough income coming in. As I mentioned above, you are probably in an entry-level job or just working part-time. This doesn’t excuse you from paying your bills though. When you’re in this situation, you must pay extra close attention. A couple years ago I was living in Atlanta making only $11.65 an hour. It was tough and I passed up on a lot of things I wanted to do because I knew that at the first of the month, those bills needed paid.
In times like this, you should avoid taking on any other forms of additional debt at all costs. Things like credit card debt, car loans, etc. must be avoided. You want to live a comfortable lifestyle and you can, just not yet.
Do what you can with your current employer. I even asked for a raise at my previous job but was denied. Instead, they allowed me to work as many hours as I wanted and I took full advantage of that. No, I didn’t want to be spending ten hours working over time on a Saturday but I knew it would make my life just a little easier. The point is don’t sit around and wait for an employer to offer you more money. Ask for what you want, within reason. The worst thing that can happen is they can tell you no.
I could write an article on some additional ways I’ve made money but Sireesha over at Crowd Work News already did a great piece that may interest you. Check out her article: 31 Clever Ways to Make Money Doing Nothing (Almost).
Increasing your income can be a little trickier to solve but not impossible. Think outside the box. Go sell some stuff on Facebook Marketplace, or Craigslist. Do whatever you need to do to get your head above water.
Stop Betting On Your Tax Refund and Bonuses
One of the most frustrating things I have seen is the moment people get an influx of cash and they immediately blow it. Most of the time this happens with their paycheck but it also happens two other times a year: bonuses and tax refunds.
I don’t have the data behind it (no one probably does) but I believe it is a relatively safe bet that people that live paycheck to paycheck are also the ones that spend their bonuses and tax refunds before they even get them.
Building off of that, people also bet on this money coming in every year to make ends meet. Often times, when a bonus doesn’t happen or the tax refund is a little small, they are forced to take out loans at ridiculous rates. This is reckless and will only worsen your financial situation.
Automate Your Life
The simplest way to move towards a less money-stressed life is to automate money itself. The less hands-on you are and the less you have to actually think about it, the easier it will come to you. You’ve already done the hard work above in outlining your income, needs, and wants. Now set it in motion.
If you see money and instantly feel the urge to spend it, then look into your employer splitting up your paycheck. Personally, I have $75 a week going to a savings account that I don’t even look at. I seriously don’t have a clue what the balance is. What I do know though, is that if I ever have an emergency then I have money tucked away to help out.
Another great way to automate your finances is by having automatic bill pay. Too many people are living paycheck to paycheck because they have dug themselves into a hole paying off interest on old debt. Maybe a student loan or a credit card you forgot about. That interest isn’t going anywhere (unless you declare bankruptcy). By automating your bill payments, you’ll know exactly when that money is leaving your account and how much you’re sending out. And the big perk is that you don’t have to remember to pay it every month.
The Bottom Line
Breaking the endless cycle of living paycheck to paycheck when you’re young is a lot of work. The cards are stacked against you and there is no doubt you’ll have a setback or two. But in the end, it will all be worth it. The honest truth is that most of the time, living paycheck to paycheck is a choice. You have complete control over your money and how you spend it, most just do it blindly.
You don’t go on a road trip without a map so why are you trying to navigate your financials without planning everything out?
Building these small habits now will pay off more than you can ever imagine in the future. Unfortunately there are people that will live their whole life paycheck to paycheck. You don’t want to be one of these people and you don’t have to bem as long as you apply the teachings from above to your own spending habits.
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