Living paycheck to paycheck doesn’t provide a way to achieve financial freedom. You are always one paycheck away from living life in poverty. Fortunately, this lifestyle doesn’t have to remain a way of life. You can end it by creating and sticking to a budget, lowering debt, and finding new ways to save money.
Reducing debt will lower the amount of money you’re obligated to repay each month. This frees up money that you can use for things like funding a vacation, buying a home, or a car. When you lower the amount of your debt, you also reduce stress and improve your credit score.
Paying Off Credit Cards
If you have several credit cards with high balances, you can start with the one with the lowest balance or the one with the highest balance. For the other cards, pay only the minimum payment required. Once you pay off the first card, move onto the next until all the credit cards have a zero balance. Unless the companies charge an annual fee for having the card, keeping them open will work in your favor on a credit report.
Multiple Debt Obligations
If your debt derives from multiple sources, including credit cards, personal loans, and school loans, applying for a consolidation loan through companies like Old Dominion Associates, may prove to be a better option. You lose four, five, or six bills and now only have one, lower monthly bill to worry about.
Why You Need a Household Budget
A budget is much more than a piece of paper containing a list of your bills and net income. A budget compiles all your bills, even those that only come due once or twice a year. Using a budget, you come up with a set amount of money necessary for deposit to cover all your bills. It also lets you see in clear and indisputable terms what you spend your money on. This lets you see how much money you waste each month. Having an exact number (and knowing the exact sources) allows you to address it and find ways to reduce frivolous spending. With a budget, you can create accounts for savings, vacations, and emergencies.
Reducing Wasteful Spending
For some people, it can be a real eye-opener when they identify the amount of money wasted in black and white. Regardless of your income bracket, cutting back on unnecessary purchases will pad your bottom line. Unfortunately, the introduction of the debit card now makes it easier than ever to purchase items small and large. Start slowly reeling in frivolous spending by eliminating take-out, coffee on the fly, and eating lunch at restaurants instead of in the break room.
Benefits of Money in Reserve
When you live life paycheck to paycheck, you have no money tucked away. Everything you bring in goes right back out the door. Having money in reserve to handle a sudden financial emergency will prevent you from having to use money previously devoted to paying bills. This lets your monthly expenses remain in “current” status.
Learn to Pay Less
There are many ways to save money on the items you buy often. When shopping for groceries, try the store brand. In most cases, the price is much lower and the taste or level of performance is in line with that of the name brand. If you need school supplies, check online to see which stores have the lowest prices. When shopping for clothing for kids, give second-hand stores a try. Children grow out of clothing quickly. If you can buy name brands in good condition for a nominal fee, it’s a huge win for the wallet.
Plan Now for Retirement
Building personal wealth also means living a comfortable lifestyle in retirement. If you’re counting on Social Security to fulfill your financial needs, think again. At best, the government check will supplement income. You need a retirement plan sooner than later. A 401k or Roth IRA are two of the most common retirement accounts people open. You may already have a 401k through your employer. If you do, make sure that you contribute the maximum allowed.
Building wealth in retirement starts with a budget and a commitment on your part to control wasteful spending, reduce debt, and shop smart going forward.