There are a lot of reasons that people live check to check. Most of the reasons can be prevented by changing your financial behavior. Of course, if you are living at the poverty line, there may be little that you can do to change your situation on your current salary. For the rest of you though, you can absolutely stop living check to check by changing your bad behaviors.
Here are the top bad financial habits that may be holding you back.
You have no idea where your money goes.
This is a biggie. So many people do not even remotely have a budget. They spend blindly and then wonder why they are always broke several days before payday. As bills come in, they simply pay them (usually) and never take the time to investigate how they are using their money.
Change this habit by sitting down and writing out a real budget. Nothing fancy, just write down all of your monthly bills including budgeted amounts for things like food and entertainment. Once you have all of your bills in front of you, you can see where you are spending or even wasting your money. This will allow you to make changes to save money.
You should always be looking for ways to save money. Audit your budget at least twice a year and see if there are places to save. That could mean shopping for cheaper auto insurance, switching to a cheaper cable plan or refinancing high interest debt.
You fail to pay yourself first.
You have probably heard the phrase “pay yourself first” a million times, but what does it mean? Well, it simply means to pay money into your savings account before you pay your bills.
If your take home pay is 4000 dollars every month, for example, you should take at least 10 percent off the top and put it into savings. Save 400 dollars and use the remaining 3600 dollars to pay your bills.
If the money left after paying yourself is not enough, then you are living outside of your means. Make the appropriate budget cuts to make your leftover take home pay work.
You like to keep up appearances.
If you are always trying to keep up with others, you will lose in the end. You have no idea what the financial situation is of people flashing the cash. They could make a lot of money or they could have mountains of debt.
You need to set your own path based on what you can afford. If you can afford a few luxury items, that is great. If not, live within your means and set your spending accordingly. You do not need to deny yourself, just spend smartly.
You don’t have a debt reduction plan.
If you are just blindly paying the minimum on your credit cards, for example, you are doing exactly what the finance companies want you to do.
Carrying debt at 17 percent interest or higher is a sure way to stay broke. Save thousands a year in interest by coming up with a debt reduction plan.
The two best methods of debt reduction depend on what kind of person you are. Are you an emotional or a logical person.
If you are emotional, take all of your debt and pay the minimum on all accounts except the lowest balance one. On that account, pay the most you can. Once you pay it off, move on to the next lowest balance. The theory is that you will pay off individual accounts faster and be more motivated to stay on track.
If you are logical, take all of your debts and pay the minimum on all accounts except for the highest interest one. Pay as much as you can on that account and once it is paid off, move to the next highest interest. The theory here is that you will maximize yourpayments by paying down the highest interest debt first.
You are not working as hard as you can.
Saving money is serious stuff and while it is important to have fun and relax, if you are working just 40 hours a week, you are wasting a lot of earning potential.
There are a lot of ways to add a side hustle to improve your income. Drive for Uber, collect and sell scrap metal, take on an overnight shift at Target or even do online surveys. Just a few extra hours of work a week could yield 200 dollars or more in a month. Money that can be used to build that savings.
Every extra dollar that you can earn now will greatly add to your financial security in the future, especially if you are relatively young. If you are in your 20’s, every buck you save has almost 40 years of compound interest to earn. With the power of compound interest, every dollar that you save in your 20’s will be worth 7 dollars in your 60’s and that is at a nominal return of just 5%.
You are not ready for an emergency
Emergencies happen and when they do, they usually affect your pocketbook. To combat these emergencies and ride them out, you need two things, a plan and a savings account.
For the plan, you need to know what bills to cut to go into survival mode. If you were to all of a sudden become disabled or be laid off, what bills can you cut or eliminate. Cancel the cable, slash your entertainment budget, put the gym membership on hold, etc. Know which bills that you can cut so that you can jump into action if needed.
Second, you need a savings account. if you have committed to paying yourself first, you will be adding to it every month, before you pay your other bills. Keep your emergency savings accessible but not instantly accessible. A good choice is an online high yield savings. You will earn more than your local bank pays but it will take a day or two to access your money. This gives you time to combat impulse purchases but still get money when you are desperate.
You do not have to live paycheck to paycheck if you are willing to make the smart and mature decisions needed. Write up a budget, cut your expenses, pay yourself first and if necessary, add a little extra income into the mix. When you have the security of no longer living check to check and can see your savings account increase each month, you will be happy you made the tough choices now.