How Do I Stop Living Paycheck to Paycheck?

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how to stop living pay check to pay check

Learning how to stop living paycheck to paycheck is important. No matter how much money you earn, it’s possible to escape the paycheck-to-paycheck trap. Is this a situation you know too well and you’re ready to take control of your finances? Use our five tips to get started. 

1. Track Your Spending

Escape the paycheck-to-paycheck cycle by planning. If you have no idea where your money is going, it’ll be impossible for you to curb your spending.

Take a couple of weeks to document everything that you spend money on — no matter how small or how you pay, whether it’s through cash, credit card or PayPal. At the end of your two-week tracking period, examine your record and identify areas where you can afford to cut back. 

You might decide after those two weeks that you can cut back on a daily Starbucks habit, eliminate happy hour with friends after work or chop out cigarettes once and for all. Here are tips on cutting habits to save.

2. Build a Budget

Now that you know where your money is going, it’s time to challenge yourself to cut back. Write down how much money you have coming in each month, as well as how much you spend on fixed expenses. Try this free budget template.

Use the 50/30/20 rule to start your monthly budget.

How much to budget for your needs

50% of your money goes toward your needs. Needs involve true essentials like housing, food, required monthly bills such as utilities, transportation, health care and others. 

Calculate 50% of your income by entering:

Your monthly income x .5 = Your needs budget

How much to budget for your wants

30% is allocated to wants. Yes, you can still go to the movies. Yes, you can have dinner out once in a while. And yes, you can buy a pair of shoes you’ve had your eye on. Remember to not exceed in the wants category because the final number is your save category!

Calculate 30% of your income by entering:

Your monthly income x .3 = Your wants budget

How much to budget for your savings

20% will go toward savings. Whether it is short-term or long-term savings, it’s a great practice to put a little bit away each month. A MoneyLion Managed Investment Account allows you to invest small sums of money easily and doesn’t require you to have a lot of investing knowledge — we handle everything for you. You can choose your investment comfort level and as your money grows you can even borrow against your investments without taking them out of your portfolio. 

Calculate 20% of your income by entering:

Your monthly income x .2 = Your savings budget

3. Automate Your Saving and Investing

Save small amounts from your savings account or paychecks on a regular basis with auto savings or auto investing.

Don’t be afraid to start small — saving $20 a paycheck is better than saving nothing at all and can make a big difference over time, especially with the magic of compound interest through investing.

With MoneyLion, you can use Auto Invest to set up an automatic transfer from your checking account to your a MoneyLion Investment account, the smartest way to grow your money. You’ll be able to pick the investment amount and frequency. Whatever works best for you!  

Automating your investing and savings allows you to put money away without the temptation to spend it.

4. Slow Down on Using Credit Cards

Putting a purchase on a credit card can feel like spending Monopoly money instead of your hard-earned cash. Credit cards also often have high interest rates, which compound the amount that you owe and make it more difficult to save.

If you’re struggling with overspending, limit your credit card usage as much as possible. It’s also better for your credit score to use less of your limit! Carry cash with you and leave credit cards at home when you go shopping to reduce impulse purchases. However, you should avoid canceling your cards altogether, which can harm your credit score. Keep existing cards open, and pay on time (at least the minimum!).

5. Focus on Goals to Break the Paycheck to Paycheck Cycle

Saving money and delaying instant gratification is much easier when you have an end goal in mind. Why do you want to save money? Do you want to finally get out of debt? Build an emergency fund? Write down your end goal and hang it somewhere you’ll see it often — like on a desk or bathroom mirror. Stay inspired, stay focused and you’ll reach your goal in no time! 

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