Living paycheck to paycheck is scary. I should know—it wasn’t that long ago that I was doing it. It’s more stressful than people realize, one missed paycheck and you could be in serious trouble. I didn’t know how to stop the hand to mouth cycle—short of making more money, and, during times of economic distress that simply may not be an option. I knew that if I could only start to get ahead, peace of mind would follow. I talked to experts, I read books and I came up with a plan.
First I had to figure out what I was spending my money on. I don’t mean trying to remember what you’ve bought and then guessing how much you paid for it. You have to record every single transaction, whether it is grocery shopping or buying a coffee. You need to make sure that you stick with this to get a fair idea of your spending situation; this might take weeks or months. The key is to write down or input every single penny. I carried around a notebook but now things are even easier—you can download a free program on your phone or computer and input transactions. A program can break your spending into categories for you, which is helpful when you start looking at where your money is going. I was surprised to see how much money was slipping away, a few dollars here and there really made a difference.
Next, I began to cut costs. I made coffee for 30 cents a cup instead of the $3 I normally spent. I also bought a plastic eco-friendly water bottle to refill. But the biggest money saver was bringing my lunch to work. Some weeks I would spend $50 just on lunch. By bringing my lunch I brought that down to $15 a week. That was an extra $140 a month I could save.
After cutting back what I could on my day-to-day expenditures, I went through my bills. I called all of my service providers and told them that I had to find a way to pay less. I canceled one of my premium cable channels, turned my heat down 3 degrees, and cut out parts of my phone service. I also found cheaper car insurance. If one customer service person said no, I would just keep calling back until I found one that was at least willing to try and help me.
Cutting back is great but it is also important to stop accumulating debt. Debt is a toxic cycle. You borrow money and if you can’t pay it all back you are stuck paying the interest—basically throwing money away. When you are living paycheck to paycheck, that’s the worst thing you can do. So I put my credit cards away and refused to use them. If there was something that I needed, but couldn’t afford, I cut out something else. While this is good practice it is also vital during a recession. If you do lose your job you may have to rely on a credit card to help you through a bad time, and in order to do that you need available credit.
Finally, I started to deal with the debt I already had. I called my credit card companies and asked for a lower interest rate. After that I consolidated my two cards, putting them both on the card with the lowest interest rate.
By lowering my bills and not buying lunch, water or coffee, I had cut back a whopping $480 a month; to make the most of it, I made a budget that I could stick with. I used coupons and shopped smarter, I went to the library, swapped clothes with friends and went out less. But, it wasn’t just cutting back on daily expenses that made a difference, the more aware I was, the more I regretted wasting even one dollar.
I had always believed that I should take every extra penny and put it toward my credit card bills. But then I thought about how scared I had been near the end of each month when I was running out of money. I realized that having a savings account would provide me with the peace of mind I so desperately needed. I also understood that while a plan might look good on paper it might not be the best thing for a living, breathing person.
I took the amount that I had left over each month and I used a credit card payoff calculator to figure out what I should be paying. With my current balance and interest rate I could pay off my card in two years and still be able to save each month.
I had two more things on my list: to see if I could increase my income and to set some goals for the future. I wasn’t sure that making more money would be possible with such high unemployment, but I went to my employer and asked if there was any extra work that I could do. There wasn’t, but I did learn that my work offered discounts on cell phone plans. I switched my cell phone and added another $39 to my savings account each month.
My goals are to live debt free, save for retirement, and to build up my savings. I’m not there yet but I am on my way. I had to teach myself discipline and to think about money in a whole new way. I’m not saying that it has been easy, but it has definitely been worth it.