A common financial trap most people fall into, especially during economic uncertainty, is living paycheck to paycheck. Living paycheck to paycheck can make it difficult to afford anything outside of your basic living needs (i.e. food, housing, transportation, etc.). Even the thought of switching jobs or affording the basics if you are terminated may be a scary thought when you are living hand- to-mouth. A diverse range of emotional and financial consequences can result when your finances are tight.
Consequences of Living Paycheck to Paycheck:
Money cannot be saved to handle emergencies.
When you can barely cover the rent and food expenses, your last thought may be on saving for a rainy day, but it is important to save as much as possible. You never know what emergency tomorrow may bring. You may need new tires for the car or a sudden medical expense may crop up. Best to prepare.
Stress of account balance(s).
Checking your account balances regularly is good, but fearing when your debits will hit your account is stressful. Budget carefully and plan for money to be available before making purchases.
Interest costs from borrowing money.
Some people opt to use credit when their paycheck isn’t enough to cover the bills. Borrowing money to cover expected and unexpected expenses will add to your financial burden. Avoid if possible.
Fees from late bills, overdrawn accounts and bounced checks.
Fees may result when you don’t manage your money properly. Say you decide to buy new clothing instead of paying the electricity, this will put you in a precarious situation. Not only do you risk late fees, but being in the dark due to your electricity being shut off.
How to Escape Living Paycheck to Paycheck?
Save what you can even if it is a small amount.
Over time it will add up. Set a goal before start saving to motivate yourself. Look for an interest savings account and/or a retirement account for a financial safety net in the future.
If you can not afford to live a certain lifestyle, then you need to seriously think about changing it. Are you willing to live in different area? Can you take public transportation instead of driving? Can you change your diet? Or stop smoking? You need to ask yourself some hard questions about your expenses and be willing to make a change.
There are many ways of earning more. You can pick up a second job waiting on tables at a local restaurant or start a self-employed gig such as cutting grass, writing online, or tutoring. Think about what you are great at and try to market it for a price.
If you are an employee for a company, look for opportunities to work overtime or pick up extra hours. Check with your company’s policy first to see if this is something you can do.
Would you like to share a tip on how to escape living check to check? Please feel free to leave a comment below.
Video credit: American Express | Youtube