5 Financial Planning Strategies to Keep From Living Paycheck to Paycheck

For many Americans, living paycheck to paycheck feels like an endless cycle. Nearly 80 percent of adults in the U.S. currently live paycheck to paycheck, which means living under significant financial pressure created by a slim margin for error.

Regardless of why you currently live paycheck to paycheck, have faith—this financial catch-22 is escapable. No matter what unique financial pressures and challenges you’re facing, strategic changes to your money management can help you break this cycle and achieve greater financial independence. Here are five financial planning strategies you might want to consider.

1. Track your spending to identify areas where you can cut costs.

The first step toward greater financial independence is understanding your current spending as it relates to your income. Consider using a money management tool that can track your spending and categorize expenses, providing an insightful picture of your spending over time.

Once your spending is categorized, you can analyze it in a few different ways to determine where spending can be reduced. For example, you’ll notice fixed costs such as rent, cell phone bills, utilities, and other expenses that can’t easily be negotiated or cut from your monthly budget, but you’ll also find discretionary expenses like restaurants, entertainment, coffee, and other spending that could be reduced or cut out entirely.

Spending cuts and a stricter budget will be your best financial planning tools as you try to build up savings and end the cycle of living paycheck to paycheck.

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2. Make automatic contributions to your savings.

Many consumers struggle to save because they end up spending the money in their checking accounts. One way to overcome this challenge is to set up automatic contributions that will fund your savings account.

With automatic withdrawals, you can schedule savings contributions to take place on the same day as your paycheck hits your bank account. If you’re worried about having the finances to save, try small contributions of even $20 per paycheck. Over time, you can increase your savings contributions and work toward having an emergency fund saved.

3. If you can’t control your credit card spending, switch to a cash-only system.

The average U.S. household carries more than $6,800 in monthly credit card debt. If you struggle to control your credit card spending, you’re far from alone—but you have options to get this spending under control. 

Experts recommend switching to a cash-based system for making purchases instead of charging your spending to credit cards. This will raise your awareness of your spending and force you to spend within your financial means. 

With financial planning and smaller monthly credit card bills, you’ll pay less interest and be one step closer to greater financial independence.

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4. Ask for a raise—and put all of the extra money into savings.

If you think you’ve got a strong case for a raise, it never hurts to ask your employer. But if you do succeed in receiving a raise, don’t make any new purchases or make changes to how you spend your money.

Instead, take that additional income and stash it all in a savings account. You’ve lived without this income up to this point, so you should be able to put away these earnings without adding any financial stress.

5. Don’t forget about paying off debt.

If you don’t have any savings whatsoever, it’s important to build up a small emergency fund that will offer a cushion if you suffer unexpected expenses in the near future. But if you’re carrying debt that is accruing interest, it’s worth prioritizing paying down that debt quickly so you don’t get deeper into a financial hole.

Paying off debt will reduce the amount of interest you’re paying, which can ultimately raise the ceiling for how much you’re able to save. Additionally, monthly debt payments for cars, credit cards, student loans, and other expenses increase your fixed living costs and make it tougher to save.

By paying off debt, you can reduce your monthly living costs and increase the amount you’re able to save from each paycheck.

Living paycheck to paycheck doesn’t have to be your permanent situation. Changing the way you manage your money will help you break the cycle, start saving, and build your wealth.

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