Living paycheck to paycheck refers to the need to wait until the next pay period to pay important bills or to make a purchase. As of April 2023, it is estimated that 58% of Americans live paycheck to paycheck, with the majority being Millennials and Gen Z.
What may be surprising is that people of any salary range and socioeconomic status can find themselves living paycheck to paycheck, and overspending is one of the main contributing factors. Whether it’s impulse buying or purchasing nicer, more expensive products, many people spend money without considering affordability. This can have long-term effects on your finances, and once you are in the cycle of living paycheck to paycheck, it’s hard to get out.
The good news is that you can combat the cycle. Here are some tips to help you spend your money more thoughtfully.
1. Understand Your Spending Habits
To understand your finances, you have to understand one person: you! Taking a deeper look at why you spend what you spend and what triggers you to overspend will help you have a more holistic view of your finances.
Some questions to ask yourself are: What am I spending money on? (Track your expenses by writing down every penny you spend and what you spend it on). What motivates me to spend money? Am I shopping online when I’m bored? These thought-provoking questions are meant to be a starting place. Once you begin to recognize your spending habits and patterns, then you can adjust and make better informed decisions.
2. Reframe Your Outlook on Budgeting
Budgeting is knowing how much money you can afford to spend on a monthly basis, so you can make smarter decisions about purchases. It is a necessary financial tool, but many people admit to feeling afraid or intimidated by setting up a budget. Feeling like you’re inevitably going to fail is one of the top reasons people are afraid to address their budgeting needs.
Reframing your view about budgeting will help you overcome this mindset. Think of it as a muscle you have to use on a daily basis. The more you budget, the easier it will become, and the more satisfied you will be with the process. It is not a habit that will be adopted overnight, so stay encouraged even if you don’t meet your monthly goals right away.
3. Kick Impulse Buying to the Curb
We’ve all been there: you walk through your favorite store, browse what’s available, and you can’t help but find something you love! You decide to buy it, because come on, who wouldn’t? Even though you don’t necessarily need the item, you still believe that it is a good purchase.
However, impulse spending can quickly eat up your budget. A recent report showed that shoppers spend an average of $314 a month on impulse buys, which has only increased over the last few years.
A good rule of thumb is to wait at least 24 hours before purchasing something spontaneously. This gives you time to think about the purchase and decide if it’s truly something you want to spend your hard-earned money on.
4. Avoid and Pay Down Debt
Many folks who live paycheck to paycheck heavily rely on credit cards to get to their next pay period. What’s unfortunate is that this can sometimes lead to poor spending habits and an increase in credit card debt. According to a recent survey, 38 percent of U.S. households have $16,000 in credit card debt.
There certainly is a time and place for utilizing a credit card, but living with excessive credit card debt without a plan to pay it down can negatively impact your credit score, and therefore your spending power. If you can, avoid putting any unnecessary expenses on your credit card, and then create a plan to actively pay it down.
Breaking the cycle of living paycheck to paycheck can be challenging, but it is possible. Just remember: you are not alone. When you recognize that everyone experiences financial hardships, you are more likely to seek guidance and take the necessary steps to move your finances in the right direction.
Managing your financial future is a team effort, and our bankers are here to help you navigate ever-changing financial circumstances. If you are ready to take the next step towards your financial future, now is the perfect time to sit down with a banker and learn how we can help. Contact us today!