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4 Simple Steps to Stop Living Paycheck to Paycheck
There's a good chance you or someone you know is facing the reality of living paycheck to paycheck each month.
According to a recent MetLife's 17th Annual U.S. Employee Benefit Trends Study, 5 in 10 employees said they live paycheck to paycheck. This is most common among millennials and Generation Z, with 60% and 56% reporting that they live on a paycheck-to-paycheck cycle, respectively.
And although the study shows that more than half of millennials are living paycheck to paycheck, 64% stated they “feel in control of their finances.” This indicates a big disparity in the perception and the reality of how younger workers manage their personal finances.
By not maxing out your means each month, you'll empower yourself to be able to cover unexpected expenses, save for the things you want today and in the future, and eventually retire with a comfortable nest egg.
How to Stop Living Paycheck to Paycheck
1. Know Your Cash Flow
Your cash flow is made up of how much money you have coming in each month and how much money goes out. You have to know what’s actually happening with your money now before you can make a plan to change it. Ask yourself questions like:
- Am I spending money on what's important to me?
- Are the things I'm spending money on right now making me happy, or do I regret my purchases?
- How can I reduce the money I spend — are there cheaper alternatives to what I'm currently doing?
2. Cut Expenses That Don't Serve You
Once you understand your cash flow and start asking those questions, it might become a little easier to see the costs you can cut back on or eliminate entirely. You may not want to give up on things you love most, and you don't have to — but it is important to identify what doesn't mean very much to you and cut that out of your budget immediately.
Here are some examples of expenses that you may be able to eliminate or spend less on:
- Meals out, especially going out to daily breakfast or lunch. Special dinners might be worth the cost, but you may want to rethink your $4 daily muffin or $10 salad that you eat at your desk. Consider packing your own food and snacks during the workday.
- Subscription services. Are you really watching all of those streaming platforms? Evaluate carefully and cut anything that you no longer use or enjoy.
- Research to see if another provider or business can give you a similar service for a lower cost. For example, can you find a lower-cost gym that still has the amenities you actually use?
3. Increase Your Earnings
Cutting costs and controlling your expenses is a critical step in breaking the paycheck to paycheck cycle. But that's only one half of the equation. The other? Earning more money as you also spend less. Here are just a few ways you may be able to generate more income:
- Ask for more responsibility at work — then negotiate for a raise once you’ve proven your added value.
- Research open positions at other companies to determine if you’re qualified for a position where you could make more.
- Look to monetize an existing hobby or skill, like teaching, playing music or writing. You might also look for part-time jobs that interest you, such as working at your favorite coffee shop or doing landscaping or handyman work for neighbors.
- Join the gig economy by using a platform like Lyft or TaskRabbit, so you can earn a little extra on the side whenever you have the time and ability.
4. Do More with Your Extra Cash
Once you start having a little money left over at the end of each month, the next step is to strategize what to do with that extra cash. Those tactics can include:
- Building an emergency fund to navigate unexpected expenses. The general rule of thumb is to have 3 to 6 months' worth of expenses in a liquid savings account.
- Funding your future. Contribute to retirement accounts like 401(k) plans and/or IRAs.
- Earning better interest rates on your savings. Look for bank accounts with high APYs, such as a High Yield Savings Account, Certificate of Deposit, or a Money Market account so you can earn interest on your liquid cash savings.
By breaking the paycheck to paycheck cycle, you can focus on what's most important to you. For more tips and advice on how to take the stress out of managing personal finances, access more MetLife resources here.
This content is intended for informational purposes only, and is not intended as, nor should it be deemed to be, individual tax, investment or financial advice.