When I graduated from college, I made $30,000 a year, owed $60,000 in student loans, and was not able to make ends meet. I graduated top of my class in high school, went to a top university, and there I was…young and broke. You know the saying, “…when you find yourself with more month than money”. Yea, that was me. I was in that paycheck to paycheck rut.
But by the grace and favor of God, I learned to break the cycle and master my money. I make more now than I did as a recent grad. But more money alone didn’t break my paycheck to paycheck cycle, and it won’t break yours. The 3 steps below will.
1. Know where your money goes
One of the worst things you can do is fall behind on your bills and obligations, especially when you’re young. Late fees and interest (on debt) will make sure your paycheck stays consumed by bills. And when all of your money is spent on bills, you won’t get ahead. So your first priority is to make sure you don’t fall [further] behind.
But many of us don’t even realize that we are behind, and you won’t realize it until you know where your money is going.
The concept is simple: subtract your monthly bills from your monthly income. What’s left is your “free spending” money. If what’s left over is negative, you owe more than you actually make each month! You’re in the hole and need to do whatever necessary to dig yourself out. For me, this was getting a second job to help close the gap, until I could figure out a longer-term solution. Back then, that solution was to make more money, but I quickly found that more money wasn’t the answer.
2. Aim to spend less, while working to make more
More money helps, but if your spending grows right along with it, you’ll continue to live paycheck to paycheck. I’ve been there! Within 6 years of graduating my salary more than tripled, but so did my expenses and debt. Needless to say, I saw the same struggle.
Breaking out of the struggle is less about how much you make, and more about what you do with what you have. If all of your money is going toward bills, or groceries, or entertainment, or any other item not helping you break out of your struggle, you need to cut back. Cut down to those items that you truly need. Ask yourself what are you willing to sacrifice now for a better future?
If you know where your money is going (from step #1), it’s easier to know where you can cut back. Track your “everyday” spending in addition to your monthly bills, and you will be surprised at what you find. You’ll see how those trips to Target and McDonalds add up!
For me, this was getting rid of cable, cutting back on other entertainment, hair products (#teamnatural!), and food, food, and more food.
3. Put the extra money towards things that will keep the cycle broken!
Cutting back is not fun or easy. I get it. But it gets easier when the money goes toward a better future. Getting rid of cable, so you can pay the light bill isn’t as fun as getting rid of cable, so you can build up your travel fund.That’s why #2 is so important. Minimize your bills so that your money can go toward things that allow you to do more, without being set back.
I cut back severely to save for our wedding, and we paid for it in full. I’m still on a tight budget to pay off student loans. I’ve set goals to make my future easier, but it requires I sacrifice a little right now.
As we get older, we want to do more stuff and enjoy life more. Think now about some of those things you’ll want to do in the future. Reward your future self with an emergency fund, a shopping fund, investments, and other financial goals that will make your current financial struggle temporary, breaking the paycheck to paycheck cycle.
Trea Savage Branch is a personal finance speaker and coach and founder of Trea’s Two Cents, a blog dedicated to helping young professionals live the life they worked so hard for in college. Trea received her Bachelors (Economics) from the University of Michigan and her MBA from the University of Notre Dame. Before the age of 30, she had two strong Fortune 500 companies on her resume, earning over $100,000/year. She is a woman after God’s own heart and is so grateful and humbled to be used by Him to bring career and financial success to those who did not think it was possible.