How to STOP Living Paycheck to Paycheck (6 STEPS)

Sharon Tseung 0:02
This is the digital nomad quest podcast, Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives. Hey guys, it’s Sharon Tseung and today we’re gonna be talking about how to stop living paycheck to paycheck. Now according to the CNBC article as of September 2022 63% of Americans were living paycheck to paycheck. According to a recent Lending Club report near the 64% historic high hit in March a year ago, the number of adults who felt strain was closer to 57%. Now this is a very alarming statistic. And this is why I teach what I teach today I’m really passionate about helping people become financially free helping them with their personal finances, how to reduce expenses, build income and invest. Another crazy quote is even high income earners are stretched too thin Lending Club said of those earning more than six figures 49% reported living paycheck to paycheck a jump from the previous years 38%. So there are many reasons why people may be living paycheck to paycheck. One big thing is many people have ongoing debts. These debts consume their budget for their family and other needs, and it can cause them to ruin their credit scores. It can also make it hard to build emergency funds. And ultimately, it’s just a difficult situation. It’s hard to keep morale up to improve your financial situation. When you are stuck. In this scenario, let me tell you if you are living paycheck to paycheck, now you can take charge and work on this. And there are multiple ways on how you can combat it. I want to help you guys feel unstuck. So let’s get right into these different tips. First off, you got to take ownership of your financial situation, you have to decide that you are responsible for whatever is going to happen in your life. Getting out of being paycheck to paycheck is hard. And it’s totally understandable to feel demotivated, it may be easy to blame others or get so focused on past mistakes that may have affected your situation. But focusing your energy on things you can’t control won’t rectify the situation. So it’s important to forgive yourself, stop beating yourself up and acknowledge how things are and then decide to take ownership from this moment on that you’re going to do whatever you can to fix your finances. This mindset switch is important for the rest of the journey. Everything you do has an impact if you decide to continue spending on frivolous things. If you decide to not prioritize debt. If you decide to not look for ways to make more money or not educate yourself financially, all of these decisions will impact your future. So acknowledge the issue. And then think of different ways to fix your finances. I have met many people who have decided that they’ve given up on their finances, they think that they’re going to work the rest of their lives, and they’re not going to be able to retire. They even think that they’re not going to live that long. So there’s no point in preparing themselves. This is something I worry that a lot of people feel because I think that in this day and age, there’s a lot that’s possible out there, especially with the internet, there’s so many different ways to make money now that you can increase your income, you can figure out ways to reduce your expenses as well. They’re even tools that help you assess your current finances and help you figure out what money is coming in and what money is going out. And this leads me to the next point number two, develop awareness of your current financial situation, you want to calculate your net worth, which is the total of your assets minus your total liabilities. That basically means everything you own minus everything you owe. So for example, your assets may include your cash, your stocks, your home any rental properties you may have. And then you’re going to minus your liabilities which could be credit card debt, student loans, mortgages, car loans, and things like that. Aside from your net worth, you should calculate your total expenses as well as calculate your total income. If you already have a family, you should combine your income as well as your expenses and get that number. This will all give you a better perspective on how to budget assessing your current financial situation may seem basic, but I do have friends who are scared to do this work because they’re scared of what they’re going to see. Just remember that it’s okay, we’re all on our own journeys. So again, don’t beat yourself up. When calculating all of these things. This goes back to my previous point you got to take ownership of your finances, you want to accept your current situation and then take responsibility for everything moving forward. An easy way to calculate your net worth and your monthly income and expenses is through this tool called Personal Capital which will automatically integrate with your accounts and give you a clearer financial picture. Since it constantly updates you’re going to have an overview without having to spreadsheet out everything all the time. So you can use this tool for free through the link in my bio Personal Capital will also categorize your expenses and while they do it automatically, you can still manually adjust it and then get it to the right categories so that you will understand where your money is going to do this work. Grab the tool from the link in the description and start figuring out your finances. Number three, you want to work on defeating debt. So if you have any high interest debt, you should start tackling it ASAP. Now the problem with debt is you’re usually paying a ton in interest, not just the principal so it’s kind of like trying to sail a boat that has holes in it. It’s going to be hard to sail the boat when water is continuously going into it. So that’s why you want to plug up the hole and basically tackle that debt ASAP. Many experts define high interest debt as any rate above six to 8%. According to this bank rate article as of September 2022. consumer debt is at 16 $1.5 trillion with the average American debt among consumers and $96,371. The overall debt figure includes credit card balances, student loans, mortgages and more. And you can see this breakdown on this chart the credit card debt over $5,000 is extremely high and you can see personal loans over $17,000 There’s a lot of consumer debt out there and this is all quite alarming but there are two methods to approaching debt the Debt Avalanche method as well as the Debt Snowball Method. The Debt Avalanche method focuses on paying off your highest interest debt first, while the debt snowball method focuses on paying off the smallest debt first, I personally advocate the Avalanche Method, not the snowball method. Yes, the snowball method can give you some motivation because you’re tackling debt that is smaller, so you might get rid of one right away. But ultimately, if you put more money towards the debt that has the highest interest, you’re going to minimize the amount of interest you pay in the long run and it’ll lessen the amount of time it takes to get out of debt. So if you have outstanding debt, I would recommend writing out all your debts, figuring out the ones with the highest interest and then start paying it down as fast as possible. Make sure when you do extra payments, it’s going to the principal, not just towards the next month’s balance, the best way to make sure this is happening is to call the company and ask how to make extra payments specifically towards your principal. Number four, you want to create budget goals and see where you can cut back to save money. It may be difficult to many, but it’s very important according to Ramsey solutions. q1 state of personal finance study 85% of those who use a monthly budget believe it helps to control their impulse spending. So spend a day to research all your expenses that you just compiled from tip number two and think about what can be cut and reduce. For example, you may call your service providers and ask for better deals or promotions. And instead of spending so much money on eating out you may do a meal plan or get recipes you find online. So just ask yourself am I spending on things I do not necessarily need things like streaming platforms? Can you work out at home can you remove your Hulu subscription or Spotify subscription all these little amounts can add up to something huge over time. So you should consider cutting back on your expenses whenever you’re about to spend money Think about if there’s a less costly alternative to do so something that helped me was to think of money as time especially before you start getting passive income

if you are working for money. You know back in the day when I make $15 an hour I thought about how a $300 bag would cost me 20 hours of my life it made me not buy the bag because I was thinking oh this might not be worth it that helped me understand if things were worth it or not. You also may want to aim to follow or even beat the 5030 20 rule. This basic rule of thumb is to divide your monthly after tax income into three spending categories 50% For needs 30% For wants and 20% for savings and investments or paying off debt so when you’re budgeting know the cost of your needs like electricity, your house food etc. And then also to me that 30% For wants is a bit high. So try to remove or decrease the wants like subscriptions, shopping, eating out like I mentioned, whatever is left after you budget put it either into your savings or use it to pay off your debts. The savings may seem little at the start but just do it and it will add up over time if you find you are spending more on needs than you should which is basically over 50% of your after tax income. See how you can house hack or live with roommates move to a cheaper area or even live with parents for a while if they’re okay with it. You may even want to downsize your car to help you reduce car loan payments. For example, I bought a cheap used car all cash so that I didn’t have a loan to pay off every single month. So look at that 5030 20 Rule see how your own situation fits see if you can adjust anything to fit it or beat the number so you can basically stop living paycheck to paycheck now one thing is there’s a cap to how much you can save but no cap to how much you can earn. So that brings me to tip number five which is to increase your income everything gets easier if you’re able to make more money and one way is by educating yourself you want to get a certification learn a high income skill like coding marketing sales. That way you can even freelance or apply for high income positions and you can also pursue side hustles like the ones I talked about on my channels a lot I talk about things like selling digital products on Etsy uploading custom apparel on merch on demand building a YouTube channel flipping items on eBay there’s so many different ones and I talk about a lot of side hustle ideas here the average millionaire has seven different income streams that way you have additional sources and you get peace of mind in case anything happens to your primary salary. Having more income streams lets you grow your net worth a lot faster as well. Now the last tip is to not fall into lifestyle inflation. Once you make more money, you have to make sure you don’t fall victim to this and this refers to an increase in spending when your income goes up. In the beginning of this episode, I mentioned that many high earners still live paycheck to paycheck and this is a large reason why for example, it’s easy to upgrade your car your home so your mortgage payments and car loan payments get higher and higher if people end up going broke trying to impress other people. If you were able to make it work with a smaller amount of income, you will be able to spend the same amount and save more money when you increase the amount you make. That is true Freedom. It’s not about flexing and making a ton of income and just spending it all you have to widen the gap between your income and expenses and that is true freedom so choose to live frugally, which will help you save a lot more choose to cut down on eating out live in a cheaper house offer a less expensive car, these things are going to free up some money for you to save and invest. The sooner you stop lifestyle inflation, the sooner you can break the cycle of living paycheck to paycheck. So I hope you guys enjoyed this episode on how to stop living paycheck to paycheck. I think this is a really important thing to do, ASAP because the more you have saved the more you can invest and the earlier you do it the more you can grow your wealth so that you can retire earlier. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

Transcribed by https://otter.ai