Written by Lyn Brooks, Staff Writer
Editor's Note: This article, How We are Breaking the Cycle of Living Paycheck to Paycheck, originally appeared on Yahoo! Finance in 2014, where it was a featured article.
According to the Bureau of Labor Statistics, overall unemployment in America was down to 6.6% as of January, 2014. While this is certainly good news, significant challenges to long term economic growth remain, so, it's wise for households to prepare for another economic downturn. That's difficult to do if you are living paycheck to paycheck.
According to a recent article in Time magazine, over half of all Americans are still living paycheck to paycheck, 44% of American families have less than $5,887 in savings, and 56% have sub-prime credit. Sadly, after losing my job in the Great Recession, and facing unprecedented, catastrophic medical bills, my own household is part of that statistic.
At one point, after we had exhausted our savings and 401(k) plans, maxed out our credit cards, and ran out of unemployment benefits, our financial situation was so desperate that we almost lost our home to foreclosure. Slowly, we've managed to claw our way back from the brink of total financial ruin, but, we are still living paycheck to paycheck. I know that even though our finances have started to improve along with the nation's economy, we have to take action now to break the cycle of living paycheck to paycheck.
We've taken the following steps to break this cycle and regain control of our finances.
Take Stock of the Situation
The first step that we took to gain control of our finances was to take an honest and complete inventory of what we were spending our money on. We used a spreadsheet but you can take the old school route and write it down a piece of paper. Regardless of what method you use, make a list of where each penny goes for the next 30 days.
Create a Realistic Budget and Get Everyone on Board
Next, sit down with your spouse, or significant other, and talk about where the money is going, and where you can cut expenses. This is harder than it sounds. My husband and I had several painful conversations when we started this process, and to be successful, everyone has to give up their "sacred cows." It's very important that every member of the family gets on board and contributes to making the new household budget and commits to sticking to it. Otherwise, you will just sabotage one another's efforts and you will fail before you even start.
Negotiate with Service Providers
As part of the budgeting process, contact every provider and attempt to negotiate reduced rates for all of the services that you pay for. Many providers offer discounts based on bundling services, or if you belong to certain groups, organizations or even where you bank. By contacting our car insurance carrier, we were able to get our bill cut by 20% and save $600 year just because of whom we bank with. We were able to slash our telephone bill in half by eliminating certain features that we hardly used, and bundling our phone service with our internet service. This saves us $360 a year. We got rid of our triple digit cable bill, saving us over $70 a month and now use a popular streaming service that also allows us to choose unlimited DVDs each month for less than $30 a month. By talking to these three providers, we save over $1,800 a year.
Slash the Grocery Bill and Costs for Eating Out
Look at how much your family spends on eating out, as well as on the grocery bill, and learn how to drastically cut costs by learning how to cook at home. Even if you have a busy lifestyle, you can make delicious, filling, and cheap soups and casseroles in a slow cooker by tossing in fresh produce that is in season, bulk dry goods such as dried peas and lentils, cuts of meat that are on sale and marked down.
If you have the space and the know-how, try planting a small garden and growing some of your own produce and herbs to save even more.
Sometimes, for a treat, we do eat out, but we usually go during lunch hours instead of dinner. Many sit down restaurants offer lunch specials and other discounts during this time, and you will save money if you get water with lemon rather than paying for coffee, tea, soda or other beverages. Using this strategy saved us over $5,000 on our annual grocery bill when we first adopted it.
Set Savings Goals and Pay Down Debt
Once you have slashed your expenses, start savings goals and stick to them. Start by saving $100 in a rainy day fund. Then, move on to bigger goals, such as $1,000 in an emergency fund, and then saving at least three months of living expenses.
Start or rebuild your retirement fund at the same time. In addition to establishing savings funds, use part of the savings from your budget to pay down your credit card and other debt and make a resolution to not incur new debt.
Enjoy Less Stress as You Get Your Finances Back on Track
My husband and I earn a modest salary, together, we earn less than $50,000 a year. Using these strategies, we've managed to save $100 for a rainy day and $1,000 in an emergency fund this past year. Now, we are working on saving three months worth of living expenses.
We've also managed to rebuild our retirement fund to over $10,000, pay off $14,789 in credit card debt, and over $10,000 in medical debt and not incur any new debt in the last two years. It is a relief to no longer worry about how we will pay our bills.
We still have a long way to go to get back to where we were before The Great Recession, but we are slowly breaking the cycle of living paycheck to paycheck. Anyone can if they take the time to create a realistic budget and savings plan and be determined to stick to it.
Written by Lyn Brooks, Staff Writer
According to the Bureau of Labor Statistics, overall unemployment in America was down to 6.6% as of January, 2014. While this is certainly good news, significant challenges to long term economic growth remain, so, it's wise for households to prepare for another economic downturn. That's difficult to do if you are living paycheck to paycheck.
