How We Are Breaking the Cycle of Living Paycheck to Paycheck

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.

With 3 Kids in College, We're Saving $3,000 a Year With Smart Textbook Shopping

As every college student and parent of a college bound child knows, purchasing required textbooks for college can be quite expensive. My children and I use the following strategies when shopping for textbooks to save money.

Buy Used When Possible

Check with your college's bookstore to make certain that the same edition of a textbook is being used, but when possible, check local flyers on campus for individuals listing their textbook for sale. Often, an individual will sale their book for less than what you can buy it used at the campus bookstore or even many online sites. The thing to remember when utilizing this method is that you cannot procrastinate, but you need to seek out individuals selling their books early in the season. One of my daughters saved over a hundred dollars per textbook by taking the same classes a friend had taken the semester before and buying her textbooks. If you have a friend taking a class that you are interested in, and it's offered the following semester with the same required textbook, you may want to work out something with your friend before the current semester is over. The semester that my daughter used this strategy she saved $500.

Check Online Sites for Used Textbooks

Again, make certain that you are searching online for the correct edition of a given textbook, but check online sites such as Amazon.com and Half.com for used and discounted listings of textbooks. Even many book retailers such as Barnes and Noble now offer used textbooks online. One of my daughters used this strategy to save half off the cost of her textbooks for a semester. She saved even more by redeeming the points she earned through her credit card's rewards program for a gift card at the online retailer which she then used to pay for her purchase. What would have cost over $600 at the campus bookstore for new textbooks ended up being under $300, and after applying her gift cards, she paid less than $150 out of pocket for the purchase. This is a savings of $450 for this semester.

Check the Campus Bookstore for Rental Prices

Many college bookstores now rent textbooks at less than half the price to buy a new or used copy of the same textbook. This method of acquiring textbooks for the semester has been gaining popularity. My son recently utilized this method and paid less than a third of the cost of what it would have been to buy the textbooks new. As a math major, my son's textbooks normally cost $150 to $200 each if he buys them new from the campus bookstore. Since he began renting these textbooks, he has saved at least $105 per textbook a semester. He normally takes 5 to 6 classes a semester, so he saves over $500 a semester on his textbooks.

Don't Save Textbooks, but Don't Sell Them Back to the Campus Bookstore either

You can almost always make more money by reselling textbooks on your own through a flyer listing, or listing it online. Last semester the campus bookstore offered by daughter $5 to buy back an art textbook that she had paid $88 for at the start of the semester. The class wasn't being taught again until the following year, making it unlikely that the same edition of the textbook would be used, but she was able to sell it for $36 on Amazon to a college student attending a different school.

Many of these tips may seem like common sense, but thousands of college students buy new textbooks each semester. One excuse for this practice that we have often heard is that students can't afford to buy the books outright before the semester begins, so they "charge" the textbook at the campus bookstore to be redeemed when their financial aid posts to their account. I have heard many of the same students say that it's not "worth" the effort to look for ways to save on their textbooks when their aid is "free money" and it doesn't "cost" them anything to purchase their books this way. Personally, I think it would be worth it to take a part time job or budget to save a few hundred dollars to buy their books early, and used, so that they would save money on their purchase and then have a larger "refund" of their aid money later.

I currently have three children in college, they save an average of $500 each a semester on their textbooks by following these simple tips. That is a savings of $3,000 a year in textbook purchases, and this does not include the money that they make when they later sell their textbooks online.

With the costs of college tuition and expenses rising each year, it does not make any sense to buy textbooks new. With a little planning you can save hundreds of dollars each semester when purchasing textbooks.