Reasons You are Living Paycheck to Paycheck

Most people in the United States live paycheck to paycheck just because they are funding today's lifestyle with tomorrow's income. Plus, they pay interest on the original borrowing when fueled by debt through credit cards or loans.

If you are sick of living paycheck to paycheck, you need to consider steps to improve your financial stability through well-organized budgeting. Here we have made up a list of the most common reasons for having a broken budget, thereby still living paycheck to paycheck. 

Not Paying Yourself First

Paying yourself first means saving money. It helps you prepare for sudden emergencies, puts you on track for long-term goals, and even allows you to take some much-needed time. Unfortunately, sometimes you get caught up with paying bills, but you forget to pay the most important person, yourself. That's why it's essential to create a savings plan that works for you. Saving, in general, can be hard to do, so set a financial goal and figure out how much you will need to set aside each month to achieve your goal. If possible, open a savings account separate from your checking. It will make it easier for you to track your savings, plus savings accounts usually earn interest over time.

Not Keeping Track of Expenses

Tracking monthly expenses is the best way to get accurate information on where you spend your money and where it would be better to spend instead. Here are some tips on how to track your expenses and stick to a budget:

• Check your bank statement (including checking account and credit/debit cards) to pinpoint bad spending habits and reallocate your funds to achieve your financial goals.
• It's easy to keep track of your finances if you categorize your expenses, such as fixed and variable. For example, fixed expenses may include insurance, rent, and mortgage, while the variable ones are pretty much household expenses.
• Budgeting apps like Mint, YNAB, and Personal Capital are one of the best options for simplified budgeting and credit monitoring. However, expense-tracking apps will work only if you are willing to register your every purchase and set up your budget correctly.  

Not Making Adjustments to Your Budget 

Serlin says: "Keep tracking of your expenses is important to identify room for changes to find out what's really costing you, and what is not as bad as you thought." For instance, lowering a big fixed expense (such as the cost of housing) requires you to make adjustments and customize your budget according to your new needs.

Use Your Debit/Credit Card Wisely

Only use your credit card for stuff you know you can afford to pay back. When you use your debit card, ask your bank to block any overdrafts on your account to avoid interest and fees that would otherwise cut into your savings. Here are some tips for using your credit card responsibly:

• Don't spend above your means
• Make monthly payments on time
• Maintain low utilization rate
• Review and understand the credit card terms to avoid unexpected fees
• Avoid opening too many accounts

Not Having an Emergency Fund

Setting up an emergency fund to deal with financial stress without going deep into debt or securing a new loan is what most Americans dream about. Not having a sufficient amount of money set aside for a rainy day means having no savings buffer for the unexpected costs that may pop up at the worst possible time. Conventional wisdom says, having an emergency fund helps:

• to keep the financial stress level down
• to keep you from spending on a whim
•  restrain you from making harmful financial decisions

Not Setting Financial Goals

Setting a financial goal motivates you to work on your financial flexibility and focus on savings, investment, or spending targets. Conversely, not having an economic objective, either short or long term, you may end up staying stuck in a financial rut.

Living Beyond Your Means

Living beyond your means or spending more money than you earn is one of the major problems leading you to a paycheck to paycheck lifestyle. If you want to avoid falling into an overspending trap, you need to clearly know how much you earn and what expenses you have every single month.