How to Stop the Cycle of Living Paycheck to Paycheck

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Impulse spending can make a paycheck disappear.
Impulse spending can make a paycheck disappear. (Image: Medioimages/Photodisc/Photodisc/Getty Images)

Millions of people spend their paychecks as soon as they get them, and those who are mired in debt have often spent their paychecks before they've arrived. Breaking this cycle of debt and building up savings can reduce the stress in your life and put you on the road to financial solvency. To do this, you need a plan, some self-discipline and enough income to cover your needs. More importantly, you need to distinguish your needs from your wants and avoid impulsive spending.

Build up a cushion of savings that you use to pay your bills. Aim for a one month reserve so that you're paying all of your expenses for the current month with the money you made the previous month. Accomplish this by working more hours if possible, getting another job and cutting back on optional spending.

Write down all of your expenses. Make a category for standing expenses such as rent or mortgage, insurance, student loans and property taxes. Make another category for flexible expenses such as food, travel, clothing, household goods and entertainment. Set a reasonable budget for each of these things and make sure not exceed this budget. This practice will make you more aware of how much you spend on things and help you to reduce that spending.

Find positive alternatives to expensive habits rather than simply denying yourself. If you eat at expensive restaurants, try having potlucks with friends at home instead. If you frequent the mall and spend lots of money there, discover the thrills of thrift stores and yard sales. By replacing one habit with another, you avoid a feeling of deprivation and replace it with a new, less expensive activity.

Sell something valuable that you own to get yourself ahead of the paycheck to paycheck rat race. If you are just barely getting by, and you own something that is worth a lot of money, if you sell that thing but don't change your spending habits you should be able to save the money that you got for it. For example, you could transform an antique desk that you never use into a $2,000 emergency fund sitting in the bank.

Reduce your living circumstances to accurately reflect your financial means. Move into a smaller apartment, sell your large home and move into a smaller one with lower taxes and insurance, or sell your Lexus and buy a used Toyota. Discipline yourself not to spend the financial windfalls that result from these actions; instead, put the money in the bank and let it start working for you.

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