When your salary finally tips over $100,000, all your worries about living paycheck-to-paycheck should be gone, right?
Not necessarily. In fact, 16% of six-figure earners said they have difficulty covering basic expenses, such as food, rent or mortgage and car payments, according to a November 2020 survey by the Center on Budget and Policy Priorities.
They’re living paycheck-to-paycheck.
How is that possible? Here’s the thing: It doesn’t matter how much money you make if your expenses outweigh (or are equal to) your income. That’s why it’s so important to have a solid plan for your budget. Otherwise, you could end up with no savings and in debt.
No matter how much you earn, here’s how to break the paycheck-to-paycheck cycle.
Make a Budget and Stick to It
It’s no question that the cost of living is going up at a rapid pace — not just in big, growing cities, but all around the country.
Yet slowly rising wages can’t take all the blame for our $0 balances at the end of the month. Poor budgeting — and lack of budgeting education — is holding millions of us back. So if you don’t have a budget or haven’t updated yours in a while, get one together.
If you don’t know where to start, a simple and straightforward approach is a good way to begin your budget overhaul. We like the 50/30/20 method. You map out all your expenses like this:
- 50% of your monthly take-home goes to what you need. That includes rent, groceries, utilities, minimum debt payments, childcare, etc.
- 30% goes to your wants — like your Netflix subscription, dinners with friends and travel costs.
- 20% is earmarked for financial goals, like paying down debt, growing your savings and adding to your retirement fund.
If you’re living paycheck-to-paycheck, that last 20% likely isn’t getting the attention it needs from your bank account. And while the “wants” can easily get out of hand, it’s your “needs” that can be the biggest culprits.
So, how do you fix that? Here are some secrets to help you regain control of your spending and put more money in your savings:
Cut Costs and Bills Where You Can
Usually, your biggest monthly expense is your rent or mortgage payment. And unless you’re living the #vanlife or have a sweet month-to-month set up, chances are finding a cheaper place to live next month is out of the question.
But there are some necessary bills you can cut down significantly, without sacrificing the services you need.
- Car Insurance: Shop around for new car insurance every six months, and you could save some serious cash. Compare car insurance prices on a website called Insure.com and you could save an average of $489 a year. All you have to do is enter your ZIP code and your age, and it’ll show you your options.
- Homeowners Insurance: Homeowners insurance can be a huge waste of money if you get the wrong coverage. Luckily, an insurance company called Insurify makes it easy to find out how much you’re overpaying. It finds you cheaper policies and special discounts in minutes. Plus, it saves users an average of $700 a year.
Eliminate Credit-Card-Debt Payments
If you have credit card debt that you’re just paying the minimum on, chances are you’re paying a ton in interest. And why would your credit card company care? They’re getting rich by ripping you off with those high interest rates — some up to 36%.
Credit card payments alone could keep you in the paycheck-to-paycheck cycle for years. That means it’s time to get rid of those payments for good. A website called AmOne wants to help.
If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.
The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.
AmOne keeps your information confidential and secure, which is probably why after 20 years in business, it still has an A+ rating with the Better Business Bureau.
It takes two minutes to see if you qualify for up to $50,000 online. You do need to give AmOne a real phone number in order to qualify, but don’t worry — they won’t spam you with phone calls.
Create a Separate Account for Savings
Once you’ve cut down your monthly costs, make sure you’re prioritizing your savings. Whether that’s contributing to your retirement plan, investing in the stock market or building up an emergency fund — you did it! Congrats on breaking the cycle and cleaning up your spending habits.
But speaking of emergency funds, many Americans don’t even have $400 saved in case their car breaks down or their kid ends up in the ER.
Where should you start saving for one? A typical savings account won’t earn you much interest.
That’s why we like a free account from Aspiration. Its Spend and Save account could earn you up to 16 times the national average interest on your money, plus up to 5% cash back, if you use Aspiration’s debit card. It’ll help grow your emergency savings fund that much faster.
Enter your email address here to get a free Aspiration Spend and Save account. After you confirm your email, securely link your bank account so they can start helping you get extra cash. Your money is FDIC insured and they use a military-grade encryption which is nerd talk for “this is totally safe.”
Follow these secrets, and you’ll be well on your way to breaking the paycheck-to-paycheck cycle.
Kari Faber is a staff writer at The Penny Hoarder.