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Five Tried and True Ways to Achieve Financial Security

Millions of Americans, even those making six-figure salaries, are living paycheck-to-paycheck. This means that an unexpected financial emergency can cause them to take on debt, or in the worst-case scenario, cause them to lose their housing. 

There are many reasons why people live paycheck-to-paycheck. Anyone who earns their state’s minimum wage will have difficulty making ends meet. However, financial insecurity is not always an income issue. Much of the time, it is a spending problem. By taking control of your money the second it hits your bank account, you will set yourself up for financial success. 

Make a Budget

Budgeting may sound scary and complicated, but it’s the ultimate tool for getting a handle on your finances. Many people think budgeting is for, well, people on a budget. But this couldn’t be further from the truth. In fact, the more income you earn, the more important it is to have a budget to help you manage larger, more complicated expenses, such as owning a home or running a business.

The first step to creating a budget is determining your fixed expenses. These are the bills that you have to pay to stay housed, healthy, and employable. This includes your rent or mortgage, car payments, utility bills, and insurance payments.

Then, calculate your variable expenses. This category covers areas like food, gas, entertainment, and clothing. No one says you have to go without any of these items, but you do have far more control over how much you spend on each category. 

Often, people over or underestimate their variable expenses. Track your spending over several weeks to get a better sense of how much you spend in each category. Once you have this data, you can set a reasonable monthly or weekly limit for each variable expense. 

Pay Yourself First

One of the issues with the paycheck-to-paycheck cycle is that people give 100 percent, (or even more if they use a credit card) of their earnings to other people. Every time you patronize a restaurant or buy a new bag, you are essentially putting your dollars in someone else’s pocket.

While there’s nothing wrong with supporting the economy, it is a problem if you are left empty-handed at the end of the month. Instead, make paying yourself your first priority. Personal finance experts recommend setting up an automatic withdrawal that sends a set amount of money to your savings account, once or twice a month. 

This makes it easier to build a savings habit, as you won’t have to go through the hassle of logging on and transferring the money yourself. After you’ve built up a savings cushion equivalent to three to six months of your monthly living expenses, you can start sending your savings to an investment account. 

Eliminate Your Debt

From student loans to credit card payments, most Americans are up to their eyeballs in debt. It almost feels like a way of life, and many people have lost faith in their ability to pay their debt off.

However, debt is a serious wealth killer. High-interest debts, like credit cards and payday loans, can snowball into huge amounts of money. Likewise, debt can make dealing with a financial setback even more difficult, as the balances are due whether you have an income or not. 

If you have debt, you will need to create a debt-repayment category in your budget. Rather than sticking to the minimum payments, which are designed to keep you in debt, throw as much of your leftover income at your payments as possible. Reduce or eliminate some of your variable expenses to get you out of debt faster.

Live Below Your Means

So you might be thinking, how is it possible to save, pay off debt, and live life off of my paycheck? The secret sauce to making this work – live below your means- is easier said than done.

The biggest hurdle is adjusting your mindset about what you can afford. Many people think if they have the balance in their bank account, it means they can afford a purchase. In actuality, spending this way will cause you to live far above your means, and leave you relying on high-interest debts like credit cards to make ends meet.

Instead, redefine affordable as an item you have the ability to pay for five times over after paying your living expenses. This definition will prevent you from compromising your financial security. 

Another way to live below your means is to reduce your fixed costs. If it is possible, consider moving in with family or sharing your housing costs with a roommate. If you’re wondering how to find a roommate who would be compatible with your lifestyle and living arrangements, consider putting an advertisement out on a social media group dedicated to your city or town. 


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