Are you tired of living paycheck to paycheck? Feel like you can’t get out of your financial rut? The simple truth is many Americans are woefully unprepared when it comes to managing their own finances. If you’re struggling to keep your head above water, check out these quick tips. They zero in on most of the reasons Americans are living paycheck to paycheck and how you can better prepare your finances.
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Spend Less Than You Earn
That sounds like pretty basic advice, but you might be shocked to learn that most Americans spend more than they earn. It’s pretty easy to know that you should be spending less than you earn, but in practice, it’s much harder. The availability of easy credit makes it tempting to put purchases on a card and pay them off later. That’s not a very wise financial decision.
To understand how much you are spending, you’ll need to track all of your expenses. There are hundreds of free personal finance apps available for iOS and Android to help you manage your expenses. Many of these apps offer integration into national banks to make tracking purchases easier than ever.
Set Up A Budget
Most people hate the word budget because they think it is the equivalent of a financial diet. Budgeting is not hard and it shouldn’t cause a drastic change to your lifestyle unless you’ve been living beyond your means. Budgeting means setting aside money to do all the fun things you like to do but making sure the important stuff is paid first.
One effective budgeting rule to get you started is the 50/30/20 rule. 50% of your income should go toward bills, rent, or mortgage. These are your necessities and should be paid every month before anything else. 20% of your income should go to savings to help you build an emergency cushion. The remaining 30% is discretionary spending that can be spent the way you please.
Emergency Funds
Once you have your daily budget set up, you should work towards saving for an emergency fund. Most Americans do not have enough savings to cover a $500 emergency. Build your emergency savings so you don’t have to resort to drastic measures like selling your life insurance. Selling your life insurance policy can be a good way to get money in an emergency if you’re strapped for cash. This sell your life insurance calculator will help you estimate how much you would get for your life insurance policy.
Calculate Your Daily Cost
One great way to know if your budget is working before you live it is by breaking down your daily costs. Seeing how much you earn per day and how much it costs to live per day is a good indicator if the budget you have will work. Here’s a quick and dirty example:
- $3,000/month salary = $100/day
- $1,000/month rent = $10/day
- $600/month for car & insurance = $20/day
- $850/month bills = $30/day
- $300/month groceries = $10/day
Following this breakdown, you make $100 a day and your daily costs are $70, leaving $30 a day for discretionary spending. Budgeting this way can also help you determine how long it will take you to save towards any goals you have.