How to Stop Living Paycheck to Paycheck
Though I help people figure out their money woes all day, when it comes to my own finances, I sometimes feel like sticking my head in the sand like the proverbial ostrich. Like anyone else, once I pay my bills, I’m lucky if I have extra money for the things I want to do. Fortunately, I’ve learned a few money-saving strategies along the way. If you’d like to stop living paycheck to paycheck, here are some techniques you can try:
Pay yourself first
I think about my personal savings as one of my bills. In order to save money and create an emergency fund, I have money automatically transferred from my checking account to my savings account when I get paid. This prevents me from spending money and allows me to save. Even a small amount, such as $10 a week, adds up to $520 a year. For someone who wants to create a savings habit, saving $520 a year would be a nice start.
Create savings goals
Goals can be short-term, such as saving $20 a week for six months to save for Christmas; or longer-term, such as saving for a down payment on a car. To help your money grow, keep it separate from daily expenses. You might consider opening a special savings account for this purpose. This concept is similar to the envelope method of budgeting your money. The envelope method is when you save money in physical envelopes that are labeled “utilities,” “groceries,” “spending money,” and so on, to represent your individual bills. Creating an additional savings account for your personal goals is like creating an envelope to keep those funds separate so you won’t spend them elsewhere.
Are you ready to start saving more?
A high-yield CD can help you get started.
Open a certificate of deposit
Certificates of Deposit (CDs), typically earn a higher interest rate than savings accounts. If you have extra money in your savings account that is earmarked for a long-term goal, a CD may be a good option. Terms on CDs usually range from three months to five years. Once you put money into a CD, the funds are locked away for the time period selected. If you take the money out prematurely, you will usually be charged an early withdraw penalty.
The first place to invest is your company-sponsored retirement plan. Many companies offer matching contributions if an employee defers money into their 401(k). It’s wise to contribute at least the matching amount into your 401(k). For those who want to invest more but are unsure where to start, credit unions and banks often employ financial advisors who can help create an Individual Retirement Plan. The financial advisor will be able to help you look at your current situation and suggest where your money can best be invested.