How to Build Money-Saving Habits (Even When You're Living Paycheck to Paycheck)
If you're stuck in the paycheck to paycheck cycle, you're not alone. According to studies, 59% of Americans live paycheck to paycheck, a number that has only increased since the onset of the COVID-19 pandemic. We have all been taught that it is important to have money-saving habits, to be prepared for an unexpected job loss or an emergency, but just how do you go about building that?
When you feel like your whole paycheck has been spent before it even hits your bank account, it can seem pretty daunting to try to set any of those hard-earned dollars aside for a rainy day. This problem is not limited to lower-wage earners, either.
Just remember, small steps still make progress. With that in mind, we've assembled some helpful tips to get you started on the path to setting money-saving habits and getting financial freedom!
Determine Your Budget
First, decide what will work best for you and your family. The best strategy is to choose a method that you can see yourself sticking to. For example, if you don't like the idea of carrying around a bunch of envelopes, the envelope system is probably not the best budgeting strategy for you. Once you've settled on a method, it's time to create the budget itself.
1. Start Totaling Up Your Monthly Take-Home Pay
If your monthly pay varies — for instance, if you may work more hours some weeks and fewer during others, or if you collect tips — then track your income for a few months previous and determine an average. Working with an average that tends toward the lower end of the spectrum can also help you wind up with extra money at the end of the month that can boost your money-saving habits.
2. List All Your Constant Expenses for the Month
Start with necessities and bills that are consistent every month, such as rent or mortgage, internet, phone, loan payments, etc. Next, list the bills and necessities that may vary slightly month-to-month, like utilities. Then calculate the average cost for this category.
3. List Your Variable Expenses for the Month
Now factor in expense categories such as groceries, gas, restaurants, movies, etc. Include a category for whatever you spend money on each month. For these categories, you will have to assign an amount. Be realistic and choose an amount based on what you are currently spending on average.
4. Make Cuts Where You Can
This is the part where cuts have to be made. There's nothing wrong with enjoying a date night or picking up take-out after a long day, but be realistic about how often you do it and how much you spend. If you find you are spending a lot on groceries, try meal planning and making sure you use things that you already have on hand. Not only will you waste less food, but you will likely save on your grocery budget if you only buy the things you actually need.
5. Decide on Your Savings Strategy
Do you want to put a set amount aside into savings every month or week? You could also base it on your budget. In any category where you come in under budget (say, you spent $100 on groceries when you budgeted $200), put that extra money into savings. Come up with a strategy and a schedule that works for you. Remember, even if you only put $50 into savings every month, it will still build up over time.
Now that you've come up with your plan for building money-saving habits, it's time to put that plan into action.
To stick to your budget, start by tracking your spending. Whether you like to write it down in a notebook, use a spreadsheet, or use a budgeting app, tracking your spending will ensure you stay on track with your budget. Not only will you be able to stay on top of all your bills, but after a month or two, you may even start to see categories where you are tending to spend more money than you needed to, which means you can adjust your spending next month.
Big box stores are full of those "little things" that we buy because they're cute, or we may need them for something. Sticking to your list is the best way to stay on track with your money-saving habits; avoid those small, random additions. Also, keep a record of everything coming in and everything going out. You will be able to see when you are approaching your budgeted amount and then plan accordingly.
For example, did you go out to eat a lot during the first half of the month? Prioritize eating at home or having a potluck with friends instead of purchasing food from a restaurant.
Evaluate "Sneaky" Expenses
Keeping a thorough record of all income and spending can feel extremely tedious. But it’s one of the money-saving habits that will alert you when extra money is being spent. Often, it's little expenses like a streaming service or music subscription on auto-pay that cut into your savings.
It doesn't seem like much on its own. But when you add a few of them up, it can make a big difference. Are you paying for cable you don't watch? A landline you don't use? Unlimited data with your cellphone provider when you have WiFi at home? Little steps can add up to really big progress over time. It might not seem like a big deal to save $5, $10, $20 here or there. But, eventually, that start becomes $100 and then $500 and then $1000.
Be honest about what you and your family really need and what types of spending make the most significant impact. If going out to eat every week is a family ritual you don't want to part with, that is okay. Just be realistic about the cost, or find ways to trim costs elsewhere to accommodate that spending.
The paycheck-to-paycheck cycle can feel impossible to break out of, especially in challenging economic times. The good news is that there are money-saving habits that can help you break the cycle and achieve financial freedom. As Lao Tzu said, "The journey of a thousand miles begins with one step."
You can accomplish a lot simply by building winning money-saving habits and focusing on your goals.
Contact Kodak Cares today if you have questions about expanding your knowledge of family finances or resources that may be available to you.