Everyone likes the idea of being rich someday, but if you’re stuck living paycheck to paycheck, that may seem like an impossible dream. Don’t let your pessimism get the best of you; even if you’re barely making ends meet now, there’s no reason you can’t establish a brighter financial future for yourself.
The Cash Flow Problems of Living Paycheck to Paycheck
The biggest problem of living paycheck to paycheck, at least in terms of building wealth over time, is not having positive cash flow. If you spend every cent of your paycheck on everyday expenses, you won’t have anything left over to save or invest. That’s why your first priority is going to be breaking out of the cycle. From there, you’ll be in a much better position to achieve your long-term financial goals.
Phase 1: Breaking Out of the Cycle
How do you break out of the cycle?
- Consider moving. The cost of living varies dramatically by location. If you’re making the same amount of money, but your expenses are reduced by 20 or even 30 percent, you’re going to be in a much better financial position. You can also significantly lower your housing expenses by relocating to a smaller, cheaper place. Moving itself can be stressful and expensive, but it’s often worth the effort.
- Cut unnecessary expenses. You definitely have at least some unnecessary expenses that you can cut. Can you make coffee at home instead of going out? Do you really need all those streaming services? If you look carefully, you could find hundreds to thousands of dollars of annual expenses that can be eliminated.
- Pick up a side gig. If you’re not making enough at your current job, consider picking up a side gig. There are almost unlimited options to choose from, such as creating artwork, walking dogs, or live streaming. If you’re lucky, this could even turn into a full-time career.
- Start training. Invest in your future by improving your training and education. Prepare yourself for a more valuable career this way.
Phase 2: Accumulating Initial Capital
Phase two is accumulating your initial capital, which you’ll use to save and invest.
- Pay down your debts. Debts can be crippling, so they should be your top priority. Pay them down as quickly as you can – and prioritize high-interest debt.
- Set savings goals. How much can you save every month? Set an ambitious goal and try to reach it each month.
- Accumulate an emergency fund.</…….