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Here’s how to stop living paycheck-to-paycheck

Personal finance experts offer their best tips

Photo (c) Nattakorn Maneerat - Getty Images
Surveys consistently show that a majority of Americans live paycheck to paycheck, spending all the money that they earn. The number has increased as the economy has slowed.

For Financial Literacy Month, ConsumerAffairs interviewed six personal finance experts on a range of financial topics. We started with ways to rein in spending so that there is money still in the bank account at the end of the month.

“You can't manage what you can't measure so the first thing you need to do is figure out how much money you have coming in, and exactly where each penny is going out,” said Taylor Kovar, a certified financial planner and CEO at TheMoneyCouple.com. “Once you have it all lined out, you can almost always see where you are wasting money.”

Jim Wang, founder of Wallet Hacks, agrees that starting with a review of current spending is a good idea. He says some minor trimming could add up.

“This could be as easy as canceling a subscription service or as complex as renegotiating your rent, he told us. “If you have insurance, shop around for a new policy to see if you could save money with another carrier. These one-time moves can pay dividends over the course of a year, especially for expensive services.”

All of the experts we consulted said a paycheck-to-paycheck lifestyle can sometimes be a little overwhelming. Einat Steklov, founder of Kashable, says that when you’re living paycheck-to-paycheck it is hard to think about saving. She suggests refinancing high-interest debt, such as credit cards, with a balance transfer card or personal loan. 

“Many people earlier on in their career start small and put aside a specific amount of money each month,” she said. “This can be done manually or come directly out of your paycheck into a savings account. That way it becomes a habit, and you won’t feel that money is missing.”

Shift priorities

Robert Johnson, PhD, CFA, CAIA and CEO at Economic Index Associates, offers the advice of legendary investor Warren Buffet, who once said “Do not save what is left after spending; instead spend what is left after saving.”

“If one truly wants to make savings a priority, it cannot be a residual -- what is left over,” Johnson told us. “It should be a line item on your budget. You don't successfully build wealth by simply taking what you have left after all your expenses.”

In other words, savings must be active instead of passive. Setting up a separate bank account and transferring a small amount into it each payday may be a good way to start. 

How about making a little extra money?

Markia Brown, a certified financial education instructor and registered financial associate at The Money Plug, agrees that savings need to be a line item in your budget. And while cutting expenses may be a priority, she suggests increasing income should not be overlooked.

“Explore opportunities to boost your income through a part-time job, freelance work, or selling items you no longer need,” she said. “Even small increases in income can make a difference in breaking the paycheck-to-paycheck cycle.”

How many people are paying for subscriptions they no longer need? Andrea Woroch, a popular personal finance blogger, says you could be wasting money without realizing it in the form of unnecessary add-ons, useless fees and unused services.

“Spend time scrutinizing your bills for services you don’t need or compare rates with competitors as you may be able to save more by switching,” Woroch said. “For instance, a recent study found that 90% of mobile users waste money on unnecessary unlimited data plans. Reduce your data plan to a cheaper option based on usage or switch to an online-only carrier like www.MintMobile.com which charges just $15 a month for talk, text and data when you buy 12 months of service in bulk.”

ConsumerAffairs has many personal finance resources that can help you get started with a financial game plan, including "How to Manage Your Money."

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