paycheck to paycheck

6 Reasons You're Still Struggling to Pay Bills

Kentin Waits — Thu, 03 May 2018 09:00:11 +0000

You've worked hard. You've hit your career goals. Your salary has never been higher. Still, at the end of the every month, you break into a cold sweat worrying if there's enough money to go around. Why, at this point in your life, does bill paying still feel like a painful game of financial Twister? It's time to get to the root of the problem. Here are six reasons you're still struggling to pay bills.

1. You don't have a budget

Budgets are how people anticipate their expenses and allocate their spending. Without this essential framework, your financial life will look a lot like the Wild West — filled with drama and boom and bust cycles (and probably too many saloon scenes). If you're making late payments or missing payments altogether, it's time to build your first budget, cowboy.

2. You have too much credit card debt

With astronomical interest charges, late fees, and other penalties, credit card debt leaves millions of families strapped for cash year after year. If you're struggling to pay your bills each month, take a hard look at your credit habits. How much of your income is devoted to servicing debt? Are you barely covering the minimum payments or racking up new charges? If so, grab a shovel. It's time to dig yourself out of high-interest credit card debt. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

3. You're house poor

If your mortgage consumes more than 25 percent of your income, you may be house poor. For many, that single payment is simply too steep and leaves little money leftover for bills and other budget essentials. Think you may be house poor? Explore refinance options, rent out a spare bedroom, or consider selling and moving into a more affordable home. (See also: How to Make Ends Meet When You're House Poor)

4. You can't stop impulse buying

We all fall prey to impulse buys every now and then. But if off-budget spending has become a way of life, you're probably broke by bill-paying day. Examine why impulse buying is so attractive. Is it a way of relieving stress? Is it a reward for working long hours at a job you don't like? How could you rearrange your life and take control of your spending? (See also: 9 Simple Ways to Stop Impulse Buying)

5. You're too focused on keeping up with the Joneses

Trying to keep up with the Joneses can exhaust you mentally, emotionally, and financially. If you're constantly struggling to pay your bills, ask yourself: "To what degree is my spending influenced by the spending habits of others? Am I trying to project an image I can't afford?" Since paying your monthly bills doesn't give you much "image bang" for your buck, you may simply be prioritizing status over solvency. (See also: 4 Money Lessons You Can Learn From the Joneses)

6. Someone's draining your income

If you're always behind the eight ball with your bills, maybe the problem isn't something, but someone. Is your BFF always "a little strapped for cash?" Are you supporting a chronically unmotivated spouse, sibling, or adult child? Practice a little tough love (and self-care); use your cash to cover your own bills, protect your own credit, and keep your lights on. (See also: 4 Things You Should Make Your Adult Child Pay For)

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This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Factors That Could Keep You Broke Forever

Dr Penny Pincher — Tue, 06 Mar 2018 09:00:07 +0000

If you are perpetually penniless, you may feel that's just the hand you've been dealt when it comes to money.

The truth is, no one has to live their life permanently broke. And many people don't simply end up in the red due to poor luck. If you want to reach true financial security, you'll need to take a good, hard look at your money habits and identify the culprits of your struggling finances.

Here are some reasons you could stay broke forever.

1. You would rather look rich than be rich

One thing that keeps many people broke is spending money — and even taking on debt — to look like they are doing well. You want to drive a nice car and live in a nice house so that everyone will think you're successful, even though maintaining appearances is keeping you broke. It's an easy trap to fall into, and it's a vicious cycle to try and break free from.

Instead of spending your time worrying what your neighbors and friends on Facebook think, focus your energy on getting back on your feet. If you stop spending money to look rich, you can actually be rich someday. (See also: 4 Money Lessons You Can Learn From the Joneses)

2. You are not keeping track

You may feel that since you don't have any money, there's no point in keeping track of it. The reality is, no matter how much money you make, you need a budget. Operating without one can keep you in the red. If you don't have a way to oversee and manage your spending so that you have more money coming in than going out, you will be broke forever.

Start a budget today so you can understand how much money you have to work with and what you're spending it on. Use your findings to make more mindful choices about your expenses and spending habits. While you're at it, be sure to add a column for "savings," too. (See also: Stop Using These 5 Excuses Not to Budget)

3. You wait to start investing

When you are broke, you don't feel you have any "extra" money to send to nonessential things like investing. But investing is an essential. Instead of waiting until your finances get better to take a dip into the markets, you should really be making an effort ASAP. The longer you wait to invest, the longer it will take you to build wealth and reach financial independence.

You don't need to be wealthy to start. Invest now with whatever money you can come up with. Even a few dollars per day can make a huge difference. (See also: How Just $5 a Day Can Improve Your Financial Future)

4. You don't have a plan for getting ahead

If you are broke, something needs to change to make you un-broke. Making a real change requires more than simply hoping that things will change. You need to form a plan, followed by action to execute your plan and meet your goals. If you don't have a plan to improve your financial situation, you will never get ahead.

There's no reason to overwhelm yourself. Start small; plan on paying off your smallest credit card using the debt snowball method, and take steps to make it happen. You'd be surprised how great it will feel to achieve even a small financial goal, and you'll be inspired to tackle the next one.

5. You have given up

When your financial outlook is bleak, it's easy to get discouraged. But if you accept the state of being broke as your permanent reality and stop working to change things, you will probably stay broke.

Find inspiration from people who have managed to pull themselves out of bad financial situations. Read blogs, subscribe to newsletters, and listen to podcasts about debt repayment. Hearing about other people's success will inspire you to achieve your own financial freedom. (See also: How One Inspiring Couple Paid Off $48,000 in 2.5 Years)

6. You are addicted to debt

No money? No problem! You can still get almost anything you want just by swiping your card and signing your name on the dotted line. Does this sound familiar? If so, those credit card payments may be keeping you broke. If you continue using credit instead of money you actually have to buy things, interest payments will bury you. You will never get ahead financially.

Change your focus from accumulating things to accumulating wealth. Start by paying down your credit card accounts and resolving to make new purchases with cash. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)

7. Lifestyle inflation is eating up your raises

Your annual raise can easily evaporate due to lifestyle inflation. Those extra dollars in your paycheck disappear from your account only to go toward more TV channels, a bigger house or apartment, a nicer car, a lavish vacation, and better food. The problem here is that once you upgrade your lifestyle, you don't want to go back. Your newer, "nicer" things become your new normal. But if your expenses keep ratcheting up as fast (or faster) than your income, you'll stay broke forever.

The key to battling lifestyle inflation is to recognize what is happening and prevent those little upgrades from sneaking in. If you get a pay raise, don't automatically set off on an online shopping spree; instead, send the extra dollars into an emergency fund, retirement account, or toward debt repayment. You'll be glad you did. (See also: How One Nice Thing Can Ruin Your Whole Budget)

8. You are piling up deferred expenses

I once lived in an old farmhouse that I was fixing up. I had a long list of upgrades and repairs that I needed to do as soon as I got some money. Eventually, I realized that those deferred expenses were keeping me broke — so I sold the farm. Your list of deferred expenses may look different from mine — maybe it's never-ending home improvement projects, or things you are waiting to buy for your hobby — but they are keeping your money tied up nonetheless.

Take a hard look at the deferred expenses that are standing in line waiting to take your money. Can you eliminate the root cause of these expenses and free up future dollars? Doing so just may be your ticket to financial freedom. (See also: The 10 Commandments of Reaching Financial Freedom)

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This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's What to Do if You Don't Make Enough Money at Your Job

Rachel Slifka — Wed, 21 Feb 2018 09:31:09 +0000

Do you believe you are underpaid? Are you fed up with not earning enough? Or, is your lack of income creating financial difficulty for you and your family?

Going to work every day and being paid less than you are worth can be emotionally and financially draining. Though you may not be able to secure the raise you think you deserve, you actually may have more control over your income than you think. Here are several things you can do if you don't make enough money at your job.

1. Create a list of achievements

Though you don't get the final say on whether you get a raise, you can take some actionable steps to bolster the process of raising your income. One way to prove to your boss that you should get a raise is to keep track of your accomplishments.

If you don't already track your work achievements, now is the time to start. Look back on the past year or so. What stands out as impressive? Did you improve a process or system? Save the company money? Take on an additional project?

Often, managers aren't aware of exactly how much value their employees are providing to the company. They may be impressed, or even surprised, to find out just how much you have accomplished for the company. By creating a list of achievements, you are one step closer to earning a raise.

2. Research salary data

What does someone with similar job responsibilities in your area earn? It's important to have access to up-to-date salary data when making your case for a raise.

Every position has a going market rate. To avoid being unrealistic in what you're asking for salary-wise, do your research in advance by using websites such as Glassdoor and Payscale. (See also: Are You Underpaid? How to Figure Out What Salary You Deserve)

3. Take on additional work

Could your boss use help on some additional projects? Do you have the opportunity to earn overtime? Would taking on additional work help solidify your request for a raise?

Volunteering for additional projects often shows how serious you are about your career and helping your company succeed. And by asking for extra work, you are likely to grow your skills by working on something that isn't a typical part of your job duties.

4. Talk to your boss

Talking to your boss about your salary can be intimidating. But it doesn't have to be.

Depending on your relationship with your boss, you may already have great rapport. Most managers expect that their employees want to be paid more, so the conversation won't be as shocking to them as you may think.

Simply ask your boss how you can work to increase your value to the company. Sometimes, just knowing that you are interested in taking on more responsibility is the boost you need to get the salary increase you desire. (See also: 5 Times You Should Demand a Raise)

5. Create an additional income stream

Creating an additional income stream outside your regular job is a great way to increase your income relatively quickly. Plus, you can typically earn money while doing something you enjoy.

Whether you choose to sell clothing, baby-sit, start a blog, do woodworking, or something else, there is no shortage of ways to earn money on the side. (See also: 14 Best Side Jobs For Fast Cash)

6. Slash your expenses

What's the quickest way to find more money in your budget? Slash your expenses.

Take a look at your current monthly spending. What could you do without? Are there any expenses you could cut entirely? If you can't cut them out, are there at least expenses you can lower? (See also: Are You Spending Too Much on "Normal" Expenses?)

7. Start searching for a new job

What do you do if your current company won't give you an increase in pay? It might be time to start searching for a new job.

You owe it to yourself to earn what you think you are worth. Sure, there are things you may enjoy about your current employer. But if you're not earning enough to live comfortably, it's time to see what new and better opportunities could be waiting for you elsewhere.

8. Save all you can

If you are barely making enough money to cover your bills, you will need to budget very wisely and save whatever you are able to.

Emergencies happen, and if you aren't earning enough income to comfortably make ends meet, it will be even harder to bounce back from an unexpected expense like a leaky roof or medical bill. Prepare yourself and protect your own finances by saving everything you can in an emergency fund. (See also: 6 Fast Ways to Restock an Emergency Fund After an Emergency)

9. Network

You never know who could help you land your next gig. No matter where you are in your career, networking is key.

Start by going to a few networking events in your area, or getting involved with a new organization. Don't forget to nurture your current network by keeping up with your peers and friends on social media and LinkedIn. (See also: The 10 Best Networking Tips for People Under 40)

10. Ask for support

Emotional support is one of the best, but most underrated tools at your disposal. Without having someone to encourage and push you, your mental health could suffer.

Talk to your family, friends, or partner about your finances, your goals, and your current position. Ask for their advice and let them know how they can help hold you accountable. Though it might not feel like it, everyone has gone through some financial stress in their life and can offer you some sort of emotional encouragement.

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This article is from Rachel Slifka of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

15 Smart Things You Can Do With Your Finances, Even if You're Broke

Rachel Slifka — Tue, 20 Feb 2018 09:00:06 +0000

Are you living paycheck to paycheck, unsure if you will have enough money to cover your bills every month? If so, it can seem nearly impossible to get ahead financially.

But even if you're broke, you can focus on making small, smart money moves. By changing the way you handle your finances, you'll be able to prepare for an emergency, save for the future, and break the cycle of living paycheck to paycheck. Here are 15 smart things you can do with your finances, even if you're broke.

1. Pay your bills on time

No matter how broke you may be, failure to pay your bills on time is only going to make matters worse. Not only will this result in late fees or overdraft charges, but it also damages your credit score and could even cause your credit card's interest rate to increase.

Typically, there are two reasons why people do not pay bills on time. One is that they don't have enough money, and the second reason is that they simply forget.

If cash flow is your problem, you will need to figure out how you can lower your expenses while increasing your income. If disorganization causes you to miss bills, it's time to try out systems to better organize your finances. (See also: 5 Ways to Automate Your Finances)

2. Start an emergency fund

An emergency fund can make or break your finances. Though experts say you should ideally have six months' to a year's worth of living expenses saved in an emergency fund, you don't have to let that amount overwhelm you. Even $500 can protect you from many financial emergencies.

You can easily start an emergency fund by opening a new savings account that is specifically for emergencies. You can auto draft a few dollars out of your paycheck every pay period. This will automatically build your emergency fund without any additional effort on your part. Don't forget, these funds are only to be used in emergency situations, such as for a medical expense or car repair bill. (See also: 11 Ways Life Is Amazing With an Emergency Fund)

3. Prioritize debt

Debt, especially high-interest debt, can completely derail your finances. And if you're broke, it can feel nearly impossible to make any progress in paying it off. If you're having problems even making the minimum payments, it's vital to speak with your lenders as soon as possible. They may be able to get you on a repayment plan that works for you.

The more quickly you pay off debt, the less you will pay. Even if you are struggling financially, try to find small ways to slash your budget and earn more income in order to put more money toward debt. (See also: 7 Easy First Steps to Paying Off Debt)

4. Start small with investing

I know, I know; when money is tight, the last thing you think you should do is siphon off money for investments. But investing even a few dollars now can change your financial future for the better. Start small. If your employer offers a match when you contribute to the 401(k) plan, aim to contribute at least enough to receive the full match. (See also: 7 Things You Should Know About Your 401(k) Match)

5. Automate your finances

Automating your finances is an easy way to ensure all your bills are paid and you meet all of your savings goals. You can set up autopay for most bills. Some companies, or even student loan servicers, offer a small discount if you sign up for autopay, so it is certainly worth considering.

Keep in mind, it's a good idea to still thoroughly look over every bill even if it is on autopay. You will want to ensure that you're being billed accurately. (See also: The Pros and Cons of Autopay)

6. Find a better bank

Most people find a bank and stick with it. But what if you could earn more money simply by switching your financial institution?

When searching for a bank, there is a lot to consider. Everyone has different personal preferences, so it's important to find a bank that works for you. For instance, do you prefer to go into a physical branch? If so, you should make sure there are locations convenient for you. Are interest rates important to you? Shop around for the best deals. Do you frequent ATMs? Find a bank that offers plenty of in-network ATMs. (See also: Switch to a Better Bank in 5 Easy Steps)

7. Live frugally

Living frugally doesn't mean you have to be cheap. You can practice frugality by simply making a few small lifestyle changes.

Cook at home instead of eating out. Turn off the lights when you leave a room. Cut back on expensive hobbies and events. You don't have to cut everything out entirely, but by making a few frugal choices, you can save significant money every single month. (See also: The Only 6 Rules of Frugal Living You Need to Know)

8. Track your spending

When you're broke, every cent counts. The most valuable tool at your disposal is a budget. In order to start a budget, you will need to track all of your spending. Where does your money actually go? You might be surprised.

Luckily, tracking your spending doesn't have to be an arduous task. There are plenty of apps that will automatically track your spending for you and provide analytics about your budget. (See also: These 5 Apps Will Help You Finally Organize Your Money)

9. Cut out expenses entirely

While you're tracking your spending, you are likely to find expenses that you didn't even know you had. What could you cut out?

Things like cable TV, magazine subscriptions, or cleaning services might be nice, but they aren't necessary, especially if you're struggling to make ends meet. Cut these expenses out entirely and you may be able to free up a few hundred dollars in your budget every month. (See also: Are You Spending Too Much on "Normal" Expenses?)

10. Communicate with your family

Communication is key to financial success. You'll find it very difficult, if not impossible, to succeed financially if your family is not on board. Talk to your family and friends about your financial goals. Make goals together, so that everyone is on the same page. (See also: How to Talk to Friends and Family About Money (Without Making Everyone Mad))

11. Get organized

Organization can greatly improve your finances, and it costs almost nothing to be organized.

Figure out systems that work for you. How will you track your income? Expenses? Net worth? How will you budget? Make sure all your bills get paid on time? Save money?

You can organize your finances by setting aside as little as one hour per week. Use that hour to update your numbers, check in with your financial goals, and communicate with your family. (See also: 6 Quick Tips for Organizing Your Finances)

12. Prioritize your financial goals

If you're saving for an emergency, socking away retirement funds, paying off credit card debt, sending your kids to college, and plugging away at your mortgage, it can be nearly impossible to hit all of your financial goals at once. Achieving your personal finance goals requires prioritization.

Determine what goal is most important to you right now. Maybe your initial goal is to simply organize your finances, and then focus on paying off credit card debt. Once you set a focus, you'll feel less overwhelmed and you'll be better able to make discernible progress (See also: 6 Simple Money Milestones Anyone Can Hit)

13. Avoid unnecessary fees

Fees are typically penalties for small financial blunders, but they can add up quickly. For example, say you miss one bill because you didn't have enough money to cover it. That biller could charge you a late payment fee, plus you could receive an overdraft fee from your bank. One late bill could cost you an additional $50 or more in fees.

If you have a couple of these a month, you'll find it hard to ever get ahead financially. By budgeting hard for a few months and building enough of a buffer in your checking account, you'll be able to prevent unnecessary fees.

14. Increase your income

Increasing your income is one of the best things you can do for your financial situation. Unfortunately, many people don't think they have control over their income. They might believe that their income is at the sole discretion of the organization they work for.

That's not true. While your boss probably has the final say over your pay, you can always work to earn income outside of your 9-to-5. Whether you start freelancing, baby-sitting, or working a part-time job, there's no shortage of ways to earn extra cash. (See also: 14 Best Side Jobs For Fast Cash)

15. Have fun

Remember, you won't be successful for long if you don't allow yourself to have some fun along the way. Prioritize the things that are important to you, even if they cost money.

Of course, you'll have to make many sacrifices, but by treating yourself every once in awhile, you will be better able to sustain your new financial lifestyle for the long haul. (See also: Yes, You Need "Fun Money" in Your Budget)

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This article is from Rachel Slifka of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways Your Money Is Being a Jerk (And How to Fight Back)

Paul Michael — Tue, 16 Jan 2018 09:00:07 +0000

They say money is the root of all evil. That’s debatable, but it can certainly be at the center of a lot of problems. You want to get out more, but your money says no. You want to retire someday, but your money gives you the finger. You want to take a vacation to Europe, your money laughs in your face. Money can be a real jerk sometimes. But, you can fight back. Take control of your finances, and you’ll be the one calling the shots.

1. Your credit cards are tempting you to spend, spend, spend

Oh, those credit cards with their promotional APRs, low-rate balance transfers (with a 3 percent fee, of course), and flashy rewards programs. Your mailbox is stuffed with offer after offer of five-minute applications and 60-second approvals. Credit lines are upward of $10,000. That’s $10K you can spend on whatever you want, whenever you want, and you don’t even have to pay it all back at once.

Want a new coat? Swipe the card. Have your eye on a new watch? Grab that plastic. Thinking about a new car? The down payment is in your pocket. And when you have so many of these cards, it feels like a license to spend. The thing is, credit cards aren't free money, and it’s way easier to spend with them than it is to pay them back.

How to fight back

Credit cards are financial tools, and if used correctly, they can be very good to you. They help you build credit, offer travel rewards and perks that make life easier, and are safer and easier to carry than cash. But, you must use them wisely.

Do not spend money on a credit card unless you can afford to pay off the balance in full at the end of each billing cycle. If you don’t have the money to do that, well, maybe you shouldn’t be buying the item you cannot afford. Once you stop paying the full balance, interest is added. And the longer you keep a balance, the more interest is added on. If you’re not careful, the debt will bury you over time. (See also: The Fastest Method to Eliminate Credit Card Debt)

2. Your monthly debt payments are ripping off your budget

You look at the amount of money you have coming in every month and you’re happy with it. But then you look at your debts and monthly obligations; The credit cards. The car payment. The mortgage. The student loan. By the time you’ve paid those bills, you barely have enough left to buy groceries. And money for fun, like going out to eat or a weekend away? Forget about it. Your debt is like a ball and chain around your whole life.

How to fight back

The first thing you need to do is get your financial house in order. Analyze your monthly bills, and make a list of your debts, the payments, and the length of time needed to pay them all off. If this already makes your head hurt, consider meeting with a financial adviser who can help you break the process down into simpler steps. (See also: 5-Day Debt Reduction Plan: Search and Destroy)

Once you have all your ducks in a row, look at ways to pay down the debt. You may have to make some sacrifices to get this done. No trips to Starbucks for a while. Go for cheaper generic brands (which, to be honest, are usually made in the same facility as the expensive brand names). Pack your lunches every day. Free up as much money as possible, and do something with your debt called “snowballing.” Put every cent you can toward paying off the smallest debt first, and make minimum payments on the others. When that debt is paid off, move onto the next in line, applying the maximum to it, and the minimum to the others. It’s a satisfying way to tackle debt because it progresses quickly. (See also: 6 Secrets to Mastering the Debt Snowball)

At the same time, look into other ways to generate extra cash. Can you refinance your home and pay off a debt while still hanging onto a substantial chunk of the equity? Paying 4 percent interest per month is way better than the 22 percent interest some credit cards charge.

3. Your “savings” account is laughing at your dreams

Savings; that’s wishful thinking. For a lot of us, a savings account is just a temporary resting place for our money until the next emergency beckons it.

A recent GOBankingRates study found that 34 percent of Americans have no savings at all, and 35 percent have less than $1,000. Sure, you want to go on that trip to Europe, or finish the basement for the kids. But guess what? The water heater just went on the fritz. Or the furnace just curled up its toes and died. Instead of looking forward to some time away, or something to make home life a little easier, you’re staring into a savings account filled with cobwebs and shattered dreams.

How to fight back

Every financial adviser will offer you the following piece of advice: Pay yourself first. Sure, it’s easier said than done, but you need to get into the habit of squirreling away a percentage of your income each month automatically.

A dedicated emergency fund is critical for surprise expenses that threaten to wipe out your other savings — savings you may have wanted to use for that overseas trip or basement remodel. Many experts recommend having between six and 12 months' worth of your expenses covered in this fund. If you have nothing set aside in an emergency fund, now is the time to start building one.

Set up an automated transfer from your checking account to a savings account and your emergency fund. Find small ways to save money without even thinking about it. There’s an app called Earny that checks price drops on purchases you have made, and automatically claims the difference on your behalf (Earny takes 25 percent of the refund). Put any Earny refunds into your savings account or emergency fund.

Other apps like Digit, Chime, and Acorns can help you save money without even noticing it. Acorns simply rounds up purchases to the nearest dollar, and puts the change into an investment account (fees range from $1 per month for balances under $5,000, to 0.25 percent for larger balances). Do whatever you can to make saving a monthly, or even weekly, habit. (See also: 11 Ways Life Is Amazing With an Emergency Fund)

4. Your retirement fund is MIA

You’re sitting on a beach with a cool breeze kissing your face. The sun is out. The waves are lapping around your feet. You're sipping a Piña Colada. And then you hear that record needle scratch, open your eyes, and realize it’s a dream; a far-off dream. Your 401(k) is looking about as healthy as a fly that just splattered against the windshield of your car. You have been working your butt off for 20 years, and have very little to show for it. At this rate, you’ll be dreaming of retirement for the rest of your life.

How to fight back

Start by taking a breath. Hopefully retirement is still a good 20 or 30 years away, and that gives you time to beef up your fund and take advantage of compound interest.

If you are employed by a company, you probably have a 401(k) match of some kind. The first thing you need to do is max out that match. If it’s 6 percent, put in 6 percent of your salary each month. You’ll actually be saving 12 percent of your salary, and that’s an excellent start. If it’s a maximum amount each year, hit that figure.

Next, look at the kind of 401(k) fund you have. You should be able to choose what kind of risk you want to take, and if retirement is 25 years from now, you can afford to be in an aggressive fund; one that’s going to be a bigger roller coaster ride for your money, but will lead to bigger gains over time. (See also: 7 Roadblocks to Retirement (And How to Clear Them))

5. You’ll be making the minimum payment … forever!

Those accounts whisper in your ear constantly; “There’s no need to empty your bank account to pay me off. Just make this teeny, tiny minimum payment. You’ll hardly notice it.” Yeah, well, that might seem better in the short term, but in the long run those small minimum payments are keeping you in a never-ending cycle of debt.

When you make the minimum payment, most of the money goes toward the interest that was applied to the balance. You pay it, forget about it, and next month you do it again. And again. And again. The balance never seems to go down, and that’s what the credit card companies want. Before you know it, you’ve spent five years paying the minimum and the end is nowhere in sight. (See also: All the Ways Minimum Payments Are Evil)

How to fight back

Never make the minimum payment unless it’s part of a debt snowball plan mentioned earlier. Paying just 2–3 percent of the balance is only making the credit card companies richer.

You also need to stop using the credit card. By paying the minimum and adding to the balance, you’re putting yourself in the pocket of the credit card company for the rest of your life. Instead, cut down expenses and find other ways to make purchases until you can get this balance down to zero.

Look for 0% balance transfer credit card offers. Some will give you 18 months or more at zero interest. Once you grab one of those, all of the money you pay each month goes toward the principal. Find ways to cut costs from your monthly budget and apply that to the payment on this card. The 0% interest combined with a much bigger monthly payment will really help you shrink that balance significantly. Just make sure to pay off the balance transfer card in full within the promotional APR window to avoid interest.

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Easy Ways to Build an Emergency Fund From $0

Emily Guy Birken — Fri, 13 Oct 2017 08:00:07 +0000

Needing an emergency fund when you're living paycheck-to-paycheck feels like a classic Catch-22: You need a savings cushion to protect yourself in case of an emergency, but you don't make enough money to create that cushion before the next emergency strikes. It's enough to make you want to throw your hands in the air and give up.

But it is possible to quickly build an emergency fund from zero, even if you are living paycheck-to-paycheck. Here are several ways you can fill up your emergency fund fast so that you are prepared before the next disaster hits. (See also: 4 New Reasons You Need an Emergency Fund)

1. Start a coin jar

Throwing change in a jar is the oldest trick in the book for creating a robust savings account, but it's a classic for a reason. Spare change and random dollar bills don't feel like "real money" to us, but they do add up quickly. Go on a treasure hunt through your purse/wallet, your house, your car, and your desk to locate all the spare change you can scare up. Even if the amount isn't huge, it's a great start that can go directly into your emergency fund at the end of the month. (It's also a great opportunity to do some deep cleaning.)

2. Adjust your withholding

In 2017, the average American received a tax refund of $3,050. That's over $250 per month that's taking a trip to the IRS and back. Just imagine how quickly you could build up your emergency fund if that extra money was still in your paycheck each month. Doing so is as easy as adjusting your withholding allowances on your W-4 form with your employer.

To do this, first use the IRS withholding calculator to determine how many withholding allowances you may take. Remember that the withholding allowances you claim do not determine your tax bill, only how much you pay in taxes per paycheck, so your answers on the calculator can be approximate.

Once you have figured out your allowances, request and fill out a W-4 form from your employer's human resources department. It can take about a month for the new paperwork to make a difference in your paychecks, although it could happen as quickly as your next pay cycle, depending on your HR department.

While you're at it, set up an automatic transfer of the extra money into your emergency fund so that you are not tempted to spend it.

3. Sell your stuff

When an emergency strikes, it can become clear that some of the stuff you own may be less important than you think. Instead of waiting for an emergency to realize that you don't truly need two gaming systems or 18 pairs of shoes, start looking at your stuff as if the emergency has already occurred. That will help you better understand which items are truly important to your well-being, and which you could stand to live without.

The good news is that if you are selling stuff to fill your emergency fund, you have time to get the best prices for your items. From online marketplaces like eBay, Craigslist, and Facebook, to local consignment shops and yard sales, there are a myriad ways to reduce your clutter while increasing your bank account.

Set yourself a goal of selling at least one item per week and depositing the money into your emergency fund. The additional money will help your emergency fund grow quickly.

4. Negotiate your bills

You might feel reluctant to negotiate with your service providers, but taking the time to call and ask for a better price can result in savings that range from modest to impressive. No matter how much or little you save, you can immediately set up an automatic transfer of the difference into your emergency fund, which will help it to grow more quickly. (See also: 10 Costs You Should Always Negotiate)

There are a few service providers that are open to negotiating with their customers.

Cable and internet providers

These companies are generally eager to give price breaks to their customers in order to keep them. The best way to get a better price from your cable/internet provider is to research the lowest going rates in your area — either the price your provider is offering to new subscribers or the rates offered by the competition — and use that price as leverage in your negotiation. When you call, ask to speak to the retention/cancellation department, since that staff generally has the most authority to make deals in order to keep you.

Cellphone service providers

Cellphone companies can also offer some wiggle room in their pricing, although timing is important. You are more likely to successfully reduce your cellphone bill if you negotiate toward the end of your contract when your provider is desperate to hold onto you. Remind your provider of your loyalty, since it costs cellphone providers much more money to gain new customers than it does to retain existing ones, and be willing to actually cancel and defect to a different provider, since having some teeth behind your threat to cancel will give you the upper hand in negotiation.

Landlords

Though it may seem set in stone, your rent payment may also be negotiable, especially if you are a reliable tenant and you have plans to stay put for some time. You can request a longer-term lease in exchange for a lower monthly rental payment, which can be a win-win for you and your landlord.

5. Go on a monthlong spending ban

When you need to fill up your emergency fund in a hurry, a spending ban can help you find the money you need. A spending ban is a period anywhere from one week to one year wherein you refrain from all spending, other than for necessities. Going on a monthlong spending ban can help you to free up money in your budget to pad your emergency fund without otherwise affecting your bottom line.

Here's how it would work: Decide at the beginning of the month what your absolute necessities are. These will include your rent/mortgage, utilities, credit card bill, car payment and gas, child care, food, and health care. For the month you are taking part in the spending ban, you will live without anything above and beyond those necessities.

The one caveat to a spending ban is recognizing that it can be easy to jump right back into your old spending habits as soon as it is over (or alternately, have a "last hurrah" spending binge before it starts). Don't let your spending ban give you permission to overspend before or after the month.

At the end of your spending ban month, your extra money can go into your emergency fund, and you can feel more comfortable with your finances. (See also: Here's How a Spending Ban Can Help (and Hurt) You)

6. Hide money from yourself

There is something to the adage "Out of sight, out of mind." You are much less likely to spend money if you don't know it's there — just as you are less likely to crave ice cream if you don't know there's a pint of Ben & Jerry's in the freezer.

That's why you can help pad your emergency fund by hiding money from yourself through creative accounting. To do this, simply subtract $100 from your account register for your checking account. You won't know the $100 is there, so you'll spend as if you were $100 poorer. But the money is still there, and at the end of the month (or several months), you can put all of your phantom savings into your emergency fund.

This method may not work for all savers, however. Anyone who does not bother with an account register will not be fooled by this kind of mental trickery.

7. Hustle

Finding a way to make a little extra money on the side can be one of the fastest ways to build up an emergency fund. While traditional part-time jobs are always an option, modern technology has also made it possible to find a side hustle with flexible hours or one that allows you to work from home.

Since your hustle money is over-and-above your normal paycheck, it can help you bring your emergency fund from zero to impressive as quickly as you are willing to hustle.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Your Good Credit Doesn't Mean You Have Good Money Habits

Dan Rafter — Thu, 12 Oct 2017 09:00:06 +0000

Your credit score is great. You have no trouble qualifying for auto or mortgage loans. Credit card providers stuff your mailbox with offers for rewards-laden cards. You're obviously practicing good money habits, right?

Not necessarily. It is possible to have a high credit score while still struggling with bad financial habits. Don't let your solid score blind you to these key money mistakes that could cause you financial pain.

Carrying a balance on your credit card

If you charge items on your credit cards each month and make at least your minimum required monthly payments, that will boost your credit score. And if you have high enough credit limits, carrying a moderate balance on your credit cards each month won't drag your score down too much.

But carrying a balance on a credit card, even if it isn't preventing you from having a high credit score, is a big financial mistake. It's not unusual for cards to come with interest rates of 17 percent, 18 percent, or even 20 percent. If you carry a balance on your cards from month to month, those high rates can cause your credit card debt to soar.

The better move? Only charge what you can afford to pay back in full each month. That will help maintain your good credit score without leaving you with an ever-growing pile of credit card debt. (See also: The Fastest Method to Eliminate Credit Card Debt)

You're not saving anything

Maybe you pay all of your bills on time. Maybe you don't have any credit card debt at all. But if you don't have any savings, that's not a good financial sign.

How much you've saved, or haven't saved, doesn't impact your credit score. Whether you have $20,000 in a savings account or $100, your credit score won't budge either way. It's important to have a strong credit score and to pay your bills on time, of course. But not having any money leftover to build a savings is a bad money move. (See also: 4 Easy-to-Fix Reasons Your Savings Account Isn't Growing)

You've never built an emergency fund

An emergency fund is a bit like having savings; only with this kind of fund, you're saving money, usually in a low-risk savings account, specifically to cover unexpected financial emergencies. That way, if you suddenly must shell out thousands of dollars to repair your car, you won't have to resort to charging this expense on a credit card. You can take the funds out of your emergency fund instead.

Also like savings, you can have a high credit score and no emergency fund. Having a high credit score is no excuse for not building this financial safety net. (See also: How to Balance Saving for Retirement, Emergency Fund, and Paying Off Debt)

You're way behind on saving for retirement

It's possible to enter your golden years with a stellar credit score but no money saved for retirement. That's because the amount of money you've socked away in an IRA or 401(k) plan is not factored into your credit score.

Don't let your strong credit score, and your easy access to loans and strong credit cards, blind you to the fact that you're not saving enough for retirement. It's nice to have a good credit score after you've left the working world, but that score won't mean much if you can't afford to pay your bills. (See also: How Much Should You Have Saved for Retirement by 30? 40? 50?)

You're struggling to pay the bills each month

You might never miss a utility bill, mortgage payment, or auto payment. But what if covering these bills each month is a constant financial struggle? What if you never have enough money left over to invest or deposit into an emergency or retirement fund? Your credit score won't suffer, but your financial health is a different story. (See also: How to Escape the Paycheck-to-Paycheck Cycle)

Again, it's easy to let a high credit score trick you into thinking you're in solid financial shape. But if paying the bills is a tightrope act each month, your high credit score is merely hiding deeper financial problems. One unexpected financial hiccup — such as a blown hot water heater or leaking roof — could suddenly set you back. And then you might not be able to cover every bill when the due dates arrive. (See also: Pay These 6 Bills First When Money Is Tight)

The key is to focus on both increasing your savings while continuing to take the steps that have led you to a solid credit score. Cut back on your optional spending to start building savings and an emergency fund. Open a 401(k) plan or an IRA to start saving for retirement. Even saving a little each month is better than doing nothing.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Biggest Ways Millennials Risk Their Retirements

Damian Davila — Tue, 20 Jun 2017 08:00:11 +0000

If you're stressing out about whether or not you're saving enough for retirement, you're not alone. Millennials are among those struggling the most with this dilemma. According to a 2016 study, 64 percent of working millennials believe they'll never save a $1 million nest egg.

Why are millennials so worried? Sadly, this age group is prone to making less-than-ideal money moves that could hurt them later in life. Let's review the five biggest ways in which millennials are risking their retirement. (See also: 4 Things Millennials Should Do Today to Prepare for Retirement)

1. Delaying the start of retirement savings

Nearly four in 10 millennials haven't started saving for retirement. The same 2016 survey found that 61 percent of females and 50 percent of males belonging to the millennial generation have their finances stretched "too thin" to save for retirement. Even worse, 54 percent of women and 43 percent of men of this generation are living paycheck to paycheck.

However, delaying retirement contributions has a serious impact. If a worker were to deposit just $50 per month into a 401(k) with an 8 percent annual rate of return for 10 years, they would end up with around $9,200 at the end of the 10-year period. The IRS sets a cap on how much you can contribute to a retirement account per year, which for 2017, is $18,000 to a 401(k) and $5,500 to an IRA. If you keep delaying your contributions to your retirement accounts, you'll never be able to fully make up that gap.

2. Taking out high student loans

Student Loan Hero estimated the average student loan balance for a member of the Class of 2016 at $37,172, up 6 percent from the year before. With so many Americans still believing in the importance of postsecondary education, it's easy to see how the average student loan continues to climb. Studies have shown that higher education still leads to better earnings potential, after all.

Still, loans are rising too fast. Back in 1993, only 45 percent of college graduates had a student loan and their average balance was $15,000 in inflation-adjusted dollars. By having to pay down a high student loan, millennials are foregoing sizable contributions to their retirement accounts.

Assuming a $30,000 balance on a federal direct loan with a 4 percent interest rate, you would pay about $304 per month. That's $3,648 in missed retirement contributions every year. By the time that a millennial pays back that standard loan (10 years), they would have missed out on $54,259 in retirement savings, assuming an 8 percent annual return.

3. Putting their kids' college fund before their own retirement fund

Given the tough time that they're having paying back their own student loans, 19 percent of millennial parents say education for their children is their top financial priority, according to TD Ameritrade. Those millennial parents are socking away an average $310 every month for their children's college fund.

Every month, these millennial parents are hit with the double whammy of paying down their own student loans and then putting money away for their children's education. No wonder millennial parents ranked saving for retirement third on their list of financial priorities. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

4. Not setting a retirement savings goal

If you don't know where you're going, you'll never know when you get there. According to the Employment Benefit Research Institute, across all generations, workers age 25–34 are the smallest percentage of individuals who have tried to calculate how much money they'll need to live comfortably in retirement.

By not setting a retirement savings goal, millennials may be misjudging how much to contribute from every paycheck toward their retirement accounts. This explains the low average contribution levels per paycheck from millennial men and women — 7.3 and 5.7 percent, respectively. In 2016, 75 percent of workers age 25–34 said their total savings and investments were under $25,000.

5. Accepting a first-job salary offer without negotiation

Faced with a countdown to start paying back student loans, many millennials are so eager to start generating income they skip salary negotiations. According to a survey from NerdWallet and Looksharp, of 8,000 recent grads that entered the job market between 2012 and 2015, only 38 percent negotiated their salary offer from a new employer. The same survey revealed that 74.4 percent of employers had room for a 5 to 10 percent salary bump, 8.6 percent of them had room for a 11 to 20 percent salary bump, and 1.3 percent of them were willing or able to go above 20 percent.

Do millennials skip negotiations over fear of having their job offer retracted? Not really: Close to nine out of 10 employers in the survey had never done such a thing.

Failing to negotiate a starting salary is one of the biggest ways in which millennials are shortchanging their retirement. Let's crunch some numbers to see why. In 2016, The Collegiate Employment Research Institute found that the average starting salary for holders of a bachelor's degree was $41,880. Negotiating a 5 to 10 percent raise on your first-job salary offer would have yielded a starting salary ranging from $43,974 to $46,068. That would have been an extra $2,094 to $4,188 per year, enough to cover six to 13 $304 monthly payments on a $30,000 federal direct loan with a 4 percent interest rate.

Saving for retirement may seem like a big hairy monster, but it doesn't need to be that way. By understanding what's keeping you from starting or saving enough for your retirement, you'll have a better chance of meeting your retirement saving goals. (See also: How to Face 4 Ugly Truths About Retirement Planning)

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This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Mental Habits That Make the Rich Richer

Ashley Eneriz — Thu, 29 Dec 2016 10:30:37 +0000

The mind is a powerful thing that should not be underestimated.

Many successful people believe that if you can change your thought patterns, you can also change your bank account size. Here are five mental tricks that rich people use to make even more money. Try adopting these thought patterns to see if they work at boosting your income.

1. They Think of Money as a Game

Rich people tend to think of money as a game, calculating where to spend and where to invest. Successful people love to win, which is why they are continually trying to do better, do more, learn more, and grow. The average earner gets in trouble when they become stagnant in their career and finances. If you drag yourself to work each day for just a paycheck to survive, then don't expect much more than that. (See also: How to Retire Rich)

2. They Set Big Goals

Rich people are not afraid of setting big, somewhat unrealistic goals because they know they can conquer them. Why are we afraid of setting big goals for ourselves? Is it because we don't believe they can happen? Is it because we know we will hit our financial expectation if we set it low enough?

Set big, scary goals for all areas of your life and look at them as a challenge. What if you don't meet those goals? There is always going to be a possibility of setting a huge goal that you never meet, but what if you try and get halfway there? When you set the bar high, you force yourself to grow as a person.

For example, you can set two different financial goals this next year. One goal is to save $1,000, and the other to save $20,000. There's a big difference in the two goals, and for some, the latter seems impossible. However, if you set the $20,000 savings goal and then tried your best to achieve it, you are going to surprise yourself. You might not hit the $20,000 mark, but you might hit the $10,000 or even $15,000 mark, which are all so much greater than the low-expectations goal of saving $1,000. Don't be afraid to set big goals for yourself. Shoot for the stars, not the dirt.

3. Fear Is Not an Option

One of the biggest emotions that keeps people from achieving great things is fear. Rich people block out fear and take smart risks. Do they fail? Yes! Every rich and successful person has a list of failures to their name, along with even more accomplishments and achievements. When you are trying to battle your fear, ask yourself, "What is the worst that can happen?" Many times, the worst isn't that bad at all.

4. They Deserve to Be Rich

The rich think that they deserve to be rich. They view themselves as worthy of having money. On the flip side, those stuck in middle class don't feel worthy to be rich. They don't view themselves as anyone important or of value.(See also: 5 "When You're Rich" Dream Buys That Aren't That Great)

This isn't just some lofty thought to have. Think of your current job position. Can you be replaced easily in your company? If you answered yes, then figure out how you can become a valuable asset to your boss. If your company doesn't want to lose you, they will pay more to keep you. This can apply to almost any position, so don't think you need to go back to school to get a better degree to make this true for you.

5. Money Is Their Friend

Wealthy individuals realize the power that money has, knowing that it can solve problems and make their lives better. Those who earn less view money as the enemy. They work so that they can pay bills, they pay bills so that they can live, and so on. The cycle never ends, and they are miserable.

Obviously, money is not the answer to happiness, but those who are smart with their money can leverage their paychecks to make their lives better.

These mental tricks aren't magic. Instead, they help rewire your brain to value yourself and your work — which in turn means you will earn more and spend your money better.

This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Financial Wake Up Calls — And How to Deal With Them

Mikey Rox — Thu, 04 Aug 2016 09:00:08 +0000

Can't seem to get a handle on your finances? That in itself is a wake up call that you need to be doing things differently. Here are eight more.

1. You Use Personal Credit Cards for More Than One-Off Expenses

Some personal finance experts recommend automated billing for recurring expenses, but I don't usually suggest it since I like to be in control of when and where my money goes. But charging expenses to your credit card on a regular basis is a different story. Credit cards should be used for one-off expenses that you'll pay off quickly, not month-to-month bills that can rapidly pile up without being paid.

"Credit card companies work hard to make their cards not feel like a personal loan with an abhorrent interest rate, but that's what they are for a lot of people," says money-saving expert Mike Catania. "Once regular consumers start putting recurring expenses onto the cards and not paying them off fully on the due date, it's time to re-evaluate the financial picture."

If this is something you do or have done in the past, switch to automated billing linked to your debit card. You'll need to commit to being financially responsible — like, all the time — to ensure that you can cover the funds during the fund extraction period. It'll require a change on your part, but it's not the worst habit you can pick up.

2. You're Constantly Complaining That You Never Have Enough Money

I know way too many people who complain that they're always broke, and my first question is, "Why?" If this sounds familiar, it's time to ask yourself that question — seriously. In most cases, there are two common answers: One, you're spending too much money on frivolous things, and two, you're not making enough money because you're spending too much time spending money on frivolous things.

Follow me?

To change that scenario, curb your spending. You don't need all those new things, and you shouldn't be in bars and restaurants every night of the week. Also, consider getting a second job. I recently started driving with Lyft to help curb my own Friday and Saturday night habit of going out with my friends and spending dough. So I'm not just sitting at home bored, I thought it would be helpful to find something fun to do that also will pay me — because I like money way more than the feeling of not having enough of it.

3. You've Been Drowning in Debt for Most of Your Adult Life

Nobody is going to shake a finger at you because you made a few (or more than a few) financial missteps in your 20s. We've all been there, and we've all racked up debt. But if that black cloud has followed you into your 30s or even 40s, you need to re-evaluate your entire life philosophy.

Some debt is unavoidable, of course. I consider school loans and home mortgages "good" debt because they're investments, but if you've got credit card bills coming out the wazoo because you like to spend money, it's time to forget the Joneses and get back to reality. You may need an additional source of income to address the debt — which I'll cover below — but you need to do whatever's necessary to get out of the hole you dug, stat.

4. You're Well Into Your 30s And You Haven't Started Saving for Retirement

Times aren't like they used to be, and many young professionals don't have the extra money to start building their retirement funds. But, I must advise you to find that extra few bucks a month to put toward a 401K or other retirement-savings account, and take advantage of matching dollars from your employer if they're available. You may not be able to max out contributions right away, but that's okay — you've got to start somewhere. If you don't, you'll be middle-aged before you know it and fretting that you won't be able to survive retirement — or worse, not able to retire at all.

5. You Skip Contributions to Your Savings Accounts for Months in a Row

If you haven't made contributions to your savings account for several months in a row, something's wrong. Maybe you've had unexpected expenses pop up, or maybe you just haven't been as responsible with your money as you're supposed to be. Whatever the case, the fun's over; it's time to get back on track. Take a deeper look at where your money is going and see what you can pull from to put a little back in your savings account. Maybe it's canceling an entertainment service or it could be skipping the coffee house or lunches out during the week. Whatever you would've spent on those little luxuries, send that amount to your savings account to start building it back up dollar by dollar.

6. You Only Have One Source of Income

I touched on this point earlier, so let's get down to it.

One of my financial life philosophies is to always have more than one source of income. Personally, I have about four income sources — some bring in more than others, but they all contribute to the "pot." I don't need all of these revenue streams to survive, I could live without one or two of them, but I don't want to. I don't want to, because that extra one or two help me add to my savings, pay for life's little luxuries and experiences, and cover unexpected expenses when they arise. Without them, I would have to dip into my regular income, which would then take away from my savings and other running funds I keep, which in turn could lead to a dangerous debt situation if I'm not careful.

There are absolutely no downsides to having two sources of income or more, and not a single person has ever said how frustrated or stressed they are because all their bills are paid with money to spare. No one. Ever.

7. You Keep Track of Expenses by Browsing Your Checking Account Online

I see this way too much with 20 and even 30-somethings who monitor and manage their finances by simply browsing their online checking and savings accounts. Sure, peeking at your accounts on a regular basis is good practice, but that's not enough. You really ought to have a formal budget established (a spreadsheet is an ideal solution for this) that details your monthly expenses and what's coming in and going out. Yeeees, it requires some effort on your part — at least more than logging into your banking app with Touch ID — but it's well worth it to avoid teetering on the edge of overdraft all the time.

8. You Spend Until There's Just Enough Left to Avoid Overdrafting

Speaking of teetering on the edge of overdraft, stop doing it! There's no reasonable explanation that you're spending money until you're within a few dollars or cents of being slapped with an overdraft fee.

You know why? Because you can't afford it! You have zero dollars in your account at that point, which means you messed up somewhere. If you couldn't afford whatever sent you over the edge, you can't afford the hefty overdraft fees, either.

To avoid this situation, here are my tips: When you see that thing at the store that you have to have, walk away. When you want to order that pizza because you're hung over or too lazy to cook dinner, get up off your butt and recognize that this exact scenario might be why you're broke in the first place. When your friends ask if you want to go out and you see that you only have $20 left in your account, just…say…no! You're allowed to do that, ya know, and nobody will stop being buddies with you and the world won't end. I promise. Instead, spend that time to reflect on why you have $20 to your name (seriously, think about that long and hard) and how you can change that. I've offered a few tips here already. The time is now.

Are you avoiding any of these — or other — financial wake-up calls?

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Escape the Paycheck-to-Paycheck Cycle

Mikey Rox — Fri, 17 Jun 2016 10:30:04 +0000

If you're living paycheck to paycheck, you probably think it's a normal part of life and accept it for what it is. To that, I stick my tongue out and blow. There are plenty of people who've broken free from this rut, but your particular cycle won't break until you break it.

Living paycheck to paycheck can mean you're one paycheck away from being without lights, a car, or a home — and that's just not acceptable. Granted, this is worst-case scenario, but it's a possible scenario. This isn't meant to scare you, of course, but it is meant to build motivation to help you improve your financial outlook and say so long to a house-poor existence. Here's what you need to do to stop living on the edge. (See also: 5 Ways to Grow Your Savings Without a Steady Paycheck)

1. Take Stock of What You're Working With

If you want to stop living paycheck to paycheck, you have to live below your means. It's that simple. Some people are happy just to break even every month, but if you never have extra income, you'll never achieve some of your goals.

To stop the cycle, do a financial checkup.

Here's a little exercise: Comb through your most recent bank statements, credit card statements, and receipts, and then write down every monthly expense from housing to groceries. Calculate how much you're spending on clothes, miscellaneous items, groceries, fuel, etc.

Once you have this figure, compare it with your take-home pay. The amount you're spending every month may be the equivalent of what you bring home, or more than what you bring home. If the latter is the case, it's time to trim.

2. Cut the Fat

Don't listen to anyone who says living paycheck to paycheck is normal. It's not, and whoever says that will probably be sad for the rest of their life. Alas, many people have been conditioned to think this way, and it's this exact thinking that keeps people stuck.

There's a better way to live, and it starts with trimming your expenses. At this point, it's not about your wants; you have to focus on your needs and get rid of any unnecessary expenses. What to cut? These extras:

Gym memberships
Eating out for lunch
Grabbing coffee
Spending $50 a week on entertainment
Subscription services

These costs don't seem like a lot, but they add up. Getting rid of nonessential expenses can give your budget some wiggle room, creating more disposable income than you thought possible.

3. Stop Being Enslaved to Debt

The more debt you have, the more likely you are to live paycheck to paycheck. This is because debt robs you of extra money. Even if you can't get rid of your house payment, car payment, or student loan debt immediately, you can start chipping away at credit card balances.

Take the money you're saving from trimming unnecessary expenses and dump all or a large portion of this cash on your debt. You can tackle your debt with the smallest balance first, or the debt with the highest interest rate first. It doesn't matter which approach you choose, as long as you're paying down balances. The less you owe, the more you can keep. To help you, I've recently written an entire five part series on eliminating debt.

4. Pay Yourself — No Matter What

Once you've got a handle on your debt, it's time to start paying yourself. If you build a cushy savings account, you may never have to borrow money or use a credit card again — at least not for an emergency or an unexpected expense.

Take the money you were putting toward debt repayment and set up an automatic savings schedule. Each pay period, automatically transfer a specific amount from checking into savings. Schedule this transfer before you pay your bills to ensure you're always paying yourself first.

5. Create Additional Income for Yourself

Sometimes, it isn't enough to trim expenses and pay off debt. You may earn just enough to get by, and despite living simply, you're still trapped in a cycle of living paycheck to paycheck. The truth is, getting ahead may require more income.

Now, as a freelancer, I can run down a list of side hustles to increase your income. This includes moonlighting as a consultant, cutting lawns, buying and selling online, watching pets, renting out extra space in your home, etc. But I also realize that not everyone has the entrepreneurial spirit. But even if you don't want to be your own boss, there are ways to build your income.

Depending on your circumstances, a part-time job might fit your schedule perfectly. If you can earn as little as an extra $20 a day, you'll have an extra $400 a month. For example, you can search online for local office-cleaning companies, and call these companies to see if they're looking for part-time help in the evenings. I have a friend who cleans a small office every day after work. It only takes two hours and the cleaning company pays him $20 per cleaning. It's not the most glamorous or high-paying part-time job, but it's easy work and pays okay.

6. Learn How to Say "No"

One of the best ways to improve a budget is to learn how to say no. If you have a large social circle, there's always someone inviting you to a restaurant, a movie, or another event. If you get into a pattern of constantly saying yes and accepting invitations, you could end up broke. You should never sacrifice your bank account at the expense of fun, especially when there are too many ways to enjoy yourself for free. The key is having an airtight entertainment budget. Decide what you can realistically afford to spend on fun, and then stick to this budget. I learned how to say no, and now "No" is my favorite word.

7. Face Reality and Downsize

Making simple adjustments to your budget can improve cash flow tremendously, but not when you're too far in the hole. Accept that you'll have to let go of stuff. Ideally, your house payment should be no more than 28%-30% of your gross income. If you're paying more, you're overspending and it's time to face reality. You're never going to get ahead when you're struggling to keep up with the basics. Downsizing your house can create a smaller house payment, cheaper utilities, and less maintenance. Your finances also may improve if you downsize from an expensive car. You can enjoy a lower car payment and cheaper insurance premiums.

Are you living paycheck to paycheck? What are you doing to change the situation? Let's discuss in the comments below.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Signs You Aren't Making Enough Money

Andrea Cannon — Mon, 23 May 2016 09:30:20 +0000

Living paycheck to paycheck can take a toll on your stress levels and emotional wellbeing. It can also greatly impact your financial wellbeing both in the present and in the future. If you aren't confident about your financial future, then it's time to make a change. Here are a few signs that you need to spend less — or make more.

1. Your Bills Are Overwhelming

If you don't make enough to pay your bills every month, then you need to make more. Even paying the minimum amount on your bills is not enough. You should be working to pay off your debt, without having to worry about making enough to buy food every month.

Overdrawing your checking account, paying your bills late every month, or ignoring your financial obligations altogether can make the problem much worse. If you commit any of these bad habits, then you'll have to worry about overdraft fees, bounced check fees, and may even be sent to collections. (See also: How Late Payments Affect Your Credit)

2. Your Budgeting Isn't Enough

The best way to get more out of every paycheck is to simply spend less. Creating a budget can be the right step towards making lasting changes that will pay off big in the end. However, what do you do if you have already created a budget and cut out all the unnecessary spending you can, but still aren't making enough? You'll need to find a way to make more money.

3. You Have No Savings

If you aren't able to pay down your debt and set aside money for your savings and retirement accounts, then you simply need to make more. In the event that there is a large unexpected expense coming your way, you should have some savings to cover it. It is crucial that you set aside money for your future, and if you aren't, then you need to do something to change the present.

It's important to keep your money goals and future finances in mind. It's essential that you are saving for your future, in the event that you experience a pay cut or layoff. Saving for retirement is also one of the most important things you can do for your future self. If you aren't reaching your short and long-term financial goals, then you aren't making enough money.

4. You Keep Relying On Credit Cards

If you find that you are relying on your credit cards just to make ends meet, and are only paying the minimum on your credit cards month after month, you're heading towards prolonged debt and a host of other problems. This can result in a lower credit score and less money available for your savings account. In the long run, you'll also be responsible for higher interest charges and credit card payments.

5. Your Paycheck Disappears in No Time

If you spend the bulk of your paycheck in the first couple of days, then there's a problem. You should have more than just enough to pay your bills. There should be money left to save and invest towards retirement. Everyone has a bad month from time to time, but if you find that your paycheck runs out within the first week of every month, then you may be overspending or simply not making enough.

Special occasions occur for most people several times per year. During these times, you'll want to have a little money set aside (for holidays, anniversaries, birthdays, and other occasions that can cut into your pay). The last thing you want to worry about is breaking out the credit cards just because you need to buy gifts for the kids.

6. You Feel Undervalued

If you feel you aren't being paid enough at your current job, then you may get resentful and less productive. Consider speaking with your manager about what you bring to the table and ask for a raise. The worst they can say is "No."

If you decide to ask for a raise, then you need to first determine what your time is worth. Use a salary calculator or salary comparison site, and find out what the average salary is for your career so that you have that information on your side when you speak with management. (See also: Getting the Most Out of Salary Comparison Sites)

Is It Time to Make a Move?

If you realize it's time to make a move, then there are several steps you can take. If you haven't worked on a budget yet, then it's time to do so. You can also take steps to reduce your rent, find alternate forms of transportation, or simply spend less. You may also need to consider changing employment or taking on a weekend or side job.

Do you know of other signs that a person just isn't making enough? Please share your thoughts in the comments!

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This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's What to Do If You Can't Pay Your Bills On Time

Carrie Smith — Wed, 05 Aug 2015 15:00:39 +0000

Not having enough money to pay the bills is an issue we may face from time to time. Life is full of financial ups-and-downs, and after all, we're all human.

Don't beat yourself about the situation or get discouraged. Vow to take action. If you don't make changes, things will stay the same. If you're in a tough financial spot, here's what to do when you can't pay your bills on time, and tips on how to best handle the situation.

1. Don't Hide From the Facts

Do you know why you can't pay your bills? Did you overspend, have to make up for an emergency, or was it just human error? Don't hide from the facts, but instead embrace them head-on. Not dealing with this financial mess can lead to more late fees, higher interest rates, additional interest charges, and even damage your credit report.

Avoiding paying your bills will only make things worse, so make a choice to rectify things right now. You may realize that the situation is not as bleak as you thought, and that there are more options available than you believed.

2. Change Your Financial Momentum

Now that you're ready to face the facts, start by listing all of your current bills and debts. Pull up your bank account (or bookkeeping software) and review all of your transactions, deposits, and other expenses.

Then ask yourself why you're in this financial bind. There are usually two causes of a financial emergency:

Spending too much
Not making enough

If overspending is the cause, then look for ways to scale back your spending and stop the bleeding until you get back on top. Think outside-the-box and look for creative ways to afford the things you need.

If you've cut back your spending as much as you can, look for ways to bring in more money using the skills you already possess. What can you do this week to bring in some extra cash? Go through your house and prep items to sell at a yardsale or on Craigslist. Ask friends and family if they need help with a weekend project. Turn your hobby into a paying gig on the side by using sites like eBay or Etsy.

Figure out the cause of why you can't pay all of your bills, and take action to change your momentum. It may take a few months for your budget to adjust to the changes, but be patient and know that it will be worth the sacrifice to avoid this situation in the future.

3. Prioritize Your Bills Based on Importance

If you've completed steps one and two and still find that you don't have enough money to pay your bills, it's time to prioritize which ones get paid based on their level of importance. Obviously you need to pay your utility bills, like water, heat, and electric, as well as paying your landlord and putting food on the table.

Mark any secured debts connected to assets like a mortgage or car as next in the line of importance. If you default on those bills, it's likely you will lose the roof over your head, or your ability to drive to work to earn a living.

Any other funds leftover after paying these important bills can be put towards other debts and balances owed.

4. Figure Out Your Options

Can you get approved for SNAP (food stamps assistance) until you get back on your feet? Does your electric company offer help from the community for bill payment? Call your financial institutions' customer service departments and figure out your options. Many local banks will give you an extension on your payment if you simply call and plead your case.

Most creditors would rather help you pay your bill than lose you as a customer, so don't be afraid to call and and explain the steps you're taking to get your finances back on track. In other words, be proactive with your bill payments. Institutions will be more willing to help you out if you take the initiative to fix the problem.

Once you've come to a payment agreement with the institution, be sure to get the details in writing and keep them in a safe place for future reference. You may be able to ask for a refund of any fees or interest charges, and you'll want to keep written proof of this.

5. Create a Long-Term Plan

It's easy to get into the endless cycle of being broke, which is why it's important to change your financial momentum before it gets out of hand. As you begin getting back on top of your finances, take steps to develop a long-term strategy that will ensure you aren't in this position again.

Combat emergency situations by saving up a small emergency fund. Simply start with $5 or $10 a week until you have a solid savings habit established. Streamline your lifestyle and learn to live without a lot of stuff by focusing on creating memories instead of accumulating clutter. Downsize your home, sell your car and use public transit, take on an extra job for the summer — do whatever it takes.

Sometimes you simply get behind on your bills because you forget to pay them on time. Avoid this in the future by setting up bill payment reminders or signing up for automatic bill pay.

6. Know That This Will Get Better

You likely feel discouraged about your current financial situation, but know that by taking these steps, it will get better. We've all faced tough times when it comes to money or our careers.

Channel your frustration into forward momentum so you can regain control of your finances and are again able to pay your bills in a timely manner.

What's another tip that will help you pay your bills on time?

This article is from Carrie Smith of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: