Did you know that one-third of American households are living paycheck to paycheck? Most of these families are also considered middle class. Despite earning enough income to cover basic expenses and more, why do 33% of people find themselves scraping the bottom of the checking accounts before the next paycheck?
The problem can arise for several reasons, but the main driving factor is lack of financial literacy. When you are financially literate, you understand how money works and know the importance of good money management for your security and stability.
If you or your family is living paycheck to paycheck, the first thing you need to do is create a budget. What are your expenses? What are necessary and what are extraneous? How much do you need to have every month for your required expenses (rent, food, insurance etc.)? When are these payments due? Cash flow also can affect payments significantly and your stress level. If you are getting paid on the 20th only but your payment is due on the 1st, you are always going to be behind.
The first step you can take to budgeting and healthy money management is tracking your spending. You have to know where your money is going, down to the last cent. You need to know what you are spending on and why.
Track your spending for a few weeks to gauge your habits. Keep track via an online software system or at the very least, a notebook. Use whatever tools make sense to you, but make sure you keep track of your transactions.
Budgeting will also help you prepare for unexpected expenses, emergencies and seasonal expenditures. You can see from your prior spending where your dollars are going. The more you prepare, the better it will be. You can also include gifts, holidays, vacations and other expenses. Budgeting early on prevents headaches later on!
Next do the math. What is essential and what is necessary? See where you can trim. This is easier if you have a salary. As a military personnel, you may be getting a fixed amount every month that you can work with. Look at your paystubs to figure out your average income after tax.
After you subtract your essential expenses such as rent, food, insurance etc., do you have any money left over? This is money that will need to go towards savings and also can be used for discretionary spending.
See where you can lower your spending. Budgeting takes time. No one is a pro at it immediately. You have to adjust that budget based on your lifestyle and by learning about your spending habits through tracking over time.
Find ways to increase your income through an extra job, extra hours at your current job and other ways to get paid.
Finally, be realistic. If you are too drastic in your spending cuts, you will find it hard to stay motivated and may miss your target goals. Adjust your budget with some flexibility so you can stay on track and keep going forward.