Kiplinger Today


Stop Living Paycheck to Paycheck

In this economic climate, more of us are struggling to pay the bills, buy groceries and fill up our gas tanks. Paying off the mortgage, putting the kids through college without financial aid and amassing $1 million for retirement seem out of the question now. Just having cash left over at the end of the month would be nice.

Accumulating a nest egg -- or even saving for a rainy day -- gets put on the back burner for many who find themselves just trying to get by. However, you can break out of the paycheck-to-paycheck rut, pay off debt and actually start setting aside money. The key is to start tracking your spending, develop a budget, set goals and make sure your not paying any more than you have to on your debts.

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Track spending and watch expenses

"People who live paycheck to paycheck have to take a hard look at what they're spending money on," says Kathleen Campbell, president of Campbell Financial Partners in Fort Myers, Fla. "It's like when you try to lose weight and you don't think you eat that much -- until you start counting calories. It comes down to trimming what you spend and maximizing where your money is going."

Start by tracking your spending on a daily basis -- down to how much you paid for a cup of coffee. Campbell suggests using a notepad, software such as Quicken or a free budgeting Web site, such as, to record everything on which you spend money. The list needs to be more detailed than just "groceries, $400; gasoline, $200." Write down exactly what you bought and how much it cost.

Don't stop with the obvious expenses such as utilities, gasoline, food and recreation, though. Look at how much you're spending (perhaps unnecessarily) to maintain bank or investment accounts or pay down debt. High fees on checking, savings and retirement accounts can eat away at your earnings. And high interest rates on credit cards and loans can force you to pay more than you have to over time.


This exercise can be time consuming and frustrating, but you need to know how you're spending your money before you develop a spending plan. "Until you know what's going out, you can't get a handle on it," says Lisa Byles, owner of Byles Financial Planning in Richmond, Va. "Then decide where you can cut."

Start cutting

Sometimes it can be painless to cut back -- especially if you've been spending money on unnecessary things. Even a small income can go a long way if you make minor changes, such as eating in rather than dining out -- which is the biggest expense most people easily can cut, says Campbell. Don't just eliminate dinners out -- cut out those work-day lunches at fast-food joints, which can be pricey, too.

Here are several other ways to cut your spending:

  • Cut interest rates. If you're living paycheck to paycheck, you might be living beyond your means, too, by using credit cards or loans. If you're just making the minimum payments, you're racking up a lot of interest and just throwing your money away, Campbell says. To make a dent in that debt, here are ways to get lower rates -- and lower monthly payments, too.

    If you have a good credit history, call your credit card company to ask for a lower rate. Or find a card issuer that offers low fixed rates to cardholders with good credit.

    Or you can take advantage of low-interest introductory offers and balance transfers. Many credit card companies offer 0% interest on balance transfers for a limited time -- usually four to six months. With no interest, your monthly payments will make a bigger dent in your balance. This can be a great strategy for someone who is well organized. You'll have to keep track of when the introductory rates expire and be sure to pay up or move on.

    Your best bet, though, is to avoid using cards altogether. Find out how to break the credit-card habit.

  • Find deals. Lower your monthly long-distance bill by replacing a land line with free Interent phone service, such as Skype. To find out how you also can save on cable, cell phone and electricity costs -- as well as travel and shopping -- see Save Money on Practically Everything.


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