Living Paycheck to Paycheck
Do you find yourself eagerly awaiting your next paycheck because you barely have enough to money to get by until payday? Are you using your credit card to get you by until you get paid again? If so, you’re one of the millions of American who are living paycheck to paycheck
So how can you stop living paycheck to paycheck?
Step 1: Keep Track of Your Income and Spending
If you don’t know where your money is going, then you’re not going to be able to create a plan to reduce your spending. Using an app like Mint or Personal Capital to track your spending is a great way to sync all your bank accounts, credit cards, student loans, auto/home loans, and other accounts to get an overview of your financial situation.
Step 2: Create a Budget and Stick to It
Once you have started tracking your spending, you can then look to see where you can cut out excessive spending. Are you getting a coffee from Starbucks everyday? Are you going out to eat all the time? Going out for drinks with your friends?
Cutting back on spending just $10 a day equals $300 at the end of the month, and $3,600 by the end of the year.
You can also get new quotes on your auto insurance, downgrade your cellular plan, find a less expensive place to live to reduce your monthly debt.
Step 3: Create an Emergency Savings Fund
According to a Forbes survey, 69% of Americans have less than $1,000 in savings. Creating an emergency savings fund will significantly reduce the stress and anxiety you’ll feel when you have to make an unexpected car repair or pay an unexpected bill.
For tips on how to start saving money and building your emergency savings fund, read How to Save $1,000 and Tips to Start Saving Money.
Step 4: Pay Down Your Debt
Once you have an emergency savings funds, your focus should be on paying down debt. You want to be sure you are paying more than the minimum payment or else you run the risk of your debt growing faster than the rate you’re paying it off.
There are different strategies to paying down debt, but almost everyone will agree that you should pay down your credit cards first. Credit card debt is the worst debt you can have! Finding 0% interest balance transfer credit cards can be a great way to quickly pay down your credit card debt.
Using Credit Cards for Frivolous Purchases
Using credit cards to go out to eat, buying clothes, or buy those can’t-miss festival tickets is a surefire way to rack up debt quickly if you don’t pay them off right away. According to CreditCards.com, the average interest rate on a credit card is a whopping 15.07%!
Keeping your credit card balance low and paying it off in full will not only keep you from accruing interest on your card, but will also help your credit score as well.
Being a Consumer, and Not a Producer
Many millennials are using their money consuming products and services, rather than becoming a producer. Investing the time and effort to continue learning and making yourself valuable to others will make.
So how can you become more of a producer? Create a blog, learn to code, become a digital marketer, or simply pursuing a promotion at work and becoming a person of value is the best way to earn more income.
Personally, I taught myself programming by using websites like Team Treehouse, Codecademy, Codewars, and Stack Overflow. I bought finance and business books on Amazon to learn more about analyzing businesses and investing in the stock market.
Think to yourself, what are you passionate about? How can you assist others that share your passion? What problems can you solve? If you can provide value or solve a problem with something you are passionate about, that’s the building block of creating a business.
Not Investing At All
Not Investing money and missing out on the power of compound interest is one of the biggest financial mistakes you can make. The earlier you start investing, the longer you can take advantage of compound interest.
While it may seem like you aren’t making a lot of money at first, over time, your wealth will begin to snowball and generate more and more money for you.
So how do you get started investing? Learn how to start investing in the stock market with less than $500 and begin using the power of compound interest.
Not Taking Advantage of Tax Advantaged Accounts
Do you have a 401k plan? Are you contributing up to your employers match? Contributing up to your employers match is essentially free money. By saving up to your employers maximum 401k match, you are getting free money that will accelerate the growth of your nest egg.
Don’t have a 401k plan? Are you contributing to a traditional IRA or Roth IRA?
A traditional Individual retirement account allows you to put pre-tax cash into an investment account, and you can allow it to grow tax free until retirement. Where you will pay income tax on your withdrawals.
A Roth individual investment account allows you to put after-tax cash into an investment account and you will never pay tax on it again if you don’t touch it until retirement. A Roth IRA is great if you believe your income tax is going to be higher in the future.
As of 2017, you can contribute up to $5,500 annually to your IRA if you are under 50 years old. Taking advantage of these tax advantaged accounts early in life can greatly improve your chances of becoming financially independent.
What money mistakes do you think millennials are making? What tips would you give to others to help achieve their financial goals? Share your thoughts in the comment section.