It may seem impossible to break the paycheck-to-paycheck cycle. It’s easy to spend more than you make each month. Have you looked into where your money is going? Have you made an attempt to decrease your expenses or increase your income? It’s tough to track spending. It also takes some effort to decrease expenses and especially increase income.
I recently read the book The Richest Man in Babylon after having it recommended to me via various podcasts that I listen to. The book calls these the seven cures to a lean purse which also means seven steps to stop living paycheck-to-paycheck in modern terms. It provides a great framework for wealth building and is definitely a worthwhile read.
I have ordered these steps a little differently from what the book suggests. I’ve also added some commentary that may or may not be in the book but to hopefully solidify the points.
The Seven Steps to Stop Living Paycheck-To-Paycheck
- Control Your Expenditures (i.e. Budget) – You have to know where your money is going. Tell it where to go to ensure that you’ll meet your financial goals. Budget intentionally and consistently.
- Save 10% of Your Income – The key to building wealth and breaking the paycheck-to-paycheck cycle is having margin. Create the margin by saving starting with setting aside $1000 in an emergency fund.
- Invest – Put your money to work. Don’t let it sit idle. The book talks about invested money in the sense that each dollar is a slave or worker whose children and grandchildren work for you. Compound interest works wonders over time and the key is starting as early as possible.
- Guard from Loss – We will not be entrusted with more until we can handle the little. Assure that money you invest is safe and you can get it back. Get advice from trusted and successful advisers and investors.
- Ensure a Future Income – Take care of yourself in old age and your family in death and beyond. Your investments, assets, and long-term planning are key here.
- Increase Your Ability to Earn – Build multiple streams of income by building and focusing on one at a time. Be goal oriented. Set goals that are simple and definite. Nick over at Side Hustle Nation may be able to help with this one.
- Own Your Home – Owning your home free and clear means that you’re fully debt-free. Your home is a major asset.
- (Bonus) Give 10% of Your Income – The book doesn’t mention giving but I see it as a necessary activity for good stewardship and living with increase. Prosperity only comes after generosity.
One biggie that I’d like to add here is that you should be working towards getting and staying debt-free. I’m sure that the richest man in Babylon didn’t have credit cards or an upside down auto loan but many of us do have these things (consumer debt) so add ‘Get/Stay Debt Free‘ to this list if you’ve got debt. Being debt free is high up there on my list.
I found a few other sites that have posted on the subject of curing a lean purse that you may want to check out.
Thanks for reading! Please share your tips or stories around breaking the paycheck-to-paycheck cycle in the comments.