The Paycheck and Debt Cycle – How to Break it
How to Break the Cycle with Three Steps to Budgeting Success
When you get a paycheck your first thought might be “How am I going to spend this? Should I put it in savings or spend it?” If you’re like me, the second question is always when am I getting the next paycheck?
A simple budget is a plan that helps you answer these questions.
I used to have a problem with breaking the cycle of living paycheck to paycheck. But then I started doing some research and found out that there are five steps to budgeting success.
Know where your money is going
Track your spending for a week or month, and create a budget for next month.
Creating a budget is essential in order to know what you have to spend on and where you need more money. You should track your spending for a week or month and try to create a budget for the next month.
Budgeting is not only for people who don’t have any money. It is also very useful if you want to save some money, or if you want to invest it in something. You can do this by spending less than what you make, which is why creating a good budget becomes important.
There are many different ways of creating budgets, but some of them are more effective than others. The first thing that needs to be done is to track your expenses for one week or month so that you know where all the money goes. With this data in mind, it is much easier to pinpoint the root of their problem and reach for a solution.
Get on a budget
Create a budget that fits your needs and lifestyle, not one that someone else tells you to have.
A budget is a plan to guide how you spend your money and every person needs to have one. A budget should fit your needs and lifestyle, not the needs of someone else. It should be a realistic plan that balances spending with saving, so you can live comfortably now and in the future as well.
There are various ways to create a budget but the most important thing is that it should match your spending habits, which might depend on things such as how old you are, where you live, or what your salary is. For example, if you’re young and just starting on your career path then it’s probably better for you to save more than spend. In contrast, if you don’t have any children or any other dependents it’s okay for you to spend more on travel.
Stick to your budget.
You can make any budget work by sticking with it long enough. It takes 21 days of consecutive discipline to make or break any habit! Check out this article on how to get on a budget here.
No matter the size of your budget, you should stick with it long enough. The discipline takes 21 consecutive days to make or break any budget. It means that we will not be able to stay disciplined for 21 days in a row, but we can still do it if we are consistent.
The key is avoiding temptations and distractions because they will only prevent us from sticking with our desired goal. We also need to find a way to motivate ourselves and find rewards for staying disciplined.
Attack high-interest debt first: credit cards
It is often recommended to attack high-interest debt first to have the highest impact on the amount of money one has to pay every month. This can be done by looking at what types of debt have the highest interest rates and paying them off in order of their interest rates.
For example, on a credit card with an APR of 17% and another with an APR of 15%, it would make sense to pay off the credit card with the higher interest rate first because it will have a larger impact on your monthly payments.
It’s easy to feel like your paycheck disappears every month and getting stuck in a debt cycle. Getting ahead of your debt may seem difficult but not impossible. The trick is to create enough impact to consolidate your debt. One of the most efficient ways is to join a savings group and take the early payout.
Imagine this scenario: your take-home paycheck is $3,000 monthly. After paying $1,300 rent and $400 car loan and other necessities, you pay $250 for the monthly credit card. It will take you 25 months to pay off a credit card debt of $4800 at 25% APR. In the end, you’ll end up paying $1,393 in interest.
On the other hand, imagine this other scenario. Take the early payout when you join Joola’s group with friends. The flat fee for early payout is significantly lower than the credit card interests –– making it easy to pay off your debts. Not only that, it’ll shave a few months off your debts.