Financial Freedom: 4 Steps to Break the Paycheck-to-Paycheck Cycle

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Tired of having zero financial wiggle room? Here's how to bust out of that cycle.

Sometimes people wind up living paycheck to paycheck due to circumstances outside their control. If you've landed in that situation, it's a tough one to be in. Not only can living paycheck to paycheck trap you in a cycle of debt, but it can also land you in a world of stress. If you're tired of that lifestyle, here are some steps to take in the next few months so you can start 2022 in a better place.

1. Build yourself an emergency fund

Having some money in a savings account to serve as a financial cushion could make it so you're not reliant on your next paycheck to cover your bills. A solid emergency fund is one with three to six months' worth of living expenses socked away in it. That's probably not a sum you can save in the next couple of months, but you can at least try to get started building that safety net. Even if you only manage to add $100 to your savings account before the year ends, it's a solid beginning.

2. Put together a debt payoff plan

If you're already in debt, those payments probably monopolize a lot of your income, making it more difficult to build savings. You may not be able to shed your debt in a matter of months, but you can map out a plan for getting rid of it. One option to look at is a balance transfer, where you move your existing credit card balances onto a single card with a lower interest rate (or, ideally, a 0% introductory interest rate). Another option is to consolidate your debt with a personal loan. There are also different ways to strategically pay off debt.

3. Set up a budget

Having a budget to follow could help you avoid overspending in certain categories -- and maxing out your paycheck. Comb through your credit card and bank statements from the past six months to get a sense of what your different bills entail and how much each one costs you on average. From there, see if it's possible to cut back in any specific category so you can free up some money for savings or debt payoff purposes. Canceling a $10 monthly streaming service you rarely use, for example, could really help over time.

4. Get a side hustle

Breaking out of a paycheck-to-paycheck cycle hinges on having cash reserves. A good way to scrounge some up is to get a second job, even if just temporarily. With the holidays coming up, a lot of retailers need more hands on deck, so it pays to check out local side job opportunities. Or, you can explore a classic gig economy role like driving for a ride-hailing service, being a personal grocery shopper a la Instacart, or signing up to pet- or house-sit.

The paycheck-to-paycheck lifestyle is far from ideal. If you've landed it in, you're in good company -- but that doesn't mean you're stuck there. Employ these tips over the next few months so you're able to start 2022 on a healthier financial note.

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