Stop Living Paycheck to Paycheck!

Put an end to the cycle and enjoy financial freedom

to a college student, which helped ease the burden of her mortgage payments. As new sources of revenue began to flow, Jackson addressed her credit card debt. “I cut up all my major credit cards, except the one I opened in _college.” Jackson says she wanted to maintain a long-standing line of credit, because she knew it would help her FICO score. She then worked with Consumer Credit Counseling, which helped her consolidate her debt into one lump sum, resulting in her paying off her debt in five years. Once Jackson paid her debt, she made a promise that she hasn’t broken: Never accrue unsecured debt. She now pays cash for everything.

Jackson makes a homemade lunch three days a week, works with a financial adviser, and stashes extra cash in a money market account and two IRAs. She also pays more than the minimum on her student loans. “My goal is to live below my means,” she says. The rewards for sticking to a budget and paying her bills on time have been sweet. After saving diligently for one year, Jackson was able to treat herself to a trip to Spain. “I used to have anxiety about how I was going to pay my bills,” she says. “These days, I feel stable. It’s a blessing to not feel all that anxiety.”

You may not be able to secure a pay increase from your employer this year, but there are ways to make your paycheck work for you:

Adjust your withholdings. If you receive a tax refund every year, you’re essentially handing the IRS an interest-free loan, says Deborah Owens, a 20-year veteran in the financial services industry and author of Nickel and Dime Your Way to Wealth (Caledonia Hill Press; $14.95). The amount of taxes withheld helps determine whether a _refund is _issued to the taxpayer (more tax was withheld than _necessary) or whether the taxpayer owes more in tax (less tax was withheld than necessary). Adjusting your withholdings will give you more income throughout the year.
Pay with cash instead of a credit or debit card. This will make you aware of how much you spend, keeping more money in your pocket.
Keep track of your spending. Ideally, 45% of your gross income should go toward needs and 15% should go toward wants. The rest should be set aside for saving and investing as well as income tax strategizing, says Manisha Thakor, a chartered financial analyst and co-author of On My Own Two Feet: A Modern Girl’s Guide to _Personal Finance (Adams Business; $12.95). “Unfortunately, most people are spending at least 10% more than they think they are,” Thakor says.
Use direct deposit. Open a separate savings account and have money automatically deposited each pay period. Before you know it, you’ll have a nice nest egg. Also, _enroll in online bill payment through your direct deposit account to help you get in the habit of paying your bills as soon as you receive them. -S.L.

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