For decades the American way has been to stretch every dime until nothing is left. So many people do this on a weekly basis and fall into the trap of living paycheck to paycheck. By living beyond their means, Americans are always relying on the next pay day to temporarily pull them out of the hole, but they still end up falling right back in the pit within days. Families living this way feel a great deal of anxiety and stress because they have nothing to fall back on in the event of an illness or job loss. Even unemployment takes time to establish, and most people have bills that far exceed the amount of unemployment compensation available. The answer is simple—with a few planning strategies and lifestyle changes, anyone can improve their financial fitness for a lifetime.

Step One
Train Your Brain to Choose Wisely
We all tend to be wasteful and make the wrong choices about how we spend our money, but if we change the way we think about money, we can make decisions that would be the most beneficial for ourselves and our families. Knowing about “Lost Opportunity Cost” can help you to change the way you think about money. Lost Opportunity Cost is basically the cost of choosing one thing over another. For instance, if you have $10 and you use that money to buy two large caramel iced mochas at $4.75 each, that money is then gone forever. Once you spend the money, you’ve lost your opportunity to use it for something else. The cost is how it might impact you in the future for spending it at that moment.

Let’s say you spend your money on those treats and then next week you buy groceries only to get home and realize that you forgot to get diapers for your baby. You have one diaper left and you spent every dime you have on food so then you panic because you realize that the money you spent on that quick coffee fix could have been used for a more important need. The same $10 could have been spent on a package of 30 to 40, diapers which usually lasts well over a week. This same concept applies to larger purchases as well, but it more severely affects those who are living paycheck to paycheck. Even if you have extra money to fall back on when you forget something, by taking the time to evaluate your spending, you can avoid being wasteful and spending money on items that offer a bigger benefit to you and your family. You will automatically start to make better choices about the things you buy and learn how to make your money work for you.

Step 2
Flex Your Budgeting Muscle
Take the time to plan and track expenses by using a monthly budget. You can use Quicken budgeting software, or simply keep track of your budget on a notepad. Write down all your bills and due dates. Arrange your bills according to when you get paid. For instance, if you get paid weekly, write down all the bills that need to be paid on that day. Be sure to also budget money for entertainment and savings.

Step 3
Run to the Best Deal You can Find
Stretch your dollar as far as it will go by looking for good deals. Buy items when they are on sale and use coupons. Regardless of what you want to buy—really think about why you need the item before you make the purchase. Practice self control. Plan your meals for the week and make your grocery list centered on what you need for those meals. When you go to the store for anything, ask yourself, do we really need this right now? Buy second hand items at bargain stores like Goodwill, or always go to the clearance rack first.

Step 4
Lose the Extra Baggage (debt)
We live in a “now” society, where most people want it all now without really working for it. When you buy things on credit, you may be able to get a nice car, home or new bed now but it comes at a price. You are locked into a monthly payment leaving less money available for other needs, and by the time you pay off your new bed, you end up paying triple what its worth due to the finance charges. Make it a goal to get out of debt. Once your vehicle is paid for, simply keep it and fix it up. Make it a priority to pay down credit cards and avoid financing anything at all costs. Live within your means. Don’t allow your monthly mortgage or rent payment to exceed 35 percent of your monthly take home pay. If you are paying 60 percent or more of your income for a place to live, you are paying too much for housing. Move to a home that you can truly afford. Plan ahead and save up for things you want rather than racking up more debt.

Step 5
Shape Up Your Savings Plan
Life can throw us curve balls every now and then so it is always a good idea to have a back up plan. Save 10 percent or more of each paycheck and place this money in an emergency account. Allow the money to continue to accumulate at least until you have six months or more emergency savings to live on. Once you have this money saved, you can then save up for other investments, or needed items for your home, and family. Planning ahead can save you a lot of stress in the event of a job loss or illness. It can also be helpful to set money aside in a separate splurge account. If you do this, you will avoid tapping into your emergency savings. The splurge account can be for unexpected things that may come up such as vehicle registration, car repairs or just when you really need to have a date night with your spouse or take your kids to the movies. ¶