Does your money seem to shrink overnight? Do you make a decent salary but still can’t seem to make ends meet? Or is there just enough to pay the bills but never enough to tuck away into savings? You aren’t alone. The mystery of the missing dollars is something that a lot of people are dealing with these days. If you’re living paycheck to paycheck with never a dime left over to get ahead in life, it’s time to take a close look at where your money is really going and why.

Possible Reasons Why You’re Living Paycheck to Paycheck

These reasons might be hard to face, but if you never look the truth in the eye, you won’t be equipped to make the important changes needed to get ahead. Read these possible reasons why you’re living paycheck to paycheck and see if any of them resonate with your situation.

1. You’re Paying Too Much For Housing

The top reason why many people are cash poor is because they’ve bit off more than they can comfortably afford, often in the housing category. It’s possible that your mortgage payment or monthly rent is too much for you to sustainably carry. In the past, the rule of thumb was you shouldn’t pay more than a quarter of your net monthly income in rent (or mortgage). Now the rule of thumb is a third, but the people who changed the rule aren’t paying your rent. Stick to the quarter if you have a chance to move at the end of your rental lease, and you’ll be much happier.

2. You’re Living Beyond Your Means

What about the rest of your spending habits? Are you overspending? Chances are you may be trying to live in accordance with what you feel you deserve, instead of what you can afford. How many splurges do you indulge in each month? It might be time to actually make a budget instead of just thinking about a budget. Your CPA can help with this, reviewing what a healthy spend amount would be in each category, with regard to your income.

3. You Just Make Too Little
In every area of the country, there’s an amount that’s needed to live comfortably; that is, being able to sleep at night and put money into savings. Maybe you just make too little to live where you live. It might be time to consider a move to a cheaper area. But what would be better is if you start looking around for work that pays more, or get a second job. Consider asking for a raise or dusting off your resume so you can bring home more money.

4. You’re in Debt Over Your Head

It’s far too easy to get into debt and stay there. At some point, you might have made a decision to only make the minimum payments on your credit cards. Unfortunately, revolving debt is your enemy, and it will keep you in debt for years to come. Look at your credit card statement near where your balance is listed. It should tell you the estimated length of time it will take you to pay off your balance. If you can pay even a little bit more than you owe each month, you’ll get ahead of the curve. Otherwise, the interest alone will keep you living paycheck to paycheck well into the future.

Where is Your Money Really Going?

If none of these things resonate with you, then it’s time to examine where your money is really going. It may surprise you how little money you actually end up with. Here’s an example of a person who makes $50,000 a year. (These numbers are estimated and it’s just an example, so actual figures would vary):

Gross monthly income: $4,166
Net monthly income: $3,125
Less:
Rent: $1,200
Gas: $80
Car payment: $300
Car insurance: $50
Health insurance: $75
Food: $300
So far, we’re left with $1,120. That’s not bad for a single person with no family to feed. But we aren’t done yet.
Utilities: $100
Internet: $40
Clothes: $200
Drinks with friends: $300
Gym Membership: $30
Streaming entertainment (Netflix, etc.): $40
Miscellaneous: $300
Hmmm. Now we’re left with only $110, and you still haven’t gone on any dates or had any emergencies to deal with, like having to replace a flat tire. This also doesn’t account for any credit card debt you might have.

As you can see, the money goes fast. $50,000 isn’t a whole lot of money per year, but it’s not too shabby, either. A person should be able to live on that comfortably, but unfortunately, that’s not the case, at least in this scenario. Can you see where changes can be made? If this person found a way to earn more money, find a cheaper rental, sold their new car and bought a used one, some positive steps could be made. They could still enjoy drinks with friends, a healthy gym membership and a nice wardrobe if they took care of the bigger ticket items.

Do the same with your finances and take a hard look at where your hard-earned money is going. Hopefully, you’ll find some ways to cut back so you have some money left over at the end of the month to invest or put into savings for a rainy day.

Did you know that your CPA can offer ways to help you to deal with cash flow problems? Book an appointment today to learn how to cut costs, take advantage of legitimate tax savings opportunities and keep more of your earned money.

by Kate Supino