Consumer Watch: Stop living paycheck to paycheck

Living paycheck to paycheck is a tough reality for many American, and this is not just for those living in poverty. That’s because living paycheck to paycheck is not about being poor. In fact, many Americans who make do this way are considered upper middle class. In this case, poor budgeting skills could be part of the problem.

Some of the first decisions that send people into that paycheck to paycheck cycle is not budgeting and being prepared for an emergency. A Harris poll shows that three in 10 Americans are not putting money away toward savings. Not having money for an emergency could cause someone with good earnings to spiral out of control.

John Ganotis with Credit Card Insider says saving will be slow going especially if you don't earn very much, but over time it will build up into the emergency fund you need. He does recommend paying off outstanding credit card balances to better your chance at financial stability.

"Especially if you are only making the minimum payments that credit card, debt can multiply very quickly because every day you are not paying off that balance you are basically paying interest," says Ganotis.

So, when can you officially say you are not living paycheck to paycheck? Generally, that happens when you have three to six months of expenses saved up. That way if your car breaks down or you lose your job, you don't have to go into debt to fix the problem.

Ideally you should be saving between 10 and 20 percent of your earnings if possible. If you can only afford to save less, that is fine, but make sure something is saved every month. Putting this money in a separate savings account will make it easier to keep track of without accidentally spending it.