When you live paycheck to paycheck, you can hardly save any money and often struggle to cover the monthly bills if you overspend, let alone achieve financial goals.
If an emergency comes up, you are more likely to take on high-interest loans or credit card debts because there is no money left in your bank account when you are desperately in need.
The vicious cycle never seems to end, and it gives you unnecessary stress and financial burdens when you miss a paycheck.
Does this sound familiar to you?
Living paycheck to paycheck is not uncommon these days. You are not alone.
According to research, 56% of American consumers are living paycheck to paycheck (source).
60% of millennials earning over $100,000 say they are living paycheck to paycheck (source).
So regardless of your income level (low, middle, or high income), you could end up living a paycheck to paycheck lifestyle if you are not mindful of your spending behavior.
I was also trapped in this unhealthy cycle because of my lifestyle choices and poor money management.
I often felt broke and financially insecure when I lived paycheck to paycheck. There was little room to spend on big purchases or unexpected emergencies unless I tapped my credit card.
I finally decided to get out of this situation. It wasn’t smooth sailing, but the result was rewarding.
Luckily, you DON’T have to stay in the cycle forever.
There are things you CAN do to stop living paycheck to paycheck.
Are you ready for the life change? Let’s dive right in.
How To Stop Living Paycheck To Paycheck
#1 Keep Track Of Your Money
If you don’t know where your money is going and how much you are spending, you are more likely to overspend.
The transaction records can explain why you are living paycheck to paycheck.
Start tracking ALL your expenses (large and small) to know your spending patterns. It is the first step to breaking the cycle.
Then you can create a detailed budget based on your previous expenses (2-3 months’ expenses).
#2 How To Stop Living Paycheck To Paycheck With A Realistic Budget
You may have heard the word “budget” tons of times when reading financial-related articles as it’s the foundation of money management.
It REALLY works if you want to quit living paycheck to paycheck and take control over your spending habits.
Once you have analyzed your past spending behavior, it is easy to figure out which spending categories you can cut out.
No matter what, you want to take care of your basic needs first when budgeting by paycheck.
- Shelter (e.g., rent/mortgage)
- Utilities (fluctuating bills like electricity and water)
- Transportation: If you work from home, this expense could be dramatically reduced.
Also, don’t forget to add your debt payments, insurance fees, and emergency funds to your budget if applicable.
Then you can allocate the rest of your money to cover other financial needs (e.g., clothing, cable, subscription services, and entertainment).
50/30/20 Budget Rule
You can also follow the 50/30/20 budget rule if you are new to budgeting.
- 50% of your net income will be used for essential expenses like rent.
- 30% of your net income will be spent on non-essential expenses.
- 20% should go to your savings and debt payoff.
If you want more wiggle room for necessities, try the similar 60/20/20 budget instead.
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#3 Live Below Your Means – Trim Your Bill
Living below your means is essential to break the paycheck to paycheck cycle and improve your financial situation.
Cut down on things that are nice to have but not need to have.
Reducing your bills so you can have extra money for your savings account every month.
Best Frugal Living Tips To Save Over $10,000
Bad Money Habits That Keep You Poor And How To Ditch Them
Are small purchases (like bottled water, snacks, or driver-thru coffee) holding you back from saving?
Are you buying unnecessary things or paying more for services than you should?
If so, it’s time to cut back on your daily spending or delay discretionary spending.
It might not feel like a lot when you spend $3 here and $5 there. But don’t let your memory fool you.
Check your receipts or bank statements. The number will tell you the truth.
Never underestimate these small bills; they become giants over the long term.
When you’re living paycheck to paycheck, every dollar helps.
Start making small financial changes so you don’t get demotivated and end up accumulating debts.
Related article: How To Stop Spending And Start Saving (#10 works like a charm!)
If cutting back on small expenses wouldn’t make much difference to your financial situation, you can consider cutting down on larger expenses, such as housing and cars.
Downsizing could be a solution to ease the financial burden.
You can move to a more affordable house or apartment if that could save you hundreds/thousands of dollars a month.
Sell your expensive car (save tons of money by not paying for high petrol prices, car maintenance, insurance, and repairs) and use public transportation instead.
If that is not an option, perhaps buy a cheaper car or cut back on other areas. Make sure you shop around and compare rates before making a big purchase.
You can save BIG bucks down the road by cutting back on larger expenses.
#4 Save The Extra Money
When you receive your bonuses, pay raises, or tax refunds, do you spend them all immediately?
DON’T use the money to cover your expenses.
Instead, save the money or pay down your debts when you live paycheck to paycheck.
#5 Prepare For The Unexpected Expenses
It’s not tempting to build an emergency fund when you are in your early 20s or 30s (healthy and employed).
However, when something unforeseen happens (e.g., sickness or job loss), those bills are never late to come.
You can’t afford to be sick, as a one-time medical bill could eat up your monthly income and put you into debt.
Or even worse, all financial disasters come at the same time.
That’s why an emergency fund is essential (a wake-up call).
When life happens, you don’t have to smash out your credit card, take on expensive debt, or go broke to cover the unexpected expenses.
You can take the money out from your emergency fund (sufficient savings). And your everyday life would NOT be interrupted financially.
It’s a huge relief.
🌟 Pro Tip: Don’t dip into your savings unless an emergency comes up.
Read on: How To Quit Your Job The Right Way When Living Paycheck To Paycheck
So How Much Should You Save?
Many experts suggest that you should have 3 to 6 months’ worth of your expenses for your emergency fund.
However, it varies from case to case. If you are living paycheck to paycheck, it might be hard to save lots of money for your emergency fund at the start.
For your initial emergency fund, you can try to save $1,000.
Small savings add up quickly over time.
Once you have more savings in your bank account, you will feel more confident about managing your finances.
The more financial cushion you have, the less financial stress you get when the inevitable rainy days come.
Insurance is also a necessity for life’s unexpected challenges.
Insurance can protect you from spending a fortune on unexpected incidents.
Basic insurance (such as health insurance, car insurance, life insurance, and homeowners insurance) is not a luxury purchase.
Make sure you shop around to get yourself the best deal.
#6 Automate Your Savings & The Deduction For Your Regular Bills
This is the easiest way to stop overspending and help break the paycheck to paycheck cycle.
You can set up an automatic transfer to your savings account when your payday arrives. So you don’t see the portion in your checking account.
It is time-saving and hassle-free.
It doesn’t matter how much of your money you put into the account at the start.
The point is to form the habit of saving. Consistency is what matters the most.
When saving money becomes a routine, Your savings account will grow faster than you think.
You can also set up an automatic deduction for your regular bills (such as utility bills), so you don’t have to worry about missing the due dates.
#7 Get Out Of Debt ASAP
Not all debts are bad. Debts like mortgages and student loans are sometimes unavoidable.
However, if you have debts because of your last foreign travel during the holiday season or the expensive car purchase, these are the debts you shouldn’t have.
Spending borrowed money comes at a price – (high) interest rates and mounting emotional stress. Debts are eating your future.
If most of your income goes to your debt payment every month, save as much as you can so you can pay off all your debts more quickly.
If having credit card debt is frustrating, then missing one is worse.
Don’t forget to set alerts to pay your debts or set up automatic billing, so you don’t pay more than you should.
Also, cut up your credit cards for peace of mind if necessary, and don’t take more consumer debts even you know you are able to pay them off.
Take a look at how much of your money you use for monthly debt payments; then, you will know how much extra you can save after being debt-free.
Imagine what you could do with the money.
#8 Don’t Buy For Convenience
Convenience and cost often go hand in hand.
I spend LOTS of money on eating out, snacks, and small items for the sake of convenience.
When I decided to make life changes, I started to prepare all my meals at home, which saved me over $12,000 in a year. I was amazed by the drastic reduction in food expenses.
If you are tired of thinking about what to eat (for breakfast, lunch, and dinner) every day, you can use the help of the lovely $5 meal plan service.
For as little as $5 a month, you will get a delicious and healthy meal plan that costs you less than $2 per meal and a shopping list.
You are welcome to test it out with their 14-day trial. Cancel at any time with no questions asked.
Having a meal plan is a game-changer. You can easily cut down on food expenses and unnecessary waste.
There is no need to put the extra veggies in your trolley because you know exactly what to eat for the day and what to buy when you do grocery shopping.
Related article: Things I Stopped Buying To Save Over $10,000
#9 Increase Your Income
The more you earn, the more you spend (a.k.a. lifestyle creep). This mindset will keep you in the paycheck to paycheck loop for as long as it takes.
Making more money doesn’t give you a license to spend.
You make more money because you want to stop living paycheck to paycheck. Always remember that!!!
Want to earn extra cash? Here are some excellent ideas.
- Take up a part-time job or an extra seasonal job.
- Do the research and negotiate for a pay increase.
- Polish your skills, get higher education, and find a better-paid job.
- Start one or two side hustles.
- Sell unwanted/unneeded stuff online to get some quick cash with Decluttr. It could be old books, electronic devices, CDs, or other items you will not use for the next six months.
- Invest in finance education and find good investment opportunities.
Also read: How To Make $1,000 During Your Spare Time With Your Smartphone
Starting a blog is one of my best ways to make extra money online. If you are willing to know more, feel free to check out my step-by-step tutorial on how to start a blog that changes your life.
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When You Want To Give Up…
Sometimes, you will feel frustrated when trying to break the cycle.
It’s tough, and you want to quit.
I get you.
I had been in that position many times before I escaped the cycle.
When the tough time comes, remind yourself of why you want to stop living paycheck to paycheck in the first place.
Is that because you want
- financial security and financial freedom?
- to have enough money to pay for your child’s college education?
- accelerate retirement savings and have an early retirement?
Are these incentives big enough to keep you moving forward?
Also read: Money Affirmations That Will Change Your Financial Destiny
It’s Your Turn To Break The Cycle
Living paycheck to paycheck is no fun. It holds you back from all your financial goals.
You struggle to make ends meet and have to wait for the next paycheck to cover your basic living expenses.
If you are tired of living paycheck to paycheck, start making changes today by applying some of the tips shared in the post.
Save, pay off your debt, increase your income, invest and build your wealth along the way.
You could be in a much better financial situation than now.
The most important thing to remember is that breaking the paycheck to paycheck cycle doesn’t happen overnight.
Be consistent and stay positive.
With your effort, time and dedication, you will see significant improvements in your financial situation down the road.
Over to you: What tips have you seen working for you to stop living paycheck to paycheck? Tell me in the comments. 😊
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