How to Stop Living Paycheck to Paycheck in 8 Simple Steps
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If you’re one of the 78% of Americans living paycheck to paycheck, you know how stressful it is.
You feel anxiety from seeing the overdrawn bank accounts. You know how financial pressure affects every aspect of your life from your health to your relationships. You know the burden that comes with trying to take care of your family when you feel like you can’t.
The toll that living paycheck to paycheck takes is immeasurable. But it’s possible to break the cycle so you can get on a better financial footing, decrease your stress, and plan for your future.
What Does It Mean to Live Paycheck to Paycheck?
While there’s no one specific definition of living paycheck to paycheck, it generally refers to the inability to meet financial obligations if you lose your job or have an unexpected bill because all your income goes to expenses.
Those who live paycheck to paycheck often have little to no savings or find it difficult to afford basic necessities like food or medicine after bills are paid. People at all income levels can live paycheck to paycheck.
8 Steps to Stop Living Paycheck to Paycheck
If you feel like you’re living paycheck to paycheck and want to stop the cycle, it may seem impossible. And it is hard, especially if you make a lower income. Fortunately, there are a few steps you can follow to help you get on more solid financial ground.
1. Identify the problem
You already know that you’re living paycheck to paycheck, but you might not know why. The first step to breaking the cycle is figuring out why. For many people, it’s an income problem. There just isn’t enough money, which can make it more challenging to stop living this way. But for others, it’s because they have too many expenses. You’re spending too much, leaving little leftover for necessities and emergencies.
Even if you’re confident that you know the reason behind the problem, take a few minutes to analyze your income and expenses. The key here is to clearly identify why you’re living paycheck to paycheck so you know specifically what to tackle to change it.
Related: How to Make a Budget in 7 Easy Steps
2. Write down your expenses
One way to figure out if it’s an income or an expense problem is by making a list of all of your expenses. Write down everything you pay for including groceries, internet, gas, and daycare expenses. If you spend money on it, write it down, no matter how big or small the bill.
You can also use an asterisk to denote fixed expenses like housing, car payment or public transportation pass, cell phone and other utilities, childcare, etc. Knowing which expenses you can change and which ones you can’t will help when creating your budget.
You don’t need fancy apps or software to write down your expenses – a simple notebook or the Notes app on your phone should work. You can also look at your bank or credit card statements to see how much you spend each month.
3. Identify places to cut spending
Some things cost what they cost, and there’s little you can do to change them. For instance, if you rely on public transportation to get to and from work and the MTA decides to raise its rates, there’s nothing you can do about it. You have to pay that money, even if you can’t afford it.
That’s where cutting your discretionary spending comes into play. Take a look at your optional spending: cable packages, gym memberships, restaurant meals, or any hobbies you might have.
If you have vices like cigarettes, lottery tickets, or alcohol, consider cutting out or reducing that spending as well. If you’re not sure where to cut first, rank your discretionary spending in order of importance.
For instance, if prefer Netflix over your cable package, get rid of cable first. If your daily coffee from your local coffee shop is important but you can get by with running in the park or doing an at-home workout, suspend your gym membership. You can also use a service like Trim to help you identify areas to save.
Remember that some of these cuts are temporary until you break the paycheck to paycheck cycle. You can gradually add them back in as your situation improves or you might find that you don’t miss them at all.
What if there’s nothing left to cut?
If you’re already cut everything to the bare bones and you’re still struggling, give yourself some grace. You know you’re doing the best that you can with limited resources, and your situation will improve.
In the meantime, you still need to eat, keep the lights on, and get to work. Consider reaching out to some organizations for assistance. Call your bill providers and tell them your situation. Many of them have ways they can help.
Look for ways to bring in additional income. If you don’t have extra time to work, you might want to sell some things instead.
You might be able to find wiggle room in your budget by doing things like decreasing your smartphone data plan, repurposing unused items in your house to replace broken ones, or finding ways to get necessities for free.
4. Create a budget
Budgeting when you’re living paycheck to paycheck seems futile but it’s not. A budget is a plan that tells your money where to go and is one of the best steps to stop living paycheck to paycheck. It’s a powerful tool that can highlight where your problem areas are, where you’re doing well, and it sets limits on what you can and can’t spend.
It may seem intimidating, but it’s actually quite simple to create a budget. Just make sure that once you’ve created your budget, you stick to it.
If you find that the budget you’re using doesn’t work for you, change your approach. There are several different types of budgets you can create; the idea is to find one that best works for you.
You can create your budget by hand or use an automated system like Tiller or Mint.
If creating a monthly budget is too difficult, you can create a per-paycheck budget instead. Rather than looking at the big picture, break it up into two-week intervals (or whatever the interval is between your paychecks) and assign expenses to each paycheck.
You’ll need to carefully monitor your due dates and make sure you’re still saving, but this might be an easier way for you to manage your finances until you break your paycheck to paycheck cycle.
5. Make a plan to pay off debt
If the primary reason you’re living paycheck to paycheck is debt, now’s a good time to make a plan to pay it off. The first step in your debt repayment plan is to write down all of your debts – car loan, mortgage, medical debt, student loans, credit cards, family members, payday lender, etc. – and how much you owe. Include the interest rate, minimum monthly payment, and term length.
After you know how much you owe to each lender, you can choose how you want to pay off your debts. The debt snowball and debt avalanche are two popular and effective methods for debt repayment, but some people choose debt consolidation instead.
Should you choose the latter, be aware of the risks associated with debt consolidation. It might be better than bankruptcy, but it has long-term effects that can hurt your credit.
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Sometimes debt can be overwhelming! It’s easy to get confused by all the separate payments, the due dates, etc. And sometimes end up owing balances on accounts with REALLY high interest rates. When you’re in a position like this, debt consolidation could be a good option for you. It can not only help you save money on interest, but also organize your debt into one place with one payment every month!
6. Start a side hustle
A side hustle is key to stop living paycheck to paycheck. Even a few extra dollars per month can help in case of a job loss or other emergency, especially if you use the money to start a savings account or emergency fund. It can also give you some breathing room for your necessities while you’re working on your debt repayment plan.
If you already work full-time, you can ask your employer for extra shifts or paid work instead of picking up a separate side hustle. If that’s not a possibility, you can look for traditional part-time work or start an online business if you don’t have reliable childcare or transportation to get to a second job.
You can start a side hustle using any of your skills, and there’s something for everyone. For instance, if you’re good at hand lettering, you can start an Etsy shop selling custom prints or you can do calligraphy for party signs or wedding invitations. If you can sing, you can give singing lessons out of your home. You can even offer in-home babysitting or pet sitting services.
A side hustle should be something you enjoy and that provides extra income. If you find you’re not earning enough or spending too much money on your side hustle, consider trying a different one.
7. Build an emergency fund
An emergency fund is a designated savings account if there’s an unplanned event or an emergency. If your cat needs to go to the ER, you blow a tire, or your fridge dies, your emergency fund can help offset the cost of those expenses. Having an emergency fund gives you peace of mind and prevents you from going into debt for an unforeseen expense.
However, if you’re living paycheck to paycheck, you might find it difficult to build up an emergency fund to the expert-recommended three to six months of expenses. That’s OK, though. There are still a few things you can do to have some cash on hand in case of an emergency.
The next time you get a windfall, whether it’s from a tax refund, bonus at work, or birthday check, set it aside. You can even pull $20 from your next paycheck to start your emergency fund. Just having something, anything, in a savings account is a significant step.
Many people choose to use a high-yield online savings account, but you can put yours anywhere you want. Try to make it somewhere that’s not too easy to access.
Give your money a purpose with sinking funds
Sinking funds are mini-savings accounts where you can save up for irregular and recurring expenses like car maintenance or birthdays. You can keep them as separate savings accounts, or combine them in your regular savings account but as separate line items on your budget.
Although you know these expenses are coming, they can still catch you by surprise. Having a plan for them keeps your budget from going off the rails and keeps you from panicking when you realize your semi-annual car insurance payment is due next week.
A simple way to start a savings account or an emergency fund is to have the money automatically deducted from your paycheck and deposited into another account. Doing this guarantees that you’re adding to your account regularly, and you can’t find excuses not to move the money over. It’s already done for you.
8. Set financial goals
Ask yourself what financial goals you have. Do you want to buy your own house? Quit your second job? Pay for your kids’ college education so they don’t have to take out loans? Even simply wanting to stop living paycheck to paycheck is enough of a big-picture, long-term financial goal.
These goals are important because they’ll keep you focused on what you’re doing. They’ll serve as your “why” when it gets too difficult to take another trip to the park because it’s free or when you’re working until 1 a.m. at your side hustle.
Write them down and put them somewhere you can look at them, like the bathroom mirror or fridge door. Revisit them as you start to make progress on your debt, savings, and budget.
Other Steps to Consider to Stop Living Paycheck to Paycheck
There are a few other steps you can take to stop living paycheck to paycheck, but they are more extreme and might not be accessible for everyone. However, if you can make them work, they are practical and viable solutions.
Relocate or downsize
If the area where you live is too expensive or you can manage in a smaller, more affordable home, consider moving or downsizing to a smaller residence. Saving on rent and other costs of living might be the difference between living paycheck to paycheck and breaking that cycle.
However, you need to account for all the relocation expenses, like renting a moving truck, security deposits, and finding a new job. Additionally, if you live near family who provides childcare, you also need to weigh that cost against the benefits of moving. But if it aligns and makes financial sense, moving is an option.
Go back to school
It’s often hard to get a better, higher-paying job without going back to school. And if you can find the time to attend class and do homework, along with finding childcare, going back to school means debt.
It’s not an ideal situation. But if you can find a training program through your job or a two-year degree at a local college or university, it could be worth it. There are lots of part-time and online options as well. You might even be able to get tuition reimbursement, scholarships, or other types of assistance, especially if you’ve never attended a higher-education program before.
This is definitely not as easy as some other options, but it can be your best choice for a long-term solution.
Sometimes just switching jobs can provide enough of a pay bump to get you out of living paycheck to paycheck. For example, if you work in a city where you have to pay for parking and a city wage tax, finding a similar job outside of the city could make a difference in your paycheck. Your net pay will be higher, and it’s one less expense to budget for, leaving more money for bills and other necessities.
You might also find another employer that offers better health insurance or a higher per-hour rate or paid time off. Maybe it asks employees to wear a uniform, saving you money on a separate work wardrobe. These benefits make a difference in your overall financial picture, and if you have the option to look for another job, it might be your best bet.
You Can Escape the Paycheck to Paycheck Cycle
When you’re stuck in the paycheck to paycheck cycle, it’s hard to see a way out. It seems insurmountable and impossible. It’s depressing, exhausting, and frustrating, especially if you’re doing everything possible to break the cycle. You might think there’s nothing left to cut, no pennies left to save, and no way to change your living arrangement.
And you’re absolutely right. It’s incredibly difficult.
But it’s not impossible. Start by creating a manageable, realistic budget to see if maybe you missed something in your monthly expenses. Try to formulate a debt repayment plan. Put a little aside for savings. Ask for help if you need it and remember there’s no shame in admitting your situation.
Remember that you don’t have to do all of these at once. Start with one before moving on to another. Eventually, they’ll all come together and you will escape living paycheck to paycheck.