I think you’ll agree with me when I say: Living paycheck-to-paycheck isn’t really living at all.
If you’re struggling to make ends meet with your income, you’re not alone.
In fact, 74% of Americans are living paycheck to paycheck according to a survey from the American Payroll Association.
What’s more, a Nielson study discovered that nearly 25% of families making at least $150,000 a year depend on their next paycheck to make ends meet.
Make no mistake:
Most American’s paychecks hardly cover the bills until the next payday.
And it’s hard to break that cycle.
Or is it?
Actually, you can quickly reduce or even eliminate your debt and grow your income.
And in today’s post, I’m going to show you exactly how to stop living paycheck-to-paycheck.
The best part is it’s not as hard as you might think.
How to End the Paycheck-to-Paycheck Lifestyle
Like most financial truths, this one is simple.
The formula for getting out of debt and stopping the paycheck to paycheck cycle is the same formula for acquiring wealth.
And you can sum it up in one sentence:
Spend less than you earn, and invest the difference wisely.
It’s only one sentence,
But the principle is so effective it’s been taught by everyone from Benjamin Franklin to J. Paul Getty.
With that in mind, here are the 9 steps to stop living paycheck to paycheck.
So, let’s jump into it.
Table of Contents
- Save Money
- Create a Budget
- Track Your Spending
- Fund Your Emergency Savings Account
- Pay Yourself First
- Make More Money
- Sell Your Stuff
- Create Extra Income Streams
- Stop Living With Debt
- Invest Money
- Invest in Your Future
- Catapult Your Success
The quickest way to create a buffer in your budget is to figure out where you can save money.
1. Create a Budget
A lot of us hate the word “budget” because we associate it with pain. It symbolizes the pain of being unable to do everything we want to do.
With that in mind, let’s start calling it a plan.
Most goals in life are achievable with a plan, so let’s create a plan that will:
- Identify where your money is going.
- Show you where you can cut back so you can begin to save money.
- Create a buffer between what you owe and what you earn.
- Reduce the amount you spend on bills and other expenditures
- Increase the amount you earn.
You’ll start by creating a zero-based budget. A zero-based budget simply means that your monthly income minus your monthly expenses must equal zero.
Of course, you may end up with extra money after you subtract your expenses. But with a zero-based budget, you must give a purpose for every dollar until your budget equals zero.
Think of it like this:
Let’s say you subtract your expenses from your total income and you end up with $150 leftover.
Since it’s a zero-based budget, that $150 needs a purpose.
You could deposit $75 to your checking account to cover any “oops” in your budget that could result in overdraft fees. The other $75 could go towards your emergency savings fund or to paying down debts.
Begin creating your plan by writing down all your income.
You can go old school with pen and paper or you could use a spreadsheet program.
Next, list all your monthly expenses.
Start with the obvious necessities – housing, food, utilities and transportation.
Then add credit cards, gym memberships and everything else to the list.
When you’re done, subtract that amount of your expenses from your total income.
Remember, you must end up at zero.
If there’s any remaining money, assign it a purpose such as savings or debt reduction.
Budgets are fluid – not static.
Adjust your plan each month to account for changes in your income and expenses.
2. Track Your Spending
With your monthly financial plan in place, you’re off to a great start.
But, if you don’t track your spending, it will be nearly impossible to stick to your budget.
Don’t fall into the trap of trusting your memory.
Even if you have the memory of an elephant, keeping mental notes of your spending isn’t a reliable way to stay on track.
Tracking your spending comes with a number of benefits that help you:
- Get control of your money.
- Know where all your money is going.
- Identify your bad money habits.
- Spot opportunities where you can save money.
Start by documenting every purchase for two to four weeks. At the end of this period, you’ll know where all your dollars are going.
For many, tracking their spending is a game-changer…
… They become more conscientious spenders after seeing where their overages occur.
Their habits change and they’re able to make their paychecks go further.
You may be thinking, tracking every expense is a nightmare.
Again, a personal spending app can be a lifesaver here.
Can you imagine writing down every expense with a notepad in real-time?
And then trying to decipher your notes to make sense of your spending patterns?
3. Cut Your Expenditures
The biggest expense in most households is housing.
But your housing costs should not exceed 33% of your budget. This includes your mortgage or rent, utilities, and maintenance.
If you’re spending more than that amount, consider downsizing to more affordable digs.
While moving is a big change, it could also create a sizeable buffer in your monthly finances.
Here are nine ways to cut your spending:
- Downsize your housing: A big move that could make a big impact on your goal of ending the paycheck to paycheck lifestyle.
- Buy a more affordable car: If your car has a high monthly payment, see if you can sell it and use the money for a dependable used car you could buy in full.
- Consolidate debt: Transfer high-interest credit card debt to a zero-interest credit card or a low-interest personal loan.
- Ask for better deals: Take an hour and call your service providers. Call your phone, internet, and cable or satellite companies and ask them for a better deal. It may surprise you how much companies are willing to offer to keep your business.
- Cut the cable and switch to streaming: Watch what you want. When you want to watch it. And pay a fraction of the cost of satellite or cable television.
- Use shopping lists: Don’t go to the store without a plan. Get what you need and get out.
- Switch to store brands: Most store brands are made by the same brand name manufacturers whose products sit next to them on the shelf. Store brands don’t have the brand recognition, but they don’t come with the higher price tag either.
- Gamify your shopping: Make it a game to find sales and clearances. Use coupons. See how much money you can save each week and try to beat that number the following week.
- Plan your meals: Once a week, sit down with a meal planner and schedule your meals for the next seven days. Shop for the items you need and make your best recipes at home. You’ll be less tempted to eat out with your favorite meals on the home menu.
My favorite tip is to gamify your spending…
…It proves that cutting your costs can be fun with the right mindset.
Make it a goal to save $50 bucks each week to start. Then. see how much more you can save through sale-hunting and coupons.
4. Fund Your Initial Emergency Savings Account.
Sometimes life happens, to put it nicely. 🙂
And when an emergency strikes, you need a safety net to fall back on.
The good news is: It only takes $1,000 to fund an emergency savings account.
You may think it’s hard to save that amount, but what’s important is that you start, even if all you can deposit is $25 each week.
Keep looking for new ways to save money to add money to your savings.
It may take time, but you’ll get there. And when you do, it’s going to give you peace of mind.
It may seem counterintuitive to start an emergency fund when you need to pay off debt.
But here’s the thing:
An emergency fund is necessary to avoid future financial strain.
Without this backup fund, you may be forced to whip out a credit card to pay for any unforeseen financial emergencies.
Make sure you have a savings account that is separate from your checking account. Then start saving for a starter emergency fund of $1,000. Once you reach that goal, shift your focus towards paying down your debts.
5. Pay Yourself First
One of the biggest keys to saving more money is to live like you earn less than you do.
That’s why experts recommend paying yourself first.
Direct 10% or more of your income to your savings account through a direct deposit from your paycheck.
Now, you may not be able to save 10% right now. Maybe saving 1% is more realistic at this moment.
It’s a positive step in the right direction. You can increase your savings deposits once your weekly buffer is big enough to support it.
Here’s the secret sauce:
The less you have to think about, the better.
Direct deposit your savings and put your bills on auto-pay.
Easy-peasy, grilled cheesy.
Make More Money
When it comes to creating a buffer in your finances, there are two sides to the coin.
We’ve covered the saving money side. Now, it’s time to look at the other side, which is making more money.
It’s wise to ask for a raise at your job and even talk to your employer about a promotion. Your boss may or may not give you a job or promotion, but it doesn’t hurt to ask. You may be able to boost your income simply by asking for it.
6. Sell Your Stuff
One way to kick start your savings and debt repayment is by selling your unwanted things.
Take a walk around your house and garage and you’re likely to find several items you no longer need or want.
Not only will selling these items give you extra money, but you will gain more space and less clutter in your home.
Sort Your Belongings
Go through your home, room by room, and start sorting all the items you want to sell. Create two piles: One for what you want to sell and one for stuff you will donate to charity.
Have a Yard Sale
The traditional yard sale is a tried and true way to get fast cash for items you no longer want.
Publicize your yard sale with listings in your local newspaper, Facebook and Craiglist. You can also post signs around your neighborhood.
Be prepared to haggle with expert “yard-salers.”
Hold out for a fair price, particularly with your more expensive items. Remember, you can always sell these items online or to an antique store.
Create Online Listings:
List whatever doesn’t sell from your yard sale online. You can use Craigslist, eBay and Facebook Marketplace for most items. You can even sell clothes and other second-hand items on Poshmark Decluttr, and thredUP.
7. Create Extra Income Streams
This is the part we love at Incomist:
While saving money is important, there is a finite limit to how much you can save.
But, you can create several income streams that continue to grow, month after month.
Start by creating at least one income stream that can deliver results immediately.
Running a blog can be very lucrative, but it takes a while before you start seeing big profits. Instead, focus on taking a side job for extra income.
Waiting tables, becoming a barista, or working at a call center are excellent side jobs to earn money. Or, try any of these 40 ways to make at least $100 a day.
If you want to create your own side hustle, concentrate on using your talents to bring in extra money.
Let’s say you are good at writing blog posts:
And speaking of Fiverr, you can make money by performing just about any task you can think of.
And don’t worry, even though it’s called Fiverr, you don’t have to offer your services for $5.
Many freelancers on Fiverr earn six-figure incomes by offering tiered packages or upsells.
Prefer a more traditional job?
If you’re serious about working from home, check out FlexJobs. They specialize in remote jobs with flexible schedules.
8. Decide to Stop Living With Debt
The biggest fear most adults face is debt.
According to a 2017 PricewaterhouseCoopers study, 54% of workers worry about their finances. That’s more than they worry about their jobs, relationships, and even their health.
Listen, if you want to ease your financial burden, decide to stop messing around with debt – forever.
If you want to get off the paycheck-to-paycheck hamster wheel for good, you have to make a decision to kick debt to the curb once and for all.
After all, you can’t get out of a hole if you keep adding dirt to it.
How the Debt Snowball Method Helps You Eliminate Your Debt
I’m a big fan of the Debt Snowball Method of paying off debt because you see results faster than other strategies.
You start by paying off a credit account that has the lowest balance.
That kind of quick win bolsters your confidence and builds momentum towards achieving bigger goals.
Here’s are a quick look at the Debt Snowball Method in action:
1. Start by adding up your total balance with each of your credit cards and loans
2. Pay the minimum amount due on all your accounts except for the one with the lowest balance.
3. Direct all your extra money towards the account with the lowest balance. Once that account is paid off, add the amount you used to pay each month to the rest of your extra income.
4. Now you have more money to put towards the account with the second-lowest balance. That’s why it’s called the Snowball Debt Method because your extra money grows each time a card is paid off.
5. Repeat these steps until all debt is paid off.
When you’re worried about surviving until the next check, it’s hard to come up for air, let alone think about the future.
But with your bad credit debts in the rearview, you can take a moment and bask in your accomplishments!
Now comes the fun part – planning for your future.
9. Invest In Your Future
Do you have access to a retirement plan at work, such as 401(k) or IRA?
If so, take advantage of it, especially if there’s a company match.
It’s an effortless way to plan for retirement. The money comes out of your account before you even notice it’s gone.
If you can swing it, contribute the maximum amount the company matches. Otherwise, it’s like leaving free money on the table.
If you’re unable to contribute the max, start with a 3% or 4% contribution and increase it whenever possible.
Pro Tip: When your salary increases, resist the temptation to spend the extra money. Instead, contribute some of the new money to your retirement account and some to your savings account.
You won’t miss it and it will be there when you need it.
Catapult Your Odds of Success by Defining Your Goal
Listen, this isn’t new-age foo-foo. This is behavioral science.
Creating space in your budget is going to require a change in your spending habits.
And it’s a lot easier to change your habits when you know the changes you are making will lead to a result you desire.
…maybe you want to save for a down payment on a home. Or perhaps you want to go on an unforgettable vacation to someplace you’ve always wanted to visit.
Deciding to cut back on your spending will be so much easier when you know why you are doing it.
You’ll no longer consider your new habits as “sacrificing” but as shortcuts to reach your goals.
The Bottom Line on Stopping the Paycheck to Paycheck Cycle
People who climb out of the paycheck to paycheck hole do two things very well:
First, they identify money management techniques that get results.
Second, they give 100% to executing those techniques.
You can do this.
Commit to yourself today. State your goal and get ready to change your lifestyle for the better.
Remember, Rome wasn’t built in a day.
And the first day may be the hardest.
But by taking that initial step, you’ll be one step closer to living again.
Congratulations, you’re on the path to financial freedom now!
Paycheck to Paycheck FAQ
What is considered paycheck to paycheck?
Living paycheck to paycheck simply means most or all of your income from your paycheck is spent on your bills and living expenses. There is no money left over for savings or investing.
Do lots of people live paycheck to paycheck?
A staggering 59% of American adults admit to living paycheck to paycheck, according to Charles Schwab’s 2019 Modern Wealth Survey. Only 38% have an emergency fund.
What’s more – a survey from Willis Towers Watson reveals that 70% of U.S. employees think they should be saving more towards their retirements than they are.
How can I save when I’m living paycheck to paycheck?
1. Create a savings plan.
2. Track your spending.
3. Cut your expenses.
4. Pay yourself first.
5. Create extra income streams.
6. Follow debt snowball strategy.
7. Invest money.
8. Be patient.
How much of your paycheck should you save?
If you’re living paycheck to paycheck, decide to save something, no matter how small, every paycheck. This is to start establishing a savings habit.
Your eventual goal should be to save at least 20%, according to the with 50% (at the most) going toward necessities and 30% toward discretionary items; this is the 50/30/20 budget strategy.
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