How to Stop Living Paycheck to Paycheck

Let’s face it — living paycheck to paycheck can be really stressful. No one wants to constantly scramble to make ends meet. It’s bad for your finances and even worse for your mental health.

The good news is that there are helpful tips you can learn that could help you stop living paycheck to paycheck and to start getting ahead of the game. As you take control of your finances, you’ll pay off debt, save more and start to feel a sense of security that money can’t buy.

Ready to break the paycheck-to-paycheck cycle? We’ve got seven essential tips to get you there.

What Does it Mean to Live Paycheck to Paycheck?

When you live paycheck to paycheck, you’re not earning enough money on average to last you an entire pay period, whether that’s every two weeks or to the end of the month. It means you have more month than money.

If you’ve ever lived paycheck to paycheck (and most of us have), you’re familiar with the vicious cycle. You get paid, and it seems like your paycheck immediately disappears to monthly bills, living expenses and credit card debt.

Even worse, you usually need to start charging more expenses onto your credit card the closer you get to your next payday. As your credit card debt increases, it causes your credit score to go down, too. Then, when you need to borrow money, you end up getting charged higher rates.

Now that inflation is on the rise and the federal reserve is increasing interest rates, it seems like this cycle is getting even worse for many people. You’re definitely not alone.

How Many Americans Live Paycheck to Paycheck?

Living paycheck to paycheck is surprisingly common for a number of Americans. According to recent survey results from LendingClub, around 64% of Americans live paycheck to paycheck.

You might think that people living in expensive areas like San Francisco and New York would be immune from living paycheck to paycheck if they earn a high income, but according to data from the same research series, 50% of respondents earning a six-figure income were also living paycheck to paycheck.

How Can You Break Out of the Paycheck-to-Paycheck Cycle?

Living paycheck to paycheck is very frustrating. But believe it or not, it’s possible for most people to break free from the paycheck-to-paycheck cycle. It takes planning and discipline, but you’ll be financially healthier and less stressed in the long run. Here are seven tips to help you get started.

1. Make budgeting your best buddy

Most personal finance experts will tell you the key to stop living paycheck to paycheck is to budget, budget and budget some more.

Learning how to budget can take a few months and a little trial and error, so be easy on yourself. For many, it takes a few tries before you can get it to stick and become second nature. If you’ve dropped off from budgeting before, don’t let that stop you from trying again.

There are many different ways to approach budgeting. Start by tracking how much you actually spend, either on a Google spreadsheet or one of many free budgeting apps available. Once you know what your spending habits are, it’ll be easier to see how to allocate your paycheck.

Creating a budget will keep all of your expenses top of mind, including those that you don’t pay monthly like insurance premiums. That way, you’re not caught off guard when occasional expenses come along.

2. Find ways to spend less

Once you’ve tracked your spending and created a budget, it’s a good time to see where you can spend less. Doing so will help you free up some money to pay down your debt and set it aside in case of emergencies.

Here are some ideas on how to cut back:

• Curb impulse spending
• Carpool or use gas apps to save money
• Move to a smaller home or apartment
• Find ways to save on groceries
• Pack your lunch instead of eating out
• Bike or take public transportation to work
• Exercise at home and cut out the gym membership
• Borrow books and DVDs from the library instead of going to the movies
• Find affordable holiday gifts

3. Set aside some money every month

Putting cash aside each paycheck will help you build an emergency fund, or what many call a “rainy day” fund. As for how much to save from your paycheck, aim to save any amount you can at first. Even $5 will help as you start building this habit. You can always work up to larger amounts.

The ultimate goal for your emergency fund should be at least $1,000 or a month’s worth of expenses, whichever is higher. This may sound like a lot of money, but you’ll do this slowly over time. You don’t need to have it all overnight.

Once you have at least $1,000 in your emergency fund, consider setting even more aside. And don’t dip into that stash for just any reason — it’s meant for emergencies such as a job loss, health care bills or unexpected expenses such as a car repair.

If you feel like you’ll be tempted to spend the money, open a separate bank account without ATM access. By making it a little more difficult to access the money, you will be giving yourself more time to reconsider whether you really need to make a purchase.

4. Pay down your debt

Many people who live paycheck to paycheck have debt burdens to deal with. Making a dedicated effort to get out of debt once and for all will help you get ahead by eliminating expensive interest charges.

As for how to pay debt down, there are different ways to approach it. Some opt for the debt snowball method, where you focus on accounts with the smallest balances first. Pay as much as you can toward the smallest account while continuing to pay the minimum on other debts. You then focus on the next smallest account once the smallest debt is paid off, and so on. Paying off small balances quickly may give you the confidence and motivation to keep working toward a debt-free existence.

Another method is called debt avalanche, which has you focus on the account with the highest interest rate first. Prioritizing high interest rate debt can save you money in the long run, since those interest charges are the highest.

5. Increase your income

If you want to pay down your debt faster but can’t cut your budget anymore, you may want to consider ways to earn extra money. After all, the only way to break out of being low-income is to boost your annual income. This can also be true if you rely on government benefits like Social Security, since many times these benefits are not sufficient to cover all of your expenses, especially if you’re in debt.

You can increase your income by asking for a raise from your employer or working a side hustle. In today’s freelance-heavy economy, there are many jobs you can do from home or during after-work hours, including driving for Uber, dog walking and tutoring. One lasting impact of the pandemic is that many jobs now allow employees to continue to work from home.

You may also consider selling off some of your unused items. Whether you hold a yard sale or sell a few things online. You may be able to get a quick infusion of cash and kickstart a more minimalist lifestyle.

Remember to deposit your extra income into a savings account to increase your safety cushion.  Once your emergency savings is up to snuff, you can consider socking extra money into your retirement account for an even more financially stable future.

6. Get help when you need it

If you feel stuck and like there’s nothing you can do to move forward, there are places that can help. You don’t have to figure this out alone.

One really good resource is the National Foundation for Credit Counseling. This group can refer you to a reputable credit counselor or financial health officer who can work with you one-on-one to assess your financial situation, develop a plan and implement it. Financial planning services provided by these groups are ultra-affordable, or even free.

Another good service is 211.org, which you can also reach by dialing 211 on your phone. This connects you with a local United Way volunteer who will personally work with you (anonymously, if you prefer) to identify the best sources of support available in your own community, such as food banks, housing assistance, mental health support, and more.

There are many programs available, but it can be confusing to sort them all out; that’s where the 211 service helps. These programs are designed to help people like you — take advantage of them if you can.

7. Look to the future

Having a life where you don’t live paycheck to paycheck is possible. You can create a realistic budget, find ways to spend less, pay down debt, and make a concerted effort to set aside money.  

However — let’s face it — you’ll probably feel discouraged at times. It’s important to identify what’s motivating you and surround yourself with reminders of that, whether it’s an easier night’s sleep, a day when you’re not afraid to check the mail, or even a reward such as a vacation. Focus on your future, and you’ll get there before you know it.