THE BROKEN WALLET

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According to a 2019 survey by CareerBuilder, approximately “78% of workers in the U.S. live paycheck to paycheck.” But don’t think you have to be a low earner to fall into this category. Other research states that 1 in 5 adults earning more than $100,000 also live paycheck to paycheck. 

Living paycheck to paycheck means that all of your income goes to paying living expenses, leaving zero wiggle room in your budget. This makes it difficult—if not impossible—to save money or pay off debt. 

It’s a cycle that many find themselves in, but it’s also one that you can break.

Here’s How to Stop Living Paycheck to Paycheck…

1. Track your income and expenses

Everyone has a different situation, so before you can break this cycle, you need to have a clear picture of your finances. In other words, you must create a budget and understand why you’re living paycheck to paycheck. 

Some people get caught in this trap because their income isn’t enough to keep up with the cost of living in their area. And for those who do earn enough money, overspending often leaves little money for anything else. 

To determine where you fall, take a look at bank and credit card statements over a period of one to three months. Where’s your money going? 

How much are you spending on entertainment and recreation? Eating out? Shopping? Also, how much are your fixed expenses like rent, car payments, loan payments, etc?

This examination compares your expenses with your take-home pay. It puts your spending habits on paper, shedding light on the reason(s) you’re financially stuck. Once you understand why you can’t get ahead, you can then come up with a plan to move forward.

2. Reduce non-essential spending

Breaking the paycheck to paycheck cycle doesn’t happen overnight, and truthfully, it might take several weeks or months to get back on track. 

One thing you can do immediately is reduce non-essential spending. You don’t have to sacrifice a good time completely, but you should be realistic about your spending habits and make adjustments for the betterment of your personal finances. 

For example, reduce how much you spend on recreation and entertainment by at least half or more. Or, consider a “no spend” diet for 30 days and only purchase essential items. 

At the end of the month, review your finances and calculate your savings. Do you have more wiggle room in your budget? 

You’ll have to make sacrifices, but the upside is that you’ll have money for the things you actually need. This alone is a huge stress reliever.

3. Lower fixed expenses

What if you’re not spending a lot on non-essentials? In this situation, there’s a good chance that you’re living well above your means. This is easy to do, especially in areas with a higher cost-of-living. To stop living paycheck to paycheck, consider different ways to reduce your fixed expenses—more specifically your housing expense.

Understand that you’ll have to make some tough choices. These include moving into a cheaper house, getting a roommate, or possibly refinancing your mortgage. 

Ideally, your housing payment should not exceed 28% to 30% of your gross income. If your rent or mortgage exceeds this percentage, you’re overpaying for housing.

But this isn’t the only fixed expense to reduce. Other ways to save include selling your car and getting a cheaper one, downgrading your cellphone plan, or shopping for new insurance policies. 

4. Avoid lifestyle inflation

One of the best ways to avoid living paycheck to paycheck is to avoid lifestyle inflation. If you’ve never heard of this term, it refers to upgrading your lifestyle every time your income increases. 

Let’s say you’re living paycheck to paycheck at your current salary, and then you get a raise. Finally, you have extra money to save and pay off debt. Yet, instead of enjoying your newfound financial cushion, you move into a bigger home or buy a more expensive car. 

It’s your money, so you’re free to spend it however you want. The problem, though, is that you’re giving into lifestyle inflation. And before you know it, you’re living paycheck to paycheck again.

The good news is that it’s avoidable. 

Rather than view a raise as a way to “level up,” financially, view your raise as an opportunity to reach financial goals like building an emergency fund, saving for retirement and paying off debt.

5. Cut variable expenses

Another way to stop living paycheck to paycheck is to reduce your variable expenses. These are bills that fluctuate from month to month such as groceries or transportation costs. 

For example, commit to reducing your weekly grocery bill by at least $20 to $25. If so, you’ll save about $80 to $100 monthly. Shop with a list, use store discount cards, or plan meals around the same ingredients.

Or, reduce your transportation cost by carpooling a couple of days a week, walking to work (if feasible) and combining errands. You can also ask your utility company about a budget plan, where you pay a fixed amount every month.

Also, take a look at your entertainment and recreation spending. Here’s a tip: commit to a “no spend” weekend at least twice a month.

6. Get a side hustle

Getting a second income stream is one of the best ways to break a paycheck to paycheck cycle. Earning as little as an extra $150 each week can make a huge difference. 

You can look into getting a part-time job or start your own side business. One benefit of being your own boss is you’re able to work at your own pace and earn more money.

Good side hustle ideas include: 

• freelance writer 
• creating online courses 
• becoming a YouTuber
• advertising on your car
• starting an office cleaning business 
• starting a blog 
• outsourcing your services on Fiverr
• selling digital photography 
• making and selling crafts 
• interior design

7. Ask for a raise

If you’re not an entrepreneur, talk to your boss and see if you can negotiate a raise. 

Some people get comfortable at their current salary and never think to ask for more money. But as your experience increases, so does your value as an employee. 

If you feel that you’re not getting paid your worth, speak up. And if your company can’t afford a raise, explore other options. Another company might be in a position to pay more.

8. Never stop learning

To qualify for higher-paying positions, though, you must possess the skills and knowledge to get the job done. So continue learning and educating yourself. 

By doing so, you become an asset to your current company and others. Become proficient in newer software programs, learn a foreign language, or acquire bonus skills related to your field. For example, if you’re a staff writer for a publication, learning about digital marketing can open the door to new roles within your current company.

9. Pay yourself first

Another way to break the paycheck to paycheck cycle is to “always” pay yourself first. 

Some people make the mistake of paying their bills first, and then saving money at the end of the month. But often times, there’s nothing left at the end of the month to save. 

To grow your savings, treat your savings account like it’s your most important bill and feed your account before you start paying others.

Also, consider upgrading from a regular savings account to an online high-yield savings account. You’ll earn a higher return and grow your money faster. You should also look into micro-investing using programs like Acorns.

Sign up for an account and link your credit card or debit card. The program will round up your purchases to the nearest dollar, and then invest your spare change.

10. Pay off credit card debt

Too much credit card debt is detrimental to personal finances because it becomes harder to get ahead. 

The first step to paying off credit cards is to stop using the cards. Next, contact your credit card companies to negotiate a better rate, and then start paying more than your minimum payments every month. 

If you get a side job or a raise, use the extra income to pay off your debt faster. With the debt gone, you’ll have more wiggle room in your budget for saving. Plus, the less credit card debt you have, the better your credit score.

Final Word

Breaking the paycheck to paycheck cycle takes patience and determination. It might take weeks, months, or longer to get ahead, and your progress might be slow in the beginning—but don’t give up!

Knowledge is power, and so is sharing. What are you doing to stop living paycheck to paycheck?