If you’re living paycheck to paycheck, you’re not alone. A hefty 54% of Americans lived this way in 2021, according to Finance Pond. This adds up to about 125 million individuals in the US alone. About 40% of those 125 million had six-figure salaries, showing that this isn’t just an issue amongst low-income households.
However, don’t be discouraged, there is hope! “How can I stop living paycheck to paycheck,” you ask? With a plan and strict adherence to a good budget (see how to make a budget in our article “Budgeting for a Family of Seven in 2022“), you can get yourself out of this vicious cycle.
What is Paycheck to Paycheck?
When you hear the phrase ‘paycheck to paycheck’ it is another way of saying one’s income is maxed out every single pay cycle. On payday, that paycheck will go entirely to all living expenses and bills and there will be zero leftover for savings or an emergency fund.
There is no money in the bank between paydays for people who live paycheck to paycheck. It is stressful to live this way because there is no backup fund. It just takes one emergency to throw you into a financial crisis when you are living from paycheck to paycheck.
How to Stop Living Paycheck to Paycheck
Ok, let’s get you out of living in the stressful cycle and move you forward to building that savings and emergency fund, among other things. There are several steps to getting your finances on track:
- To start, you’ll need to examine your budget (or establish your budget if you haven’t yet done that). When looking at your budget and comparing it to your spending, you will be able to piece together different areas that may be causing the tightness. We have a line of budget planners that can guide you through the process. Check out our review: Monthly Budget Planner Worksheet
- For ways to jumpstart budgeting, start cooking more at home, don’t buy toys for the kids when you shop, and definitely cut out unnecessary monthly subscriptions such as television services or magazines. Use your public library’s free services for those things. Check out our article “Over 22 Money Saving Challenges to Build Your Wealth.”
- Commit to cutting back in the areas targeted in the budget review. You’ll be surprised with how much you can save by making simple cuts. This step may take potentially huge changes such as downgrading your vehicle to a used one, but making these cuts will save money while living paycheck to paycheck.
- The next step is to set goals. These goals must be realistic and achievable. You will be able to see the overage you spend on unnecessary items in the first step. It would be smart to take 50% -75% of that amount to put towards financial goals.
- As suggested by many finance gurus, including Dave Ramsey, the first goal should be creating an emergency fund. This fund will become your fall-back when disaster hits. Ramsey suggests a $1,000 starter emergency fund if you have high-interest debt to pay off, then fluff it up more after your debt is paid off.
- Absolutely do not apply for any new debt during your attempt to stop living paycheck to paycheck. It will discourage you from living within your means.
Methods Outside of Strict Budgeting
Sometimes, your income is maxed because you simply just don’t make enough to cover basic living expenses. Student loans alone can tax an otherwise excellent paycheck for an individual.
If you find yourself in this category you are probably very tired from living paycheck to paycheck. Here are a few methods to help you to stop living from paycheck to paycheck in this circumstance:
- If hitting those goals proves to be difficult within the limits of your income, it may be time to consider a side gig. There are countless ways to generate extra income outside a 40 hour week. It could even be a welcome change from your full-time career.
- In some careers, you can find not only advancement, but also a raise with completion of certifications or classes. Talk to your manager or HR department to see if your company offers incentives like this. It could be an easier way to increase your income while advancing in your current career as well.
- Consolidation of debt is another potential approach to save money while living paycheck to paycheck. If you can combine all your high-interest with your low-interest debt into one reasonably-priced loan, you might save yourself some serious cash each month. This will take some serious calculations to make sure you aren’t just trading payment for payment.
- Simple things such as hosting a yard sale or posting unnecessary belongings on a thrift store app can put some quick cash in your pocket. Make a little money while you declutter your house along with your finances.
Financial Freedom From Living Paycheck to Paycheck
After you’ve achieved an increase in income from a combination of these methods, there’ll be no more living paycheck to paycheck for you and your family.
Whether you choose to pick up a side gig, consolidate your debt, go for that certification, or just live within your means, it is sure to give you heftier savings and freedom from any debt you may have accrued.
How quickly you want to get out of the cycle of living from paycheck to paycheck will determine which path you choose and how strictly you adhere to your budget and goals.