Hey there, do you want to stop living paycheck to paycheck but feel like there's no way out? In this post, we're going to talk about several ways you can get out of the paycheck to paycheck cycle. You don't have to be an expert in money management to get out of the grind.
There are many ways to stop living paycheck to paycheck. Some people are closer than others, and some people have more leeway to adjust their way of living, but much of the time, it boils down to revamping the way you save money. If you're tired of living week to week, then read on.
Let's talk about 8 strategies that will get you on the right path to financial security and breaking the paycheck to paycheck cycle.
What Does It Mean To Live Paycheck to Paycheck
Living paycheck to paycheck means that you aren't saving any money at the end of a given month. You are spending just as much as you're making and you may not have anything saved up in a bank account for an emergency or financial hardship. If you're living paycheck to paycheck, missing a single day of work due to sickness or personal reason could cause you to sink further into debt because you can't afford to not get paid for that day.
Living paycheck to paycheck can be scary when it's going on for a long time because when you're unable to save, you're forced to use debt to cover unexpected expenses. Below, I'm going to go over several tips so that you don't have to live paycheck to paycheck any longer.
1. Create a Budget
Learn to create a budget when you live paycheck to paycheck. This is something everyone should learn how to do. My recommendation in getting started is to either use an app like YNAB (You Need A Budget) or download a budgeting spreadsheet like those included at Vertex42.com. Whether you have Excel, Google Sheets, Open Office, or a similar product, making a budget from a budget template is easy when using a spreadsheet.
You'll want to account for all of your monthly living expenses, such as rent, utility bills, groceries, loans, subscriptions, transportation, etc. Fill in all of that information, and you'll be left with what you have after your paycheck minus those expenses (Of course!). Check your checking account and credit card statement to see how much you're paying for everything.
Now, start deducting other expenses, such as how much you're spending on entertainment, going out to eat, new clothes, games, haircuts, hobbies, and anything else that might be either less common or variable each month. With variable expenses, take 6-12 months' worth of spending and average it into your monthly budget.
Once that's complete, the app or the spreadsheet should show you how much you have leftover each month. If you're having trouble staying under budget, you'll need to identify what you can cut back on. By tracking your spending, you can see that perhaps you eat out too much, or maybe you spend too much on entertainment.
It could be something more elusive like you're internet bill is too high and you haven't negotiated it recently. You can lower many of your common living expenses with a few phone calls.
How To Budget a Biweekly Paycheck
If you live week to week, the best ways to budget a biweekly paycheck is to create two budgets for the month: one for the first paycheck and one for the second. Some say you should focus as many of your monthly bills to be paid with your first biweekly paycheck and save as much as you can using your second biweekly paycheck.
When you're paid biweekly, occasionally you'll have to budget an extra paycheck. That's because some months, you'll get paid three times. Remember: This third paycheck doesn't mean you're getting extra money to spend. Budget it just as you would your other two paychecks. If you have some extra money leftover, apply it to debt, like credit card debt, student loans, and so on. If you have no debt, save or invest your extra paycheck.
2. Cut Back On Spending
I want to preface this by saying that we all need to spend some money on fun. If you're not having fun sometimes, you'll eventually feel miserable, and that's not the way to get by each day. That said, if your budget is tight, the rule of thumb is to eliminate some of your discretionary spending.
Discretionary spending is anything you're spending on things that you don't genuinely need. These can be things like gym memberships, video games, or going out to eat and drink.
We're going to update your budget a bit. Think about ways to cut back on your discretionary spending. Can you go out to eat one less time per month or per week? Can you cancel a subscription or membership that you aren't using much? Using an app like Trim can help!
Trim helps you find recurring charges to your bank account and credit cards and will either negotiate these charges or cancel them altogether (your choice!). For those charges that Trim can't do automatically, you will be alerted to the charges and the amount, which will allow you to cancel them manually should you choose.
After you've decided on what you can cut back on, remove (or reduce) those items from your budget. This should improve your situation, but it may be that you're still in the red or in the green, but not by a lot. Let's look at the next thing to do.
3. Go on a Spending Freeze
To boost your savings while living paycheck to paycheck, one thing to try is to go on a spending freeze. A spending freeze is when you stop all spending for a pre-determined amount of time, such as one or two weeks. When you stop spending, you force yourself to stop doing things you may do regularly, such as impulse buying or dining out.
One way to go on a spending freeze is to pay all of your bills on the first of the month and spend nothing for one or two weeks. By doing this regularly, you'll have extra money in your wallet each month that can go towards paying down debt or increasing your emergency fund.
Spending freezes can help you save money out of each paycheck particularly if you're paid weekly. One week out of each month, take your entire paycheck, or as much of it as you can, and put it into savings and don't spend it at all. Then use your other paychecks for bills and expenses.
It may not be possible to save a weekly paycheck entirely, but getting into the habit of saving some of it, and using a spending freeze to help, will add up over time.
4. Pay Down Credit Card Debt
When you're sick of living paycheck to paycheck, you'll want to tackle your debt, This might be hard to do if you're already struggling, but once you lower your spending, the idea now is to take your extra money and pay down credit card debt. Paying down debt is great across the board, but credit card debt is often the worst.
Credit cards can be risky for your financial health if not used responsibly. While responsible use of certain credit cards is a great way to get bonus rewards, if you're carrying a balance each month and paying interest, that's money you're losing out on at the end of the month.
For example, if you owe $5,000 on your credit card, and you have an APR of 17%, and you never use the card again, and only pay down the minimum payment each month, it could take you a little over 13 years to pay it off.
Not only that, but you would be paying an additional $3,363 in interest. That's 67% more than what you owed.
In that regard, if you paid an extra $100 per month towards that same credit card, it would only take just under three years, and you would only pay $1,112 in interest. That's a saving in interest of over $2,200!
Another option to help pay down credit cards is to get a personal loan where you can consolidate credit card debt to a much lower interest rate. Some personal loan companies offer rates as low as 5.99%, depending on your credit score, the reason for needing the loan, and the amount requested.
The drawback to a debt consolidation loan with a personal loan is that you can't use the debt snowball method to pay off your debts one at a time, meaning your monthly payment won't decrease until the entire loan is paid off.
Everyone's debt situation is different, and if you're considering debt consolidation, it may be beneficial to consult with a financial advisor.
The short of it? Pay down those credit cards as soon as possible.
Related Post: Too Much Debt, No Money: What To Do
5. Lower Your Fixed Expenses
Next, let's tackle your fixed expenses. These are bills that you might not be able to change, but they're still worth a look. You might be overpaying for things such as cable, internet and auto insurance. Reaching out to your service providers and asking for a lower rate can be enough to get an arrangement.
If you politely state that you're paying too much for service and want to know what the company can do to keep you as a loyal customer, many companies will either look into lowering your monthly bill or send you to someone who can. Alternatively, you can use an app like Trim that will negotiate your bills automatically.
You can also try to shop smarter for groceries! Consider buying store-brand food, using coupons, or shopping at grocery stores that offer regular discounts. You can also use a discount app, like Ibotta, to help you save on all of your shopping trips.
Still in a bind? Take a look at this article for some more ideas on how to lower your monthly living expenses.
6. Start A Side Hustle
We can only cut expenses by so much. But you know what's unlimited? Income, when done correctly. When you're not at your day job, a side hustle might be right for you.
That way you can start saving and add to your emergency savings to cover unexpected expenses and get out of the paycheck to paycheck cycle.
Start a side hustle. That is, find something that makes you money outside of your full-time job. For more detail on side hustles, here's an entire post on 20+ side hustles you can do right now.
A side hustle doesn't have to be permanent – just enough to help you save money and not live paycheck to paycheck. Having a side hustle is like getting an extra paycheck and acts as a boost to your monthly income.
7. Save Money Every Month
Now that you've saved money by budgeting your expenses make it a habit to save every month. Put that money into a high-yield savings account. If you don't already have an emergency fund, begin accumulating one in a high-yield savings account. Read my full savings account guide here.
When you save money every month, you improve your situation for the long term. Then you can cover not only your monthly expenses but also invest for your retirement and work towards financial independence.
Automating your finances can help you save money and get you out of the paycheck to paycheck grind. When you automate your finances, you put your bills on autopay and you set up recurring savings from your checking account to your savings account. This will take the micromanagement out of your money and allow you to focus on the big picture.
Once you're saving regularly, you'll be able to stop living paycheck to paycheck.
8. Make A Savings Goal To Stop Living Paycheck To Paycheck
Try to meet or exceed a monthly goal every month. Whether it's small, like $20, or large, like several hundred dollars or more, pick something reasonable. The idea is that your goal will be something to shoot for, and it will encourage you to keep at it.
It's so important to have goals, even if you don't make them all. Start small and make your goals incrementally higher until you reach a point where you are in a much better financial place.
How Much of Each Paycheck Should I Put Into Savings?
The more of each paycheck you put into savings, the quicker you'll get out of the paycheck to paycheck cycle. Start with whatever you're comfortable with, but try to get to a minimum of 10% of your paycheck as soon as possible. If you can save 10% of every paycheck, you'll be on your way to building up a buffer to protect you from future financial hardship.
Once you have three to six months worth of living expenses saved up, start investing more into your retirement account so that you can build a retirement savings for your future. If you have a 401(k) or IRA, you can invest in various funds in the stock market to help secure your retirement down the road.
How Much of Each Paycheck Should I Invest?
Similar to the above, you should invest at least 10% of each paycheck once you have saved up enough money to handle a financial emergency, which is between three and six months' of living expenses.
Investing 10% of your paycheck should be considered just the beginning. Cutting back on your monthly expenses will allow you to invest even more than 10%, which will set you up for bigger purchases you can make in the future, as well as an earlier and/or more comfortable retirement.
Wrapping It Up
It can take a decent amount of time to stop living paycheck to paycheck. It's not an overnight process, but through budgeting, lowering expenses, and saving every month; eventually, you'll begin to build up savings and have more breathing room should something unexpected come up.
When you are no longer living paycheck to paycheck, you enter step 3 of the 7 steps of financial freedom.
What steps have you done to get out of the paycheck to paycheck grind?