There’s no two ways about it: figuring out how to stop living paycheck to paycheck is frustrating.
It creates a level of stress that goes beyond just red numbers in your bank account. It affects nearly every aspect of your life, from your health, to your relationships, to the life choices you end up making.
If you’re tired of living paycheck to paycheck, know that you’re not alone. According to a recent CareerBuilder survey, a full 78% of Americans have stories about living this way – but that doesn’t make it right.
In this article, we’ll give you actionable steps to get ahead on your monthly expenses, so you can ditch the worry, and finally figure out how to stop living paycheck to paycheck once and for all.
8 Steps to Stop Living Paycheck to Paycheck
The most obvious answer here is to get at least one month ahead of your bills. Simple, right?
Ideally, when the first of the month rolls around, you already know how much you need for the month and have that amount in your bank account. Then, with each paycheck throughout the month you’ll stockpile cash. When next month rolls around, you’ll already have the cash to cover those expenses.
Of course, as anyone who’s ever lived paycheck to paycheck knows, this is easier said than done. In reality, it can take a long time to get there. You basically have to save up one month’s worth of expenses while still worrying about paying this month’s expenses.
But believe it or not, anyone can do it. All you need is dedication, an action plan, and the resiliency to try again if your plan gets derailed the first go-around.
1. Identify the Problem
There are two things that affect your bank account balance, and therefore your ability to save up for the next month: income and expenses.
If your income is too low or your expenses too high, it will be difficult or impossible to get ahead. Take a few minutes and analyze your income and your expenses.
Maybe you know immediately what the problem is, such as high medical bills or outrageous student loan payments. Maybe it’s less obvious, or you’re already living a frugal lifestyle and still struggling to make ends meet. In this case, it’s possible you have more of an income problem.
The key here is to clearly identify what’s holding you back, so you can make a plan to tackle it going forward.
2. Upgrade Your Money Mindset
Everyone has certain beliefs about money. Some of these can hold you back from success. Here are some common examples:
- Everyone I know lives paycheck to paycheck, so how can I be any different?
- I already have a balance on my credit card – what’s just a bit more?
- I’ll worry about saving money later, when I’m earning more
- I work hard, so I deserve to spend money on myself
- If I earn more money, I’m a sell-out
- I’m just not good at budgeting
If any of these sound familiar, changing your mindset is central to changing your financial situation. This can be especially tricky to identify, and it can be worthwhile to work with a therapist.
Your mind is in charge of the decisions you make every day. If you have any beliefs that are holding you back, it will be hard to break out of the paycheck to paycheck cycle.
3. Write Down What You Spend
If you’re not sure where your money is disappearing to, try this: for one month, record every single purchase you make. That’s right, every last one – even if you pay in cash or on a credit card.
You can track your expenses by writing them down manually in a small journal. You can also check your bank account statements at the end of the month, as well as any credit card statements if you use a credit card.
Even if you don’t think you have a spending problem, almost anyone’s bank account can get blindsided by a few dollars here and there. By the time the end of the month rolls around, you might not have anything left at all.
This step will also help you with the next one – creating a budget.
4. Craft a New Budget
The best thing you can do to help you stop living paycheck to paycheck is to create a budget. A budget is a powerful tool that can highlight where your problem areas are.
Once you make a budget, you also have to follow it. Eventually, you’ll start to see the cracks in your financial approach.
Are you spending too much on certain things, or not earning enough overall?
Creating and following a budget doesn’t have to be a slog. There are a lot of handy tools available to help automate your budget, such as Mint or Tiller.
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Tiller at a Glance:
Tiller is similar to an expense tracker worksheet that you would create yourself, except it’s much more sophisticated. Tiller pulls information from your bank accounts and then automatically populates a Google spreadsheet for you. So, you still get the same great spreadsheet magic that you love except Tiller does all the heavy lifting and data entry for you. You can try Tiller free for 30 days, and then it is $59/year to keep.
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- 30-day free trial
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People who love spreadsheets and want to speed up the time it takes to create them; people who enjoy keeping data and records of their spending.
5. Start a Side Hustle
Even if you think you’re earning enough, almost anyone can benefit from having a little bit more money each month. This is especially true if you have a plan to save it instead of spend it.
You don’t necessarily need to go out and get another job. Instead, you can start a side hustle or a side business to make money on your own terms.
No matter what you’re interested in, there’s a side hustle for everyone.
Starting a side hustle has a lot of other benefits, too. You’re less financially dependent on your day job, you’ll learn new skills, and you’ll develop confidence.
Related: 25 Legit Ways to Make Money Online
6. Consider Refinancing or Consolidating Debt
If you’re carrying credit card or other high-interest debt, the interest payments you’re making each month could be holding you back. You can potentially free up a lot of cash in your budget if you consider refinancing or consolidating your debt for a lower interest rate.
First, a word of warning: this trick will only work if you’re able to address the underlying problem that led you to rack up high-interest debt in the first place.
If you have a habit of spending too much and carrying a credit card balance from month to month, or if you rely on your credit card to float you during emergencies, you’ll need to address these issues first.
Otherwise, you may be tempted to continue using your credit cards once you’ve freed up the balance. If you fall into this trap, you’ll not only have credit card debt – you’ll have an additional loan on top.
7. Build an Emergency Fund
Not only should you save up at least one month’s worth of expenses to stop living paycheck to paycheck, you also need to save even more in an emergency fund. That may be frustrating to hear, but an emergency fund is how you prevent yourself from sliding back into the paycheck to paycheck lifestyle.
If you don’t have an emergency fund in place, any progress you make could easily be wiped away with a single accident or car breakdown. After a while, it can seem like a case of taking one step forward and falling two steps back.
You can break that cycle by saving up an emergency fund. Most experts recommend three to six month’s worth of expenses, but that might sound overwhelming if you’re still working on saving up one month’s worth.
Instead, focus on saving up whatever you can. Many people start with a small goal of putting $500 or $1,000 into a high-yield online savings account.
Every last little penny helps. Anything you put away now is one more layer of financial security.
Related: How to Save $5,000 this Year (52-Week Money Challenge)
8. Give Your Money a Purpose with Sinking Funds
Everyone has recurring expenses that aren’t monthly. For example, you may have a semi-annual car insurance payment, or you might save up for car maintenance and repairs.
You know these expenses are coming at some point, but they still catch people by surprise. These expenses can easily derail your budget and keep you living paycheck to paycheck, unless you make a plan for them – specifically, a savings plan that gives meaning to your money.
This is where sinking funds are essential. These are mini-savings accounts where you can save up for non-monthly expenses. They can be separate savings accounts, or they can exist all together in your regular savings account, separated as line items on your budget.
For example, if you want to save up $500 for Christmas, you’ll need to set aside $41.67 per month for 12 months. If you have pets, you may consider setting aside $100 per month for when your kitty gets sick or needs shots.
Escape the Paycheck to Paycheck Cycle
Let’s be honest.
It’s not easy to get out of the paycheck to paycheck cycle. Then again, it’s also not easy to live stretched so thin, either. Which type of difficulty would you rather choose?
Choosing to escape the paycheck to paycheck cycle requires the discipline to change your habits. But if you’re fed up of being fed up with your bank acount, you can do it. We’ll be right here to help you.