How to Stop Living Paycheck to Paycheck

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Whether you get paid bi-weekly or receive sporadic paychecks from being self-employed, living paycheck to paycheck is a dangerous game to play.

And most Americans are playing this game.

According to a recent study by Charles Schwab, 59% of all Americans are living paycheck to paycheck. CNN claims that 61% of Americans would not be able to afford a $1,000 emergency.

These statistics are the “norm” for most people, but they don’t have to be your “normal”. In order to stop living paycheck to paycheck, you will need to follow the steps below.

Let’s get started!

Create a budget and track your spending

If you don’t know how much money is flowing in or out of your bank account each month, then chances are you don’t have a plan for your money.

In order to stop living paycheck to paycheck, you will need a budget so that you know exactly where your money is going each month. A budget will keep all of your expenses organized so you know exactly when each bill is due and you can plan accordingly.

If you have no idea where to even start with creating a budget, there are a number of different tools to help you out. For example, budgeting tools such as Mint.com or Personal Capital will automatically track your income and expenses.

Then you can determine which items you don’t need to spend money on each month and cut them out of your budget.

As un-sexy as having a budget sounds, it is a crucial step to stop living paycheck to paycheck. It will be the difference between blowing through all of your money and actually having some leftover each month for savings.

Pay off debt

Another way to stop living paycheck to paycheck is to pay off all debt.

This can be student loans, car loans, credit card debt, personal loans, or any other type of money that you owe to someone else.

These payments can add up each month and usually have interest attached to them.

The first step to getting rid of debt is to simply stop incurring it. You will need to shake the habit of reaching for the credit card whenever there is something you want. Or applying for loans to get stuff you don’t really need.

Then, you will need to pay off the debt you currently have. This is where that almighty budget comes in.

The easiest way to do this is to stop spending money on anything besides necessities and use whatever you have leftover to pay down your debts. Making more than the minimum payment each month is key to paying off debt quicker.

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Save up before purchasing an item

Saving up and making sure you have the money to spend will keep you from incurring more unnecessary debt. Instead of running out and buying something right away just because you want it, try using the 3-day rule. This means you will need to wait 3 days after you find an item you want to buy to think about it and decide if you need it or will actually use it.

After the 3 days is up, if you still want the item, make sure to save up for it.

You can set money aside each month or work it into the budget until you can pay for it in full without breaking the bank. The goal here is to not spend money you don’t have on items you don’t really need.

Automate your savings

One of the simplest ways to stop living paycheck to paycheck is to simply have money in the bank. You can ensure that you will always have money in the bank if you automate your savings and don’t spend it.

You can do this by setting up a portion of your paycheck to automatically get deposited into your savings account each month. Then you will let your savings grow from there.

Once you have some savings in the bank, you can then start an emergency fund in case something goes wrong. I like to keep at least 6 month’s worth of expenses in savings… just in case.

Put your savings into a high-yield savings account

As stated above, it is important to automate your savings and then leave them alone to grow.  One of the best places to keep your savings is in a high-yield savings account.

A high yield savings account is an account where you can earn interest on your money right away. If you are already transferring money to a savings account, why not transfer that money to an account that could earn you some interest in the meantime?

One of the best high-yield savings accounts is CIT Bank’s high yield savings account. They offer about 10x the national average APY and all you need is $100 to deposit to open an account.

Pay yourself first

It is common for most people to spend their money first and then save whatever money is leftover. The problem with this is you will always find ways to spend your money first before putting any of it into savings. Maybe you will go out to eat with some friends or possibly buy that pair of shoes you’ve been eyeing online.

But when you pay yourself first, it ensures that you will always have money set aside.

The concept is simple:  Before you pay your bills or spend money on anything else, set some money aside for savings first. You can put this money into one of your retirement savings (401k, Roth IRA, etc.) or your high-yield savings account. Then you use what is left over to pay your bills.

When you pay yourself first, you are creating a healthy financial habit that will ultimately help you stop living paycheck to paycheck.

Don’t give in to lifestyle inflation

What do most people do when they are given a raise or bonus from work? Most of the time they will find something new to spend it on and will then perceive these new “wants” as necessities. This is called lifestyle inflation.

Lifestyle inflation is one of the main reasons most people are living paycheck to paycheck.

It can also be completely avoided by spending the same amount that you have in the past, and when given a raise or bonus, use the extra money towards paying yourself first by putting it into savings or investing it.

As tempting as it might be to spend more money as you make more money, the idea here is to stick to your budget and live like you’re making way less than you actually do.

Live below your means

As stated above, more than 50% of Americans are living paycheck to paycheck whether they are making $45,000 per year or $200,000 per year. This shows that living paycheck to paycheck isn’t as much of an income problem as it is a spending problem.

There is a simple way to avoid this: cut back on spending and live below your means.

Living below your means goes hand in hand with not letting lifestyle inflation take control of your spending. When you realize that you really don’t need expensive shoes, glamourous nights out, and overpriced cars, you will learn to spend money on what matters and then save and invest the rest.

Make some financial sacrifices

Along with creating a budget, you may need to make some financial sacrifices as well.

To do this, look through your budget and find ways to cut back on spending each month.

This could mean making your own coffee at home instead of buying expensive coffee from a coffee shop. If you aren’t able to part ways with your morning coffee, look for ways to earn free Starbucks Gift cards.

Or maybe cancel your cable t.v. subscription. Or any subscription services for that matter.  

You could even use a service like Billshark to help significantly lower your monthly bills.

Again, if you don’t need it to survive, it is considered a luxury item that you can do without for a while.

There are many ways to lower your monthly costs. It’s as simple as checking your budget and cutting out unnecessary expenses.

Once you are able to cut back on some (or most) of your expenses, then you can start putting that money into savings or into investments to help that money grow.

Related posts:

25 Useless Household Items That Are Costing You Money

Frugal Living: 10 Things I Don’t Buy to Save Money

10 Frugal Living Tips to Start Saving Money

Stay motivated

The last step is to stay motivated and stick to your budget. Realize why you no longer wish to live paycheck to paycheck. Find your “why” and write it down.

When you start to feel discouraged along the journey, remember how difficult it is to constantly be stressing out about money. Remember how painful it is to check your bank account at the end of the month and not have anything left.

Start looking at your future and envision yourself with some savings and maybe some investments that are making you more money.

Maybe write down some long term goals or make a vision board. Where do you want to be financially in 20 years? What are you going to do to get there?

Digging yourself out of a financial hole can be difficult, but it will all be worth it once you have some money in the bank and aren’t living paycheck to paycheck!

How to Stop Living Paycheck to Paycheck

15 thoughts on “How to Stop Living Paycheck to Paycheck”

  1. Paying off debts and living within your means are two key areas to avoid living paycheck to paycheck. Avoiding lifestyle creep is also important as it stops people from saving money.

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