Paycheck to paycheck living can wear you down financially and emotionally.
Money comes in and, just as quickly, it goes back out again. You want to set something aside for savings or make a dent in your debt, but your income never seems to stretch as far as you need it to.
It’s a common financial challenge that many Americans—59% to be exact, according to a 2019 Charles Schwab study—struggle with. (It’s interesting to note that, at the same time, 59% of Americans considered themselves to be savers.) This same report found that 44% of Americans usually carry a credit card balance or have trouble paying the bills each month.
Living from one payday to the next can be chalked up to a variety of causes. Low wages, for example, can make it harder to get ahead. So can living in a higher-cost area or having a mountain of student loan debt to conquer. And, in some cases, it may simply be the result of poor money management or spending habits that are out of control.
Being caught in the paycheck to paycheck cycle isn’t pleasant, but it doesn’t have to be a permanent situation. There are steps you can take to move past it and get on the path to thriving financially.
1. Pinpoint Your Financial Trouble Spots
In order to move beyond paycheck to paycheck living, you first need to have some perspective on why your finances are in the state they’re in. A good place to start is reviewing your spending habits.
Round up your bank and credit card statements from the last three to six months. Then go over them line by line to see exactly where your money is going on a regular basis. This might be an eye-opening experience if you’re not used to tracking your spending.
The next step is looking at your income. It may be that you’re not making enough to move beyond paycheck to paycheck living because your paycheck doesn’t allow it yet.
The point of taking a fresh look at your finances is simple. If you can figure out what the biggest hurdles are, you can create a plan for overcoming them.
2. Streamline Your Spending
Budgeting and tracking your spending are two of the most powerful ways to take control of your finances. When you’re living paycheck to paycheck, they can be invaluable in breaking out of the cycle.
If you have a monthly budget, then it’s time to scrutinize it to see which expenses are needs and which ones are wants. This is where you may have to make some difficult cuts to bring your spending more in line with your income, so that you’re not relying on credit cards to fill the gap each month.
One tactic you might try to gain some traction with your budget is a spending freeze or no-spend challenge. The idea is that you commit to not spending money on anything other than essentials, such as food or housing, for a set period of time. For example, you may try a no-spend week or a month-long spending diet.
This type of money challenge can be a test of your willpower if you’ve struggled with overspending before. But if you can stick with it, it can offer you some clarity on what constitutes a need vs. a want in your budget.
3. Reevaluate Your Debt
According to New York Federal Reserve Bank data, total household debt reached $13.95 trillion in the third quarter of 2019. That amount puts it $1.3 trillion higher than the previous peak of $12.68 trillion in debt registered in the third quarter of 2008 during the midst of the financial crisis.
In other words, you’re not alone if you’re carrying credit card debt, auto loan debt, mortgage debt or student loans. Making multiple debt payments each month could easily make getting out of the paycheck to paycheck cycle much harder.
If you have debt, consider what it’s costing you in terms of the monthly payments, interest and fees. Then look at what you may be able to do to reduce some of that cost to create some financial breathing room for yourself.
Refinancing private student loans or a mortgage, for example, may result in a lower interest rate. This could also reduce your monthly payment, not to mention saving you money in interest charges.
If you have credit card debt, you may be able to get some relief by taking advantage of promotional 0% APR balance transfer offers. One thing to consider, however, is the balance transfer fee. This fee is typically $5 to $10, or 3% of the amount transferred, whichever is greater, and is added to your balance.
4. Make Planned Savings a Priority
Saving money can be an uphill battle when you live paycheck to paycheck. Sixty-nine percent of Americans have less than $1,000 in savings, according to GOBankingRates’ annual survey. Nearly 33% of survey respondents said the reason they couldn’t save was because they lived from one payday to the next.
Having some savings set aside matters because it helps you avoid taking on new debt if an unexpected expense comes up. Savings also can help with reaching larger financial goals, such as buying a home, if you’re still renting, or planning for retirement.
The secret to getting away from a paycheck to paycheck lifestyle and moving toward regular saving is to treat it like a monthly expense. Instead of making saving an afterthought, you include it as a line item on your budget just like any other bill you have to pay. This can help with ingraining the savings habit if you’re committing to paying your savings “bill” each month.
5. Automate Your Financial Life
When you live paycheck to paycheck and you’re trying to make a shift in your finances, it helps to make things as easy as possible. Automating is a good way to accomplish that.
For example, automating your monthly bill payments ensures that your essential expenses are paid and you’re not triggering late fees. Automating deposits into your savings account means you’re not tempted to spend the money that you’ve earmarked to save.
If you don’t have your bills or savings on autopilot yet, consider taking the time to set that up with your bank. Look at your budget and your paydays to make sure that the money you’ll need for bills or savings will be there when you need it. Otherwise, you may run the risk of triggering an overdraft fee.
A good way to avoid an overdraft is to create a buffer in your checking account. This is money that you keep in checking but commit to not spending. Having a small cushion can help you avoid expensive bank fees while you make the adjustment to automating your finances.
6. Consider How You Can Boost Your Income
If a too-small income is keeping you stuck living paycheck to paycheck, it’s time to brainstorm ways to change that.
For instance, this might mean taking on more hours at work if you’re paid hourly or getting a part-time job. If you have a salaried position, you may want to think about negotiating a raise or angling for a promotion to a higher-paying role.
Starting a business or side hustle also may be an avenue you want to explore. Forty-five percent of Americans have a side gig outside their regular jobs. One in three say they need the extra income their hustle generates to stay afloat financially.
When choosing a side hustle, consider how much time you can commit to it and what skills or interests you have that could be profitable. Freelancing online is a popular option, but you could just as easily cut lawns or walk the neighbors’ dogs for extra money. Finding the right side hustle is all about choosing something that works for you.
And remember to budget the extra money you’re making. Every extra dollar that comes in on top of your regular paycheck should have a job, whether it’s for saving, paying bills or paying down debt.
7. Set Clear Money Goals
Having some clear goals to work toward financially can be a motivating factor in getting out of the paycheck to paycheck pattern. If you don’t have any money goals you’re focused on, think about what you’d like to achieve with your finances.
Do you want to pay off debt, save a certain amount of money or fund an even bigger dream, such as early retirement? Once you have a goal in mind, make it as specific as possible, outlining the individual action steps you’ll need to take to reach that goal. Then, ask yourself whether that goal is realistic, based on where you are now financially.
If the goal is realistic, the final step is establishing a time frame for achieving it. Using this process to set money goals for yourself can act as an incentive to break away from the paycheck to paycheck mold and improve your financial situation.
As you set your financial goals, remember to check your progress regularly. And each time you cross a goal off your list, think about what you’d like your next one to be. This can help you continue moving forward with your finances so that, eventually, living paycheck to paycheck becomes a distant memory.
