Even for individuals and households that earn a good income and pay their bills on time every month, financial security can be disrupted by even small unexpected bills or expenses.
This slim margin for error is familiar to anyone who has lived, or is currently living, paycheck to paycheck. With 64 percent of all Americans currently faced with this financial circumstance, it’s important for everyone to understand the possible risks of maintaining this slim margin for error—and to learn skills and strategies that can help you escape this precarious position.
If you’re unfamiliar with this phrase, you may be dealing with this financial situation without even realizing it. Living “paycheck to paycheck” means that your paycheck is spent or accounted for almost as soon as you receive it.
Instead of saving money or investing what’s leftover, you wind up using all of your income to cover your expenses—which prevents you from growing your net worth and/or building up an emergency fund.
If you’re living paycheck to paycheck and you want to escape this endless cycle of financial instability, you have many strategies and tips at your disposal. Here are 15 ways you change your financial situation and start improving your security and long-term planning with each new paycheck.
For many consumers, this tip is easy to say, but hard to do. Start by tracking your monthly spending through a money management tool. If you’re spending as much or more than what you earn every month, you need to look for ways to get your spending under this threshold.
As you pay more attention to your monthly budget, don’t allocate every cent of your paycheck to your spending categories. Set a budget that preserves a small amount of your paycheck—10 percent, 5 percent, or whatever you can manage—to be set aside for unplanned costs. From medical bills to parking tickets, this will help you account for surprise expenses every month.
Don’t have a savings account? Open one as soon as you can, and make the minimum deposit to get started growing your balance. Find an interest-bearing savings account so you can earn some extra money on your balance every month.
As you attempt to create space in your spending budget, review nonessential spending such as entertainment, restaurants, shopping, even coffee shop visits. Consider how you might scale back spending across these categories and make small sacrifices to build up savings over time.
If you’re struggling to find ways to reduce your monthly spending—or if you’re trying to put money toward debt repayment or other financial goals—a part-time job or side hustle can boost your income and save you from living paycheck to paycheck.
If you’ve opened a savings account but are struggling to grow its balance, you might need help in figuring out (how to save money when living paycheck to paycheck).
Automatic contributions are a great tool to protect yourself against your own worst impulses, and to help you treat savings contributions like a bill. Over time, this may help you develop a better savings habit, becoming less reliant on automation to hold yourself accountable.
Don’t let budget cutbacks be a source of disappointment. Replace some of this spending with cheaper activities—such as hiking, reading, and/or cooking—to reduce your spending while still enjoying a full, busy life.
If modest budget cuts aren’t enough to stop living paycheck to paycheck, you may want to lower your current standard of living to make your lifestyle more affordable relative to your income.
Moving into a smaller place, driving a cheaper car that doesn’t require a monthly payment, and/or taking fewer vacations can make a big difference as you try to stabilize your financial situation.
Even as a temporary solution to budget problems, a roommate can lower your living costs and provide a quick financial boost you can use to grow an emergency fund.
When you’re trying to stick to a budget, impulse purchases are an all-too-easy way to disrupt your progress. Avoid these purchases by forcing yourself to take time—several hours, or several days—before deciding whether to make a nonessential purchase.
Credit card balances and other debt can suck up net income that could otherwise help you stop living paycheck to paycheck. A more aggressive debt repayment plan may be necessary if you’re spending a lot in debt repayment every month.
The financial sacrifices required to stop living paycheck to paycheck aren’t always easy. Make sure you track your progress toward savings and budget cuts, and celebrate reaching key milestones in this journey!
Whether it’s a friend, family member or a financial advisor, accountability partners can help monitor your progress and call you out when you don’t stick to your own plan.
Living paycheck to paycheck can make it difficult to save up for big purchases. Through better financial planning, you can build savings plans into your budget and make progress with each paycheck.
A pay raise, second job or small windfall can change your financial outlook—but if you increase your spending accordingly, you can quickly lose this advantage. Consider keeping your spending the same after receiving this financial boost, even temporarily, to improve your financial security.
If you’ve attempted to make changes to stop living paycheck to paycheck, but you end up having (nothing left after bills), you may need extra help or financial relief to create a new plan, increase accountability, and leverage the help of a financial expert.
