How to Stop Living from Paycheck to Paycheck

Last modified: May 24, 2021

Do you struggle to make ends meet? Does time between paydays seem to stretch endlessly? 63% of Americans will answer “Yes”. Are you ready to change that? 

Are you willing to say, “I’m tired of living paycheck to paycheck!” and take action? Of course, you are – you found this article, didn’t you? Read on to learn how to stop living paycheck to paycheck and secure your financial future

What is Living from Paycheck to Paycheck?

Living from paycheck to paycheck is about more than just having the monthly income used for regular expenses. It usually means not having sufficient savings for emergencies. When something unforeseen happens, it throws the family’s finances into chaos. 

 Next, you have to get a loan or use expensive credit card debt. The debt repayments add to your problems, and you’re quickly trapped in a seemingly unending cycle. 

Feel alone? Don’t. 40% of Americans cannot afford an unforeseen expense of $400. 

Why not? Debt repayments. 

According to paycheck to paycheck statistics, 44% of Americans were already living beyond their means before COVID-19 hit.

Does it surprise you how many live paycheck to paycheck?  Are you waiting for the pandemic to end so that things can go back to normal? 

Hang on a minute – COVID-19 doesn’t deserve the credit here. The percentage of Americans living paycheck to paycheck hit a high of 78% in 2019, long before the virus started.  

This frustrating issue is something that’s not only more common than you think but also reasonably normal. Four out of ten Americans are living paycheck to paycheck with no savings and would be financially crippled by missing one month’s work. 

And, while there’s a lot of focus on uplifting low-income earners, it’s the upper-middle-income earners who may be more at risk. Those earning better salaries are considered prime targets for marketers. 

They’re likely to qualify for more credit and be under pressure to maintain a lifestyle that reflects their status. Their salaries are higher, but so are their debt burdens.

Surprised by how many Americans live paycheck to paycheck? It is shocking, but it’s also easy to get yourself into this situation. While it seems like the norm, there are good reasons to sacrifice and break the paycheck-to-paycheck cycle

What are the most common risks of living from paycheck to paycheck?

Even when you’re earning a good income, this lifestyle decimates your financial security. You’re tied into the cycle because you keep getting paid once a month. At the moment, that’s fine, because you enjoy your job. What happens when you’re tired of working for a living?

What happens if someone in your family needs urgent medical treatment? Or if you lose your job? 

Living from one paycheck to the next means: 

  • Having no protection in challenging financial times
  • Potentially being unable to repay your debt
  • Damaging your credit score through over-utilization of debt and late payments
  • Facing bankruptcy if you lose your job 

Okay, that’s enough doom and gloom. You’re tired of living paycheck to paycheck, and you want to know how to break the cycle. Let’s dive right in. 

How to Stop Living Paycheck to Paycheck

Work Out What You Spend Your Money On

When you’re living from paycheck to paycheck, you feel you don’t have spare cash. You probably have more wiggle room than you think you do. For the next month, record everything that you spend your money on. 

Create a paycheck to paycheck budget planner list of everything you pay for, including debt and rental. Look up how much interest you pay on your debt and your outstanding balance. Record these in separate columns. 

Start Paycheck Budgeting

You now have a list of everything you pay in a month and an idea of how you spend your money. Identify any unnecessary spending and cut it out. How much does that save you a month? 

Are there other ways to save? Can you move to a smaller home? Can you get a better deal on your utility bills or insurance? Get creative and see how much you can stretch the savings. 

Pay all your essentials and the minimum amount for each debtor first. Allot yourself a little money for discretionary spending. Use anything left over to create an emergency fund. You should build up savings of at least three month’s salary. 

View any bonuses you get as income you cannot spend. Use them to increase your emergency fund, pay down debt, or invest. 

Review Your Insurance

Home and auto insurance can be a lifesaver if something goes wrong. Repairing or replacing your home, car, or appliances may otherwise be impossible if you live paycheck to paycheck in America.

32% of Americans have medical debt. For 43% of those with medical bills, the amount is at least $5,000. Health insurance isn’t a luxury purchase; it’s an investment in your well-being. 

Finally, consider taking out pet insurance – we made a detailed list of the best pet insurance providers. Vet bills can add up as quickly as medical bills for humans. 

Include essential insurance when you budget by paycheck for peace of mind. 

Be Careful of Paying Debt With Debt

When you’re in a bind financially, it’s tempting to take out another loan. A consolidation loan should only be considered on the understanding that you’ll pay in a higher installment. 

While the lower installment is attractive, it means that you’ll stretch out your repayment period. You’ll end up paying far more interest in the long-term. 

Pay Extra Money Into Your Debt

To stop living from paycheck to paycheck, you must get a handle on the credit you use. Always pay the minimum installment, and then pay extra money into one debt. When that is paid off, target the next debt on the list. Prioritize your debts in one of two ways: 

  • The Snowball Method: Target the debt with the smallest balance first and settle it. This is motivating because you see your number of bills decrease.
  • The Avalanche Method: This method saves you the most interest. Prioritize the debts with the highest interest rates, irrespective of balance, first and pay them off. 

Earn Extra Income

You can soon be on your way to 6 figure incomes if you:

  • Sell items that you no longer use if they’re in good condition.
  • Get a part-time job.
  • Start a side-hustle using your unique skillset.
  • Work towards improving your qualifications and earn a promotion or get a better-paid job. 
  • Consider working as a freelancer in your spare time. Websites such as Upwork regularly post. jobs in writing, programming, and many other fields.
  • Research what others in your field earn, and compare it to your salary. If you can make a good business case for a raise, you should try.
  • Build a passive income through investing. Forego that daily latte and put the money into an ETF or good investment opportunity. 
  • Look out for useful tips on how to live on your own and save money at the same time.

In Conclusion

You now know how to stop living paycheck to paycheck. Start by reevaluating your spending, reducing your expenses, and shifting your focus to savings. By focusing on the future, you can make the sacrifices necessary to pay down your debt and secure your financial freedom. 

 

FAQs

How can I get out of debt if I live paycheck to paycheck?

It may seem complicated, but you have two options – cut back expenses, or bring in more income. A combination of the two is even better. This “extra” money is not for spending on luxuries. Where possible, don’t even count it into your income. 

Instead, use it to pay down debt or bolster your emergency fund. In a pinch, you can use it to buy essentials if your only alternative is to buy on credit. The danger of viewing it as part of your new income is that you’ll increase your spending level to match. 

If you want to get out of debt, put every dollar you can spare into your accounts. 

What is the 30-day rule?

The 30-day rule relates to changing your habits. Your current monetary behaviors don’t serve you, so change them. The 30-day rule helps you do this by making it more manageable. 

Commit to being more financially responsible for the next 30-days. Maybe you can decide not to buy take-out or spend money on clothes. Perhaps you can make your work for lunch every day. Intellectually, taking on small changes for a month is a lot easier than committing to something for the rest of your life. 

The upside is that 30 days is enough time to engrain the new habit. 

What is a good percentage to save from your paycheck?

Experts recommend saving at least 20% of your paycheck every month. More is better, but make sure that you leave yourself a discretionary budget as well. That is your mad money, and you can use it for what you like. 

It’s good to have some discretionary spending because it helps to motivate you. If you don’t spend something on yourself, you’ll start to question why you’re working at all. 

If 20% is too high for you at the moment, save what you can afford. Even putting away a dollar a month is a start. It helps you create a saving habit, and, as you see the balance grow, you’ll feel more motivated.