How to Stop Living Paycheck to Paycheck

Living paycheck to paycheck can be incredibly stressful because it means all of the money you bring in goes right back out by the end of the month. While this probably means you’re staying on top of your bills and paying off your debt, it also means you probably aren’t making progress toward your financial savings goals. 

Plus, one emergency or large unexpected expense can have a significant impact. 

While most U.S. workers (54%) are living paycheck to paycheck, according to a LendingClub’s recent Reality Check: Paycheck-to-Paycheck research series, there are ways to gain financial security and improve your financial circumstances so you can stop the cycle. Here are a few tips to get you started. 

Create and stick to a budget

Write down your average monthly income as well as average monthly expenses. Include the cost of your rent or mortgage, utilities, food, debt payments, gas, entertainment, and anything else you regularly pay for. Analyze where you’re spending the most and decide if it’s something you can cut back on. 

Start by ensuring your essential expenses are covered, such as food, utilities, home, and transportation. List everything else you pay for in order of importance. This can help you decide what must be paid, and where you can eliminate spending to keep money in the bank. Limit how much you budget to spend on unnecessary expenses. 

Build an emergency fund

Start with $1,000 in your fund. Even though you may be just trying to make ends meet, an emergency fund can help provide a buffer and give you peace of mind knowing you have a fallback if something unexpected happens. 

Once you’ve started building your fund, experts recommend having at least three to six months’ worth of expenses saved. Contribute as much as you can to your emergency fund until it’s built, and then leave it alone until you have that emergency. 

Paying off debt

High interest rates mean you’ll be paying off more than your original debt was worth, so the longer it takes you to pay off debt, the more you’ll be paying in the long run. Living with debt is one of the biggest things that keeps people living paycheck to paycheck because it can seem impossible to catch up. 

First, stop taking on any kind of new debt. Then, use debt repayment methods such as the debt snowball method to pay them off. With the snowball method, you start by paying off the smallest balance first, then move to the next smallest, and so on. Once those debts are paid off, you’ll get all of that money back into your wallet. 

Start a side hustle

Whether you start a part time temporary job, sell some of your stuff, or start a side hustle, find a way to make some extra money on the side. This can help support some of those unexpected expenses you may face, go toward paying off debt, or even go into your emergency fund or savings account. 

Live below your means

Even if you can afford to go out to eat, take a vacation, or make a new purchase, it doesn’t mean you should. Making more money doesn’t help if you continue spending it, so though it’s tempting, try to stick to your budget and live below your means. If you don’t spend that extra money, you’ll have it in case of an emergency or can contribute to your other savings goals. 

Cut where you can

When you’re budgeting, look at expenses you may be able to cut, even if just for the time being. Common expenses to cut may be streaming services, gym memberships, cable, eating out, etc. These temporary sacrifices can help you save what you need now so you’re more financially secure in the future. 

Plan for big purchases

Don’t make a big purchase on a whim. Instead, think about big purchases you may need to make in the next three, six, or 12 months, and start putting a little away each month instead of blowing your budget all at once. 

Plus, if you’re living paycheck to paycheck, you’ll have to be careful about what big purchases you spend on. For example, new tires for your vehicle may be necessary while that big vacation isn’t. Think about stuff you want but don’t need, and recognize that now may not be the right time. 

Automate your savings

Create a separate account just for saving. Each month, set up an automatic transfer from your checking account to that savings account to ensure you’re prioritizing savings without even having to think about it. Treat savings as a necessary expense to make sure you have what you need in the future.