How to Stop Living Paycheck to Paycheck
It isn’t an easy thing to stop the cycle of living paycheck to paycheck. If it were, two-thirds of Americans wouldn’t be struggling to make ends meet every month.
And yet, according to a December 2022 survey by PYMNTS.com and LendingClub, about 64% of respondents reported they were living paycheck to paycheck at the end of last year.
What can you do if you want to beat those odds and get ahead of your bills? Read on for some steps that may help you achieve financial breathing room.
Ways to Stop Living Paycheck to Paycheck
Maybe it’s inflation eating up your paycheck these days. Or maybe it’s just… life.
Either way, there are likely adjustments you can make — both big and small — to get yourself to a better place financially. Here are a few basics to consider if you’re wondering how to stop living paycheck to paycheck:
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Set a Budget
Admit it: You knew the b-word was coming.
Making a budget is the best way we know of to get a better handle on your spending and saving. It can show you where your hard-earned money is going every month — and help you nudge it in a different direction if you don’t like what you see.
Yes, it involves sitting down and doing math. But thanks to spending apps that can help you set up budget categories and monitor your money movements all in one place, the process isn’t nearly as tedious as it used to be.
You’ll probably have to tweak your budget from time to time — to deal with quarterly or seasonal bills, for example, or if costs go up. And if you’re a freelancer or seasonal worker, it can be tough to budget on a fluctuating income. But creating a comprehensive and realistic budget you can stick to through thick and thin can help you make your paycheck go further.
Focus on the Essentials
As you determine your personal budgeting categories, you’ll also be setting spending priorities. That starts with focusing on the essentials. Unless you’re still living with your parents rent-free, it can be a good idea to figure out the amount you’ll need for food, utilities, shelter, and transportation before anything else.
After that, you can play around a bit with what’s most important to you — your “needs” vs. “wants.” You may have to let go of a few things (sorry, Netflix) when you run out of money to spend.
No matter what happens, you’ll have a roof over your head and something to eat. The lights, heat, and water in your home will keep working. And you can get where you need to go.
Prepare for the Unexpected
If you’re worried that an unexpected bill could come along at any time and take a huge bite out of your finances, you aren’t alone. About 56% of Americans are unable to cover a $1,000 surprise bill with their savings, according to a 2022 survey by Bankrate.
Financial advisors typically recommend keeping at least three to six months’ worth of expenses stashed away in an emergency fund. If that amount is too daunting, you can start with a much smaller amount. Anything you can put away will help if you suddenly have to pay a medical, home, or car repair bill.
Get Out of Debt
If debt payments (credit cards, student loans, etc.) are a big part of your monthly budget, you may want to rethink your debt payoff strategy.
To truly dump your debt burden — and reclaim the money you’re paying in interest every month so you can save it or use it for other things — it can help to have a debt reduction plan. There are many options to choose from, including these popular strategies:
• The snowball method: With this strategy you put any extra money you can toward paying off your smallest debt — while making the minimum payment on the others. When that balance is paid off, you can move on to the next smallest bill, and so on — slowly eliminating all your debts.
• The avalanche method: The avalanche method focuses on high-interest debt. With this strategy, you would put any extra you can toward the credit card or loan with the highest interest rate. When that bill is paid off, you move on to the bill with the next highest interest rate, and so on.
If you’re using credit cards just to keep your head above water, you could end up drowning in debt — especially as interest rates are rising. Try to budget with your credit card wisely, instead of thinking of it as a life raft. Charge only what you can afford to pay off each month.
Increase Your Income
If your main income stream just isn’t enough — and a pay raise isn’t coming anytime soon — you may want to consider your options for earning extra cash.
That might mean taking on a side hustle (something you can do when you’re not at your regular job), selling stuff you don’t use any more, or maybe renting out a room in your home. Whatever you choose, try to make it fun (or at least bearable), so you aren’t tempted to give up. And make sure the hours, effort, and money you put into the side gig (for supplies, uniforms, etc.) are worth it and you’re really getting ahead.
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Increase Your Down Payment
A 20% down payment usually isn’t required to finance a home purchase, and most buyers put down less. (With a SoFi home loan, for example, first-time buyers may qualify for a 3% down payment.)
Your Realtor® and your lender can help you decide how much your down payment should be. But if you can scrape together more, you’ll borrow less, which means you can have lower monthly payments. You’ll also have more equity sooner, and you’ll pay back less interest over the life of the loan.
More Tips to Budget and Save Money
OK, now that we’ve covered the basics, let’s drill down to some other lifestyle changes that can help you spend less and save more:
See the Benefits of Owning Less
It’s tough to say no to buying new, or better, or more — especially when you can make online purchases with just a couple of clicks and use a credit card to pay. But embracing financial minimalism and the mantra that “less is more” can help you change your spending behavior.
Budgeting is a great way to focus on needs vs. wants, and tracking your spending with an app, or even going old-school and writing down every penny you spend in a notebook, can help you set priorities.
Sit Down and Do the Math
It’s easier to get where you want to be if you know where you are. So it can be helpful to pull out all the paperwork when you’re creating your household budget. That means sitting down with purchase receipts, bank and credit card statements, payroll info, etc., to figure out how much you’re spending every month, what you’re spending it on, and how much you actually have to spend.
Look for Things to Cut
This is the painful part. If you really want to stop living paycheck to paycheck, there’s a good chance you’re going to have to get rid of some of the things you love.
That might mean cutting back on concert or theater tickets (or just choosing cheaper seats). You might have to back off on the morning trips to Starbucks. Or cancel app subscription services. The good news is, you get to pick your priorities — as long as those things track with what you realistically have and want to spend each month.
Embrace a No-Spend Period
It’d be pretty difficult to not spend any money at all for a year — or even a week. (Although some people are trying as part of the “no-spend challenge” trend.)
But by challenging yourself to only spend on things you absolutely have to have for a pre-set period of time, you can really get a feel for what’s important to you. And of course, you save money.
You can go big or small. You can challenge yourself for a year, or a month, or a week. You can try to go without buying anything new, or limit yourself in a specific category: no spending on clothes, shoes, or jewelry; no movies (at the theater or streaming); or no eating at restaurants, for example. And you can post your progress on Twitter or Instagram — if that helps push you to keep going — or you can keep it all private in your diary.
Put Your Savings into a Separate Account
It may seem super convenient to put all your money into a checking account. But that can also make that money super easy to spend.
Funneling some of your funds into a separate savings account can help you keep your hands off your cash as you set up your emergency fund or save for other short- and long-term goals. And if you put the money into a high-yield online savings account, you typically can earn a higher interest rate than you would with a traditional checking account.
Don’t Be Afraid to Consider Drastic Changes
Some people need to make only a few minor changes to pull out of the paycheck-to-paycheck cycle. Others may need to get more radical. If you can’t get your spending under control, for example, you may need to cut up your credit cards. If you can’t afford your car payments or gas, it might make sense to take the bus or carpool to work. Or you may have to make some uncomfortable budget cuts — like going without cable or shopping at less expensive clothing stores.
When you’re thinking about what moves might help you get ahead, consider crunching the numbers first to see if the change really makes financial sense. Then, try to stay motivated by thinking about what you can do with the money you’ll save.
Avoid Lifestyle Creep
Is part of your problem caused by “lifestyle creep”? That’s when your personal cost of living increases, but so slowly you might not have noticed until you were scrambling to pay your bills.
Maybe you got a raise and thought you could afford to spend a bit more on the things you want. Or maybe your friends are earning more money than they used to — and keeping up socially is hurting you financially.
If you’re overshooting your budget every month and can’t figure out why, it may be time to reexamine your priorities and focus on the larger goals (saving for a house or college for your kids) that could slip away if you can’t get a handle on your spending.
Set Financial Goals
When you’re just winging it financially from month to month and year to year, it can be much harder to live within your means. Setting short- and long-term goals — whether it’s to reduce your debt, build your emergency fund, or save for a new car or home — can motivate you to stay on track.
When you’re setting your goals:
• Think about what you hope to accomplish and how it would make your life better. (Be specific.)
• Give yourself a timeline. (Be realistic.)
• Try to make your goals measurable. (Baby steps are OK!)
Be Patient and Stay Positive
Getting your finances on track can be a little like dieting. You’re bound to slip up from time to time. And getting to your goals may take longer than you planned.
You may even be tempted to give up completely.
But if you stick with your plan, you can improve your financial health — and feel better about yourself and your future.
Recommended: Ways to Reward Yourself Without Breaking Your Budget
Track Your Spending with an Eye Toward Saving
If your goal is to save more, you’ll have to spend less. And one way to get the ball rolling is to track your spending for at least 30 days to see where your money is going.
Once you spot the things you can change, you can start cutting back on current and future spending, and catch up on old debts. Then you can move more and more money to savings — and get closer and closer to your goals.
It may help to choose a budget strategy that focuses on saving, such as the 70-20-10 budget rule, which divides after-tax income into three basic categories: 70% to monthly spending, 20% to savings and debt repayment, and 10% to donations (or to more saving and investing).
Living paycheck to paycheck is like treading water: You may not be drowning in debt (yet), but you also aren’t getting any closer to your goals.
Instead of waiting for someone or something to come and help (Publishers Clearinghouse? Powerball®? Your Great Aunt Martha?), you can take a deep breath, get a better grip on your budget, and do what it takes to save yourself.
SoFi has some great tools available to help you through the process, including a money tracker app that can help you set goals, track your spending, monitor your credit score, and link all your accounts on one mobile dashboard. With SoFi Financial Insights, you can see how you’re doing all in one place and all for free.
What is the 70-20-10 rule for money?
The 70-20-10 rule is a budgeting strategy that focuses on both spending and saving.
What is considered not living paycheck to paycheck?
If you aren’t living paycheck to paycheck, you’re living comfortably within or below your means, you’re putting savings away for future goals, and you have an emergency account set up so unexpected bills don’t send you spiraling.
What’s the best way to stop living paycheck to paycheck?
A good first step toward ending the paycheck-to-paycheck cycle is to find out where your money is going every month, and to set up a budget that prioritizes smart spending and saving.
Photo credit: iStock/jacoblund
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