Living paycheck to paycheck isn’t just financially challenging; it’s incredibly stressful. For many households, being that close to the financial edge every single pay period seems like an inescapable situation. Fortunately, there is a way to break the chains and move toward something better. If you’re trying to figure out how to stop living paycheck to paycheck, here are some tips that can help you become financially free.
Closely Examine Your Spending
The first thing you need to do if you want to figure out how to stop living paycheck to paycheck is to take a close look at all of your spending. That means going beyond your typical monthly bills and debt payments. You need to determine where every single dollar (or penny) is going each month, allowing you to identify leaks that are putting a strain on your budget.
Usually, this involves examining all of your spending from at least the past three to six months. You need to figure out where your money is going, ensuring you can see the patterns or habits that aren’t serving you well.
Additionally, spend time thinking about your spending motivations for anything that’s not related to a genuine necessity. Do you struggle with impulse purchases during routine grocery trips? Have you made exploring products online when you’re bored a habit? Do you shop in response to emotional distress?
By understanding not just where your money is going but also why you’re spending in that manner, you’re giving yourself the ability to make sounder decisions moving forward. You can set up barriers or select alternatives to help break bad habits, allowing you to adjust your spending and ensure your financial future.
Set Up a Workable Budget
While part of examining your spending focuses on identifying leaks, it also provides you with critical information about your regular expenses. One reason many people struggle to create a workable budget is they can’t accurately estimate how much money they need to dedicate to specific spending categories. After reviewing three to six months of data, it’s far easier to identify realistic targets, allowing you to create a budget that aligns with reality.
Begin by accounting for necessities like rent, mortgage payments, utilities, minimum debt payments, insurance premiums, groceries, and transportation. Determine which ones are fixed and which ones you can potentially alter, separating out the viable targets if you need to cut back.
After that, add in costs that you can potentially eliminate or significantly reduce. Entertainment, dining out, high-cost self-care, delivery services, beyond-necessity clothing, and similar expenses usually belong in this category.
Once you do that, compare the total cost of your expenses to your income. If your outgoing money is close to (or in excess of) what you bring in, then reductions are usually necessary. Determine what non-necessities are worth targeting. Maybe you could pare down on streaming services, stop dining out, or take other steps to free up cash.
Additionally, see if you can find cheaper alternatives to any necessities. For example, could you change to a lower-cost cellphone or internet plan? You could also see if you can get more affordable auto, home, or renters’ insurance by switching providers.
The goal is to cut back enough to ensure your income exceeds your monthly spending. By doing so, you can get on a path that makes living paycheck to paycheck a thing of the past.
Increase Your Income
When your expenses and income are too close together, you don’t have any money left to tackle other financial goals. If you’ve cut back your expenses as far as possible and still can’t break the cycle of living paycheck to paycheck, then finding ways to earn more income is the logical next step.
If you’ve been working in your current position for a while, haven’t received a raise recently, and have a history of meeting or exceeding expectations, then asking for a raise is potentially worthwhile. Before you meet with your manager, spend time looking at your recent performance and gather examples of successes. That way, you can justify your request with greater ease and increase the odds that they’ll agree.
Another option is to look for a higher-paying position elsewhere. This is worth considering if you have in-demand skills and the average salary in your area for people with your capabilities is higher than what you’re currently receiving, particularly if your current employer isn’t willing to increase your pay rate.
If you have multiple working-age people in your household and they’re not all financially contributing, you can also see if they can pitch in to create more room in the budget. Be honest about the current situation and find out if they’d be willing to contribute.
Finally, you can also explore getting a second job or a side gig. There are many flexible options available, allowing you to continue working in your current position while also securing income through another employer.
Set Up an Emergency Fund
As soon as you’re able to set money aside in savings, make creating an emergency fund a priority. By having at least $1,000 in an account to handle the unexpected, you can avoid having to turn to debt to cover an emergency. Essentially, it allows you to build a cushion. Along with making the unexpected easier to manage, it can provide a lot of peace of mind. Plus, if you choose a high-yield savings account to hold the money, it’ll earn interest and grow faster.
You don’t need a lot of cash to start an emergency fund. Even setting aside $10 per week will allow you to build one up over time, so don’t let having to begin small prevent you from getting started.
Get Guidance from a Professional
If your financial situation is especially challenging, there are free resources available that can help you find a viable path. Certified non-profit credit counseling organizations are an excellent place to turn. They often have educational materials and workshops available that can prove valuable. In some cases, credit counselors can even help you make a budget or figure out how to get your financial footing at no cost to you.
By working with a reputable credit counseling organization, they may even be able to create a debt management plan that can reduce your costs. For example, they might be able to negotiate with your lenders on your behalf, as well as wrap up all of your debt obligations into a single, convenient monthly payment. While they may charge a small monthly fee for the service, the overall savings typically more than offset it. Just make sure you find a reputable agency, such as one that’s certified by the National Foundation for Credit Counseling (NFCC).
Use Your Why as Motivation
In many cases, breaking the cycle of living paycheck to paycheck means making some sacrifices along the way. You may need to forgo activities or spending that you enjoy, and that’s not easy.
What’s important to remember is why you’re trying to better your financial position. By keeping that in mind, you can stay motivated.
Additionally, it’s also critical to remember that sacrifices today can lead to a brighter tomorrow. As you right your financial ship, you can achieve vital goals. Plus, once your financial house is in order, you may have more room in your budget for niceties, allowing you to loosen up without having to return to paycheck-to-paycheck living.
Do you have any more tips that can help people figure out how to stop living from paycheck to paycheck? Have you tried any of the strategies above and want to tell others about your experience? Share your thoughts in the comments below.
Read More:
- 10 Signs You Should Start Budgeting More Seriously
- Penny Pinchers’ Paradise: The Crème de la Crème of Budget Planners
- How to Ensure Your Budget Is Working for You
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.