While there’s no one specific definition of living paycheck to paycheck, it generally refers to the inability to meet financial obligations if you lose your job or have an unexpected bill because all your income goes to expenses.

In 2020, according to data compiled by Nielsen, the American Payroll Association, CareerBuilder, and the NEFE, between 50 percent and 78 percent of employees earn just enough to pay their bills each month. Missing a paycheck for them means living with overdue bills.

Those who live paycheck to paycheck often have little to no savings or find it difficult to afford basic necessities like food or medicine after bills are paid. People at all income levels can live paycheck to paycheck.

Many economists believe that, despite the stimulus checks Americans received in 2020-2021, their financial security has continued to decline since the onset of COVID.

If this sounds like you, you don’t have to stay stuck in this cycle. Here are 15 steps that can help you gain extra breathing room with your money and gain security for your financial future. 

Identify barriers to getting started

  • You already know that you’re living paycheck to paycheck, but you might not know why. The first step to breaking the cycle is figuring out why. 
    • For many people, it’s an income problem. There just isn’t enough money, which can make it more challenging to stop living this way. 
    • For others, it’s because they have too many expenses. You’re spending too much, leaving little leftover for necessities and emergencies.
  • Living paycheck to paycheck can bring about a bunch of different negative emotions: stress, anxiety, fear. And sometimes, these emotions stop you from taking action when it comes to your finances.
    • If this is you, first identify the emotion you feel. 
    • Then, remind yourself that it’s only a fleeting emotion. It doesn’t mean you’ll be stuck forever or you don't have what it takes. Dealing with money can be super stressful, so these feelings are totally normal and you're not alone. Don't let negative emotions hold you back from making changes or learning new financial strategies.
  • Even if you’re confident that you know the reason behind the problem, take a few minutes to analyze your income and expenses. The key here is to clearly identify why you’re living paycheck to paycheck so you know specifically what to tackle to change it.
  • Accept that you can't buy everything you want but don’t necessarily need. Evaluating what's worth spending money on and what isn't is what may get you out of the cycle.

Find your why and remember it

  • You have to believe that making a small change now will lead to a better life.
  • You must have a strong reason to change your habits and believe that you can make it come true.
  • Think about the big future goals you’re working toward one day.
    • A down payment on a second car that will make your family life easier
    • A down payment on a house so you can stop renting
    • Paying for your kids’ college tuition
    • Retiring comfortably
  • If you just need to think one step ahead right now and imagine a life where there’s no fear of overdraft fees or hearing your card has been declined, then focus on that. 
  • Remember your why
    • When you’re working your “additional” job
    • When you hold back from hitting “add to cart” even though you really want (but don’t need) the shoes
    • When you make your own coffee and skip the barista

Set financial goals

  • Translate your future goals into financial goals. 
  • These goals are important because they’ll keep you focused on what you’re doing.
  •  They’ll serve as your “why” when it gets difficult to stay on your budget.
  • Write them down and put them somewhere you can look at them, like the bathroom mirror or fridge door. Revisit them as you start to make progress on your debt, savings, and budget.

Budget, budget, budget.  Budgeting is the foundation for all money management, and it’s the first step toward ending the paycheck-to-paycheck life. When you budget, you know where  your money is going instead of wondering why it’s all gone.

  • To set up your budget, write down your income and then start subtracting your expenses. The four essentials should be your top priority, so make sure your budget is ready to pay for these before anything else:
    • Food
    • Utilities
    • Shelter
    • Transportation
  • Take a hard look and reduce cost where possible.
  • After you take care of these, make a list of everything else you need to pay (not want to spend) and tackle it in order of importance. 
  • Audit your past spending to ~stop the bleeding~ by figuring out where your money is really going.
  • Turn to your want-to-haves (not need) and identify places to cut this type of spending.
  • Use a bare-bones budget for a month or two to reset your spending habits.
  • Use your budget to plan your spending, especially in areas like grocery shopping that can add up fast.

Build an emergency fund

  • Saving for an emergency fund means that money should come out first, ahead of the rest of your spending. Set up an automatic transfer on paydays from your checking account to an emergency savings account. The more you can put on autopilot, the better.

Make a plan to manage your debt

  • Write down your debt total, monthly minimum, and interest rate, and look at your budget to see if it's possible for you to pay more than the minimum, re-finance or transfer your balance to a lower interest rate loan.

Sell stuff

  • Now it’s time to bring in more money! One of the easiest ways to get your hands on some extra cash is by selling whatever you can.
    • jewelry or clothes you don’t wear
    • baby items now that the kids are in college
    • the extra car (and extra car loan)
    • If you can part with something and get cash, do it!

Supplement your income

  • Some great options for making extra money are: 
    • waiting tables
    • being a barista
    • small home repairs 
    • working at a call center 
    • work-from-home side hustles you can do after hours or on the weekend
      • in-home babysitting 
      • pet sitting services
  • Use the money to start a savings account or emergency fund.
  • Once you get some money in savings and debt under control, you are on the right path!

Live below your means

  • A lot of people think that increasing their income will fix their financial situation, but this might not always be the case. What often happens is that your standard of living increases WITH the increase in income — and the paycheck-to-paycheck cycle continues.  That’s called lifestyle creep or lifestyle inflation. All of a sudden, you can afford things you couldn’t before—and you might start becoming pretty loose with those purse strings.
  • Remember why you took on that extra job in the first place. Stay intentional and stick to your budget.
    • Look for any area in your budget where you can spend less:
    • Cut cable costs
    • Downgrade internet and phone service 
    • Go to the library and parks instead of spending entertainment money 
    • Stop eating out as much.  Cutting down by two meals a month could save as much as $2000 a year!

Save up for big necessary purchases 

  • If you see something coming, like you notice the tread is getting real worn on your tires, save up and pay cash.
    • Make savings automatic. Set up an automatic transfer on paydays from your checking account to the savings account of your choice. The more you can put on autopilot, the better.
    •  If you can easily transfer funds same day from a savings account to a checking account at the same bank, those funds will often get spent. Use an account that is not very accessible like a money market account or an interest-earning savings account instead.
  • Say no to the non-essential wants (for now).

Make necessary lifestyle changes if possible

  • These options fall under options to achieve longer term goals and strategies:
    • Relocate or downsize
    • Go back to school
    • Switch careers

Choose someone to help you stay on track

  • Work with an advisor, relative, spouse or a trusted friend to increase your chances of success. 
  • Check in regularly and celebrate successes.

Be patient with yourself

  • Moving to a savings mind frame for someone who hasn’t saved can be difficult. 
  • It’s hard to break habitual spending habits and change emotions and feelings toward money but it is do-able.

Make time to learn about finances every week

  • Every week, find 15 to 20 minutes to check your balances and expand your financial knowledge. 
    • Check a finance news site in the morning 
    • Listen to a podcast when you're stuck in traffic 
    • Follow reputable finance experts on social media
    • Read a chapter of a book about money management
    • The more you learn about finance, the easier it'll become to make positive choices and adopt healthier habits

Remind yourself to think about the big picture

  • Which situation would you rather be in?
    • Putting in effort over the next year or so to learn more about financial wellness and healthy money habits or;
    • Keep guessing what to do financially for the next 30–60 years and hoping it’ll work out?
  • Both situations probably will make you uncomfortable. But taking the temporary discomfort of learning new skills over a lifetime of anxiety is the right path to a positive lifestyle.
  • Remember, getting out of the cycle isn't easy but it IS achievable.

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