How To Stop Living Paycheck to Paycheck

Learning how to stop living paycheck to paycheck is something far too many people have to consider throughout their lifetime. With the rising costs of living and caps on pay, it is no wonder more families are trying to make ends meet.

Let’s talk about some of the best tips to help you manage your money so that you can stop living paycheck to paycheck.

woman working on laptop and calculator budget

Is Living Paycheck to Paycheck Normal?

It is more common now than ever before for families to be living paycheck to paycheck. According to a survey from October 2020, nearly 63% of people in the United States said they were living paycheck to paycheck. 44% of survey participants acknowledged they lived beyond their means, with 26% noting they don’t have a stable income.

With that said, currently, it is normal for families to be living without the ability to establish a nest egg or savings. Then again, just because it is normal doesn’t mean you should have to! There is a multitude of steps that you can take to improve your finances so that you have more financial cushioning.

What Is Considered Living Paycheck to Paycheck?

Before we get started, it is important to note a significant difference between living within your means and pay-to-pay. Technically, this commonly used phrase relates to individuals who can’t afford their current lifestyle if unemployed. It also refers to individuals who don’t have enough income to establish a substantial savings account.

All in all, if you are living check to check, you are more at risk for a significant financial fallout than others.

What Are the Steps To Quit Living Paycheck to Paycheck?

Knowing all of the steps you can take to learn how to save money when living paycheck to paycheck is essential. In this guide, we are going to explore two primary components of becoming financially stable. There is plenty to consider, from saving your money to learning how to pay off debt when you live paycheck to paycheck.

Let’s start with some of the proven advice I have been able to put to work for me in the past.

Step 1: Audit Your Spending

The first thing every person and couple should do before managing finances is completing a personal audit. You are going to want to check to see where your money is going and whether you are hemorrhaging finances. One example is if you are paying for subscription services that you forgot about or never used.

Having a clear list of the things you are spending your income on can give you valuable insights. Not only will it help you get your mentality about saving in check, but it also shows you where you can save. I remind myself every day that my money isn’t randomly disappearing; I am spending it.

Step 2: Make an Itemized List of Expenses

With a clear idea of where your money is going, it is time to begin making your itemized list. In this list, you will want to focus on everything you spend money on each month. These items could range from a cup of coffee from your local cafe to the utilities for your home.

It is essential to ensure you categorize your spending so that it is laid out in an easy-to-read manner. Otherwise, looking at all of your expenses can get very overwhelming, forcing you to lose motivation. Organizing my expenses into categories also helped me decide what was essential and what was not.

One of my biggest tips for this step is to list everything in order of importance rather than cost. Some of your most expensive purchases could be more important than lesser expenditures. For example, your rent or mortgage is expensive but more important than a $50 coffee allowance.

Step 3: Establish a Budget

Depending on the financial advice you seek, you might hear that budgeting isn’t worth the effort. However, budgeting is one of the most important things I have implemented in my day-to-day life. Without a budget, I wouldn’t have a single clue of how much money I can spend weekly while still maintaining my savings.

While learning how to save money when living paycheck to paycheck, this is one of the most valuable tips. You will find that budgeting shows you how much of your income goes to specific expenses and what can be saved. Considering you likely don’t have any disposable income, you will have to manage your pennies efficiently.

There are two main ways you can begin establishing a budget, either on your own or with the help of an app. Apps can be handy for first-time budgeters because they do the majority of work for you. Typically, all you have to do is input your finances and expenses, and the app creates an ideal budget.

If you have any adjustments that you want to make, you can do so within the app. Within a few minutes, you will have a fully personalized plan that takes far less effort than creating your own.

On the other hand, some people prefer to have a more hands-on approach to budgeting. In this case, I highly recommend learning the ins and outs of Microsoft Excel. With Excel, you can create a spreadsheet that accounts for your non negotiables and fluctuating costs. You can also organize each column by several filters so that it is laid out in your desired format.

Step 4: Making the Cuts

This next step is the main thing I wasn’t looking forward to after crafting my budget. It is now time to look at your expenses and determine if there is anything that you can let go of.

Living paycheck to paycheck typically means you don’t have a lot of money to throw around. However, there are likely a few things on your list that you can live without. For example, eating out at restaurants, shopping at more expensive grocery stores, and even movie rentals. By limiting these expenses, you will start to free up some income to be put into your savings.

Step 5: Put Freed Money Aside

It can take a few months before you begin to see a significant improvement in your overall savings. While waiting for the benefits of cutting costs to pay off, I highly recommend putting the money aside.

Savings accounts can be incredibly beneficial for this task, especially for short-term financial storage. Also, you can typically open a savings account directly through your banking app or online banking.

When you get the extra income from cutting expenses every month, store it away in a savings account. You should also consider putting a withdrawal limit on the account to ensure you don’t spend your savings early.

Step 6: Maintain Your Emergency Backup Account

After several months of putting small amounts of money aside, you have likely created an emergency backup account. This funding needs to stay untouched, as it will offer blanket coverage for an unexpected expense.

By establishing this fund, you are already well on your way to quitting living paycheck to paycheck, as you have a backup. The best part is that it takes little effort. All you have to do is cut back on unnecessary expenses that were once bleeding your accounts.

Over time, your emergency backup account will grow larger and larger, but you should consider a cap. For example, my cap was $2,000, everything after that amount was put into separate accounts and investments.

Step 7: Pay Off Debt

There is no doubt that learning how to pay off debt when you live paycheck to paycheck is essential. Between the principal balance of your debt and the interest rates affixed to the amount owing, it could seem impossible to pay down. However, by maintaining the same mentality you have already established, you can begin taking a chunk out of debt.

Like earlier, you are going to want to make another itemized list of your liabilities. Every debt that you owe, ranging from your cell phone to family loans, should be on the list. You will then want to put the interest rates beside each listed debt, as this is an important figure to know.

There are two ways that you can approach paying down debt, depending on preference. You can either pay the debt off by total amount or based on the highest amount of interest. Opting to tackle the highest principals might be the better choice because it keeps you motivated in becoming debt-free.

You will find the smallest amounts can be tackled faster, which gets you excited for dealing with the more significant amounts. On the other hand, I know plenty of people who prefer to pay down the highest interest debts first. Considering interest is the money you are paying to the bank and not the principal, it is another good option.

Step 8: Acquiring More Income

Something that is always forgotten when it comes to tips about managing finances is finding more income. When you are in a stable career, it can be challenging to consider switching jobs, especially with the job market’s volatility.

With that said, acquiring more income doesn’t necessarily mean that you have to switch careers or fields. Instead, you can look for ways to acquire more income on top of your current job.

For example, you can try picking up a second, part-time job, also known as a side-hustle. If you are able to allocate some of your free time to earn more money, it is well worth the investment.

There are multiple ways to increase your income, whether approaching your boss for a raise or taking more shifts. You could also consider other part-time gigs, such as delivering food orders or even couriering documents. There are plenty of fascinating jobs in the gig market to take advantage of for a little extra income.

Step 9: Learning How to Invest

If there is one tip that I give to everyone interested in learning how to avoid living paycheck to paycheck, it is investing. Although you might not have disposable income at the start, you eventually will by saving and putting your money aside. When you have the opportunity, look into high-interest savings accounts, bonds, and stocks.

By investing your money, you are making it work for you rather than sitting stagnant in a regular savings account. Also, the more you invest, the higher the likelihood of a bigger return. Talking to a financial advisor can be beneficial for first-time investors.

How To Stop Living Paycheck to Paycheck

Figuring out how to stop living paycheck to paycheck can give you the air you need to finally breathe freely. There are multiple ways to increase the totals in your accounts, primarily by limiting spending. With patience and determination, you will have the income to fall back on, if and when needed.

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Kristen is the founder and content creator at Mom Managing Chaos where she teaches busy moms how to simplify and organize their life and finances. She writes about frugal living, budgeting, productivity and organization.