5 Tips to Break the Paycheck-to-Paycheck Cycle

You may be familiar with the phrase, “living paycheck-to-paycheck” — it might even resonate with your current financial situation. If you’d put yourself under this category, you’re not alone. According to a 2017 CareerBuilder survey, 78% of U.S. workers say they live paycheck to paycheck.

Although there may be larger factors at play, like your state’s minimum wage or your area’s cost of living, there are a few areas in your daily financial picture that you can control. To help the cycle of a paycheck-to-paycheck lifestyle, try implementing these steps.

1. Start with what you’re working with

The beginning of every fixer-upper strategy is stepping back and taking a bird’s-eye view of your finances. Gather all of your pay stubs, deposit accounts, monthly bills, and receipts. You need to determine how much income you have and outgoing expenses. 

Once you have all of this information in front of you, you’ll need to separate your core living expenses from the rest of your monthly costs. Core living expenses include your mortgage or rent, monthly car payment, loan and credit card payments, household utilities, groceries, etc. These are areas of your budget that are non-negotiable.

2. Cut expenses, mercilessly

When you’re living paycheck-to-paycheck, creating a budget might feel like the obvious next step. We’ll get to that part in a second — but when you’re trying to make ends meet, it’s important to identify spending areas that can be instantly cut or dramatically reduced now.

Some ways to cut spending bloat:

  • Lower credit card rates. If you’re stuck in debt and are rolling balances into the next month, call your card issuer to see if they’re willing to lower your interest rate. This will help you spend less on monthly interest as you work your way out of living paycheck-to-paycheck.

  • Cancel unused subscriptions. Look at any unused or minimally used subscriptions (e.g. magazines, streaming, apps, etc.) Limit yourself to 1-2 subscriptions that you value and use daily. Then, ditch the rest.

  • Negotiate service packages. Contact your service providers, like your cellular and internet provider to see if they offer discounts or reduced package bundles. 

These are areas that can make an immediate and felt impact on your monthly finances.

3. Create a goal-oriented budget

After you’ve cleared some extra funds in your monthly cash flow, it’s time to create a budget to help you accomplish a few goals:

  1. Make on-time payments toward non-negotiable bills

  2. Build an emergency savings fund

  3. Pay off existing debt

Focusing your budget around these main goals can help you stay afloat month-over-month when it comes to life essentials. These “must-haves” include keeping a roof over your head, maintaining a balanced diet, and, well — keeping the lights on. This goal addresses what needs to happen “now”.

Related: 5 Tips to Help You Save on a Tight Budget

Prioritizing an emergency fund and repaying existing debt, on the other hand, sets you up for a future away from living paycheck-to-paycheck. From the recovered cash flow you got by cutting needless expenses, start an automated savings fund for a small amount (maybe $25 per paycheck, or the cost of a canceled subscription). 

While you have your savings grow in the background, put as much as you can toward paying down your debt. The objective here is to work toward a financial picture that’s more manageable and sustainable. 

4. Ditch the credit cards

Turning to credit cards can feel like a temporary relief when you’re living paycheck to paycheck. Although making a purchase on credit can feel like a lifeline, adding more debt to your name only results in a long-term battle when you’re already struggling.

Commit to cutting up your credit cards, if necessary. Breaking away from the paycheck-to-paycheck cycle will take time so remove any opportunities for temptation.

5. Work windfalls into your plan

When you’re short on cash, it’s natural to look forward to lump sums of cash, like a holiday bonus or tax refund. After putting in so much effort to aggressively cut expenses, budget, save money, and pay off debt, you might feel inclined to let your finances slack and indulge.

While treating yourself to something modest is deserved, like a dinner out with your partner or buying a ticket to a concert, make sure to put the bulk of that windfall toward your greater goals — growing your savings or making a larger payment toward your debt.

Once you’re debt-free and have an emergency savings cushion to fall back on, you’re closer to being free of the paycheck-to-paycheck cycle. 

5 Tips to Break the Paycheck-to-Paycheck Cycle is written by The Financial Gym Team for

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