Living paycheck to paycheck — to put simply — is the worst.
It just plain sucks. And many times during this time period, you feel hopeless and that there is no end insight.
Besides the hopelessness, you also are putting emotional stress on yourself because you are trying to figure out how you’re going to pay your bills and have enough money until the next paycheck.
Everyone has different financial situations and circumstances that may have caused the paycheck to paycheck lifestyle, but everyone has the potential to escape it.
Below, I want to share more about fixing your financial health and some steps you can take to stop living for your next payday.
What Is Considered Living Paycheck to Paycheck?
Living paycheck to paycheck means you have no funds leftover at the end of the month because you are using your paychecks to cover your monthly expenses — and you have little to no savings or money to invest.
Paycheck to Paycheck Statistics
Before we go into some basic steps to help escape being paycheck to paycheck, I wanted to share some data around the topic.
When you live paycheck to paycheck, you may also start to feel some sort of shame or embarrassment.
I certainly did at first because I felt like I had failed as an adult and that I was behind my peers. Of course you should never compare yourself to others, but it’s a natural inclination.
But living this situation is more common than you think.
- 59% of U.S. adults said they live paycheck to paycheck, according to a recent survey from Charles Schwab.
- Only 38% of people have an emergency fund, according to this Motley Fool article.
- 1 in 5 Americans don’t have a dime saved for retirement, according to a survey from Northwestern Mutual.
And it’s not just low earners who live paycheck to paycheck either. Middle class and Upper-Middle Class also can find themselves living for their next pay period.
According to this CareerBuilder survey:
- Nearly one in 10 workers making $100,000+ live paycheck to paycheck
- 28% of workers making $50,000-$99,999 usually or always live paycheck to paycheck, and 70% are in debt
While not necessarily great to see these kind of stats, you should know that if you are in this financial predicament currently, you are not alone!
And with those stats, you can add in that although wages are growing, the purchasing power hasn’t moved much. Then factor in that the costs of everything is surpassing the growth of income too.
Check out this image from Pew Research:
Additionally, your financial struggles could be because of your own doing without realizing it due to lifestyle inflation (also called lifestyle creep) or based on the economic situation you were unfortunately delivered.
No matter the cause, there are steps you can take to help you stop from drowning and create a better financial future.
Steps to Escape Living Paycheck to Paycheck
Below are a few steps I personally took to escape living paycheck to paycheck.
Much of my struggles were my own doing, making poor financial decisions, and a lack of preparedness (you’ll see in the next section), but these can apply to your situation too.
And pending your personal finances and attitude, the timeline of escape can be shorter or longer. Ultimately, it will be on you to want to make changes and become financially stable.
1. Pay yourself first
This simple concept is a game changer to helping you save money. I know, I know it can difficult for you to save money. But hear me out.
Start putting a percentage of money into a separate savings account automatically. Keep this away from your main bank account so you are less tempted to access or spend it.
I recommend looking into some online banks, but it’s up to you.
Additionally, when you pay yourself first before paying bills, you’re establishing your savings and prioritizing how you spend your paycheck.
I started off small, like 5% each check so I ensured I could cover my bills. Then as I got more savvy, I upped the savings rate.
2. Start a side hustle that pays immediately
If your paycheck just isn’t cutting it, then you definitely should look into a side hustle. Even if your paycheck is decent, I always recommend another stream of income.
When you want to escape living paycheck to paycheck, finding ways to make extra money will be key.
Building your career and increasing your salary takes time, so a side hustle that generates income right away is huge.
And what should you do with that side hustle money? Save 100% or use it to pay down any debts you have faster.
I took on some freelance marketing gigs, which not only gave me extra money but saved me during a time period where I was unexpectedly laid off.
3. Downsize your lifestyle
As much as you might not want too, escaping paycheck to paycheck requires downsizing your lifestyle.
Sometimes it can be more extreme than you would like, but it all depends on your current financial situation.
Here are the main areas you want to downsize that can save you money:
- Housing/rent – Your home or apartment is one of the biggest expenses. It might be time to downsize or move to get a more affordable place. I had to move back with mom and dad when I was really struggling. I paid them rent, but significantly less than I would on my own. I’m fortunate I could do this for about a year and I know not everyone has that privilege. But my other option would have been to downsize the apartment for cheaper rent. Even just $100-200 can make a difference, but the more you can save the better.
- Car – For many, the option could be to get a cheaper used vehicle, borrow a car from family, or get rid of it all together and use public transportation, bike, or walk. I needed my car and decided to hang to it. Was it the right decision? Maybe not at the time, but I did. You can also get a car later in life, now is about making some sacrifices.
- Food – Costs of groceries and going out to eat really adds up, more than you think. This is a time where you start to stop going out to eat and budget/couponing for groceries. Packing lunch, cooking ahead for the week, and sticking to simple meals will help you save. You won’t be eating five star meals, but you can still eat relatively healthy and save money.
4. Understand your spending habits
Besides your main living expenses, you’ll need to take an in-depth look into your overall spending habits.
You may realize you have a spending problem, which causes you to struggle financially. Not always the case, but regardless you should grasp where your money is going and track your expenses.
You might also find ways to cut back significantly that you didn’t think existed until you get all the numbers organized.
Many will think they have a good idea about their expenses, but really have no clue. I was shocked myself at some of the places I was spending money and things that I didn’t need that I was still paying for at the time.
You may need to get aggressive and eliminate as many monthly expenses as possible to start getting out of the paycheck to paycheck cycle.
5. Limit your credit card usage
If you do have a credit card and use it often, this is the time to limit the usage or not use it at all for awhile.
Your credit card debt can crush your finances and eat way your paycheck, so don’t add more to the totals. If you can’t get control of using them, you may need to cut them up and get rid of them altogether for now.
But, this way you are not adding more money with increased interest and you can start paying down any debt.
Use the side hustle to accelerate your pay off strategy and and get out of debt. Then, you will have more from your paycheck and side hustle that can go to savings instead.
6. Don’t rely on bonuses, tax refunds, or raises
This tip is more of a mindset, but when doing anything with your finances never rely on bonuses, tax refunds, or potential raises.
When you work for someone else, there is no guarantee on anything, even if you got something in the past.
By removing this dependability, you can better manage your money and spending, so you don’t end up in a bind when that extra cash doesn’t present itself.
7. Ignore what your friends or family have
Another mindset tip that can help you escape paycheck to paycheck.
Trying to keep up a lifestyle so that you can keep up with your friends, family, or colleagues can put you in financial trouble.
This is especially true if you are barely getting by already.
Now you can start racking up more credit card debt or just frivolously spending for the sake of appearances.
The best thing you can do — no matter your income — is ignore what others have and stay focused on your finances.
Additionally, you don’t know what everyone’s financial situation is exactly like either. The ones you are trying to keep up with, could also be in massive debt or struggling to get by as well.
My Paycheck to Paycheck Story
In the previous section, I mentioned how living paycheck to paycheck was my own doing. Although I was fairly underpaid in the early days of my career, it was plenty for me to live on.
My issue was that I wanted to be independent and have things that were out of my price range. I was never a big spender or a flashy person, I just lacked caring about the math and proper money management.
Basically, I ignored the problem until I thought it would go away. My relationship with money was clearly broken. Until I woke up one day and realized I was living paycheck to paycheck.
This is not a sob story, because there are so many people who are in much tougher situations. But I wanted to share because by living beyond my means, I set myself up for financial disaster.
Although I had a career job with healthcare, I ended up with essentially $0 at the end of each pay period. I had rent, utilities, student loans, credit card, and car payment to pay.
What got me at my lowest financial point was the following:
- Not building an emergency fund prior to moving out on my own (less than $1,000 saved)
- Not tracking my spending or adding all my bills up to see where my cash was going
- Buying a new car when I had no business doing so yet (adding more debt)
- Staying in an apartment that rent cost 85% of one paycheck
- Not side hustling more and looking for a new job sooner to increase my salary
In a way though, I do not regret this time period.
I never want to relive it, but during that time I taught myself so much about personal finances and made me appreciate the value of money a whole lot more.
It took me close to two years to escape some tough financial times, but the above steps were simple and true game changers in ensuring I was creating financial goals for myself.
How do I avoid living paycheck to paycheck?
- Track your spending consistently
- Start saving money first
- Put your savings in another account
- Lower the big three expenses (Housing, Food, Transportation)
- Evaluate your wants vs. needs
- Bank your raises or extra income
- Create financial goals for yourself
What does it mean to work paycheck to paycheck?
When some works paycheck to paycheck, it represents an individual who barely meets their living expenses and relies on each check from their employer. Without the paycheck, the person would not be able to cover their financial needs.
How do I pay my debt if I live paycheck to paycheck?
- Start living more frugal
- Create a budget that you’ll stick to
- Stop using credit cards and pay off any debt
- Create an emergency fund for yourself
- Use a debt payoff method (Avalanche or Snowball)
- Negotiate companies for lower debt payments
- Find side hustles or work on increasing your income
By practicing good frugal tips (maybe even some extreme ones) for awhile, you can find extra money to use towards debt. There is a lot more sacrifices at this time, but it can help you improve your financial health while getting out of debt.
Living for each paycheck can be hard to escape and will not happen overnight. There are also many circumstances that may limit your abilities as well. But keep at it and hustle your way to more financial freedom.Have you escaped living paycheck to paycheck? Are you in the process? What steps have or are you currently taking? Let me know in the comments below.