Are you feeling the pinch and want to stop living paycheck to paycheck?
Well, first off, you’re certainly not alone. Most Americans are living just one paycheck away from financial disaster. The constant stress of worrying about your financial situation has a ripple effect into every other area of life that can become debilitating. Finding a way to get your spending habits in check and defining your financial goals can improve not only your bank account, but also your health, welfare, and general outlook on life.
So how can you break free of this vicious cycle and stop living paycheck to paycheck?
How to Stop Living Paycheck to Paycheck
When a situation feels impossible, it’s easy to go into avoidance mode. That’s not the move if you really want to break the cycle.
1. Start Tracking What You Spend
You’ve gotten to a point where you want to stop living like this: stressed about your finances, and that’s a crucial first step. Next, you want to bring more awareness to what you’re spending money on. Chances are, some of your spending probably doesn’t actually line up with what’s important to you. Pay attention to where your dollars go and start taking notes about what you want to cut down on.
2. Make a Spending Plan
It’s silly to say you’re never going to spend money again, but the key is to make a plan to spend your money intentionally on the things that matter to you. Put another way, You Need a Budget.
A spending plan will help you make sure you have money for your essential bills and keep your priorities top of mind for the rest of your dollars.
3. Start Building an Opportunity Gap
When you’re living under the strain of the paycheck-to-paycheck cycle, you’re taking two steps forward every time you take money in, but then you take two steps back because you spend all the money you just made.
The key is to start to save money—even if it’s just a small portion of what you earn. Even $20 a month here, $50 a month there adds up over time. All of a sudden, you’re taking two steps forward and then just 1.5 steps back. This is how you start making forward progress!
I call this the “opportunity gap.” Let’s say you take in $2500 a month. If you’re doing math in your head to figure out how close you can get to the edge of that $2500 mark by adding up your car payment, rent, debt payments, and living expenses, then you’re doing the math with the wrong number.
Try doing the math with $2250, or even $2000. This starts building in your “opportunity gap” and helps make that forward progress.
Do this intentionally, and set this money aside before you spend it on anything else. A budget helps you earmark this money so you don’t spend it and end up right where you started last month.
4. Start Living on Last Month’s Money
Don’t fret if you don’t have a month’s worth of money lying around in your checking account so you can go an entire month without touching a new paycheck. It’s okay if you don’t have this type of money and can’t stop living paycheck to paycheck…yet!
Start selling some things, lots of things if you have to, take an extra job or pick up a side hustle to make some extra cash for a little while, get crazy about scraping by for exactly 30 days—just enough to eke through the month without touching any of that month’s paychecks.
What you make in January, spend in February. During February, you’ll be making February’s income, you’ll have reserves built up, and you’ll be spending January’s money. It’s a built-in emergency fund, and it’s a beautiful thing.
Even if you sold some of your most prized possessions, the long term financial security you would feel from having a one-month buffer built into your financial system would be worth it. Don’t stand teetering on the edge of financial ruin. You owe it to yourself to get out of this trap—stop living paycheck to paycheck now!
Budgeting can help you break the paycheck to paycheck cycle forever. Stick around, learn about personal finance in a fun and easy way, and take control of your money.
YNAB has helped hundreds of thousands of people that started just like you—stressed about when bills were going to hit. Sign up for a free 34-day trial of You Need a Budget, learn the Four Rules of YNAB, and we’ll walk with you every step of the way.