Tired of Living Paycheck to Paycheck? Break the Cycle With These 9 Steps
The paycheck-to-paycheck cycle is an easy one to fall into — and a hard one to break.
One of the best ways to tackle it to the cold, hard ground is to take it step by step. No, you won’t get ahead overnight. This is going to take a little time. But in the end, it’ll be worth it — and it doesn’t have to be hard.
What Does It Mean to Live Paycheck to Paycheck?
Trying to survive this lifestyle is exhausting.
Here’s what it looks like: Feeling like you’re unable to afford to grow your savings account, for one. It means that “stop buying morning coffee” advice doesn’t do anything for you, because when’s the last time you even had morning-coffee money? And way too often, you have to make sacrifices to cover your living expenses, like skipping your student loan payment to keep the water on.
Being in the middle of such financial risk is stressful, and unfortunately, it’s way more common among Americans than it should be. A Penny Hoarder analysis of Consumer Financial Protection Bureau data found:
- 56.4% of people at least sometimes have no money left over at the end of the month.
- 42% of people say it’s at least somewhat difficult to cover their monthly expenses.
- 28% of people define themselves as “just getting by financially.”
- 23% of people aren’t confident they could come up with $1,000 if an emergency arose.
- 22% of people identify with the statement, “Because of my money situation…I will never have the things I want in life”
- Almost one quarter of Americans have no savings.
How to Break the Paycheck-to-Paycheck Cycle
These numbers are bleak, but trust us: There are ways to stop living paycheck to paycheck — and we want to help.
Don’t scoff just yet. 69% of Americans expect their financial situation to improve over the next year, and 50% say they’re better off financially now than they were a year ago, according to a recent Gallup poll.
What about preventative measures? Is it possible to stay out of the cycle before you get sucked in? Of course.
Some key practices are tracking your spending, automating your savings, growing your emergency fund and diversifying your income sources.
Don’t worry, we’ll cover all of these steps, so if it feels like you never seem to have enough money, these tips can help.
1. Prioritize Your Budget
Ignore the voice in your head telling you that budgeting won’t help because your money is already spoken for. When you can visualize where you’re spending, it’s easier to see which of your spending categories can withstand a cut.
Set up your future for financial freedom with a budget that can help you find ways to save money now. If you need a place to start, consider one of these methods:
- The Envelope System: This cash-based budgeting method that will help you cut excess spending on debit and credit cards, because it calls for withdrawing cash and placing it into pre-labeled envelopes for your variable expenses (like groceries and clothing).
- The 60/20/20 Method: If a majority of your income goes to living expenses, try this method. Apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. If you have more room in your budget, try the similarly organized 50/20/30 method budget instead.
- The Zero-Based Budget: This strict system is great for those living paycheck to paycheck, and accounting for all of your income. You budget for your expenses and bills, and assign any extra money to goals. It’s also beneficial for people trying to pay off debt as fast as possible.
Finding a budget that works for you and your lifestyle might take some time, so be patient with yourself as you figure out which method works best.
2. Keep Your Spending Top of Mind to Avoid Overdoing It
Besides giving you a place to store your money safely, how does your bank account serve you? By charging you overdraft fees when Lord knows you can’t afford it?
To put it simply, online banking services are easier to use than the traditional banks. They’re cheaper and more accessible.
Chime is an online-only bank account that offers some unique features other banks haven’t caught on to yet. Its banking app sends you instant transaction alerts that tell you how much you just spent and your new balance.
No need to log in just to see where your account stands. App notifications let you know with every swipe of the card or automatic withdrawal. Oh, and as soon as it receives notification of a direct deposit from your employer, it immediately posts those funds to your account — up to two days before payday.
Plus, Chime doesn’t charge overdraft fees, monthly maintenance fees, foreign transaction fees or minimum balance fees. Its mobile app boasts more than 2,000 five-star reviews, making managing money super accessible via iPhone or Android.
Opening an account is free and only takes about five minutes.
3. Reduce Your Monthly Bills
When you’re in the thick of your day-to-day hustle, it’s easy to miss that you’re paying more for a service than you need to. An easy way to find extra money to pad your budget is by reducing your bills, and it’s easier than you think.
Pay Less for Car Insurance
While there’s not much you can do to lower some of your bills, such as rent (unfortunately), there is something you can do about your car insurance.
One way you could save money is by shopping around and comparing rates. Fortunately, a service called Gabi will do it for you. Once you link your insurance account to Gabi, it will help you switch on the spot if it finds you a better rate. Gabi says it finds an average savings of $720 per year for its customers.
Cut Unnecessary Subscriptions
If you’re like most of us, you’re probably paying for more subscriptions than you realize. Here’s a way to clear them up: Download TrueBill, an app that’ll negotiate your bills, cancel unwanted subscriptions and refund your bank fees.
On average, Truebill says it helps customers save more than $700 a year by lowering their bills, canceling necessary subscriptions and getting refunds.
Reduce Your Cell Phone Bill
If you’re sick of paying your cell phone carrier hundreds of dollars each month, look beyond the so-called Big Four and into the discount carrier Twigby.
That’s what Zak Wilson did. He’d been paying Verizon Wireless about $180 a month for two lines. So he tried Twigby. For both phones, he’s now paying $60 a month. Plus, new customers get 25% off the first 6 months of service.
4. Automate Your Savings — Even When You Think You Can’t
Saving money is tough, especially if you’re trying to make the most of a minimum wage income.
But having an emergency fund is the exit plan you’d need to fall back on if you suddenly lost your job, or if a surprise expense comes up. So how much money should you save, anyway?
While most experts recommend saving 20% of your income every month, that’s not always feasible. Start where you’re comfortable, and do it in a way where you won’t even notice.
Digit makes that possible.
This innovative app automates saving for you. Simply link it to your checking account, and its algorithms will determine small (and safe!) amounts of money to withdraw into a separate, FDIC-insured savings account.
Using this set-it-and-forget-it strategy, one Penny Hoarder saved $4,300 without noticing — read his Digit review.
You can even set safeguards. For example, if your checking account dips below $100, Digit won’t pull any money out. And if you need that money sooner than expected, you’ll always have access to it within one business day.
Digit is free to use for the first 30 days, then it’s $2.99 per month afterward.
5. Protect Your Credit Score
It’s hard to plan for your future when the present is shaky. But even if your right-now money can’t support bigger moves, you still need to protect your credit score now so it’s in good shape when you’re in a better financial situation.
The better your score, the better deal you’ll get on a mortgage, car loan or credit card. A lousy credit score means you’ll get hit with a high security deposit whenever you rent a car or move into a new apartment.
To keep a closer eye on your credit, get your credit score and a “credit report card” for free from Credit Sesame. It breaks down exactly what’s on your credit report in layman’s terms, how it affects your score and how to address it.
Because it simplifies everything, you should be able to better manage your credit, even if it’s in bad shape.
James Cooper, a motivational speaker, raised his credit score 277 points using Credit Sesame. Now he talks to high school students about the importance of having good credit and uses what he’s learned through Credit Sesame as a blueprint for his lessons.
“We want to touch the Z Generation,” Cooper says “We’re not in the business of fixing credit. We want to get to you before you have to fix your credit.”
Like Cooper, 60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.*
6. Let This Company Help You Pay off Your Debt Faster
Your credit card has had your back. It’s given you the money you needed when your checking account wasn’t enough, but thinking of how much debt you’re racking up might make feel a little anxious.
A lot of us are being crushed by credit card interest rates north of 20%. If you’re in that boat, consolidation and refinancing might be worth a look.
That’s where a company like Fiona can be helpful. It can help you find personalized lending options to refinance or consolidate your debt to potentially save thousands of dollars in interest.
Fiona will show you all the lenders willing to help you pay off your credit card and eliminate the headache of paying bills by allowing you to make one payment each month.
If your credit score is at least 620, you can borrow up to $100,000 (no collateral needed) and compare interest rates, which start at 3.84%. The idea is to secure a loan at a lower interest rate, potentially helping you save thousands. Repayment plans range from 24 to 84 months.
Take, for example, Katherine, who faced $12,000 in credit-card debt. Holding her back? The 15.24% interest rate. By refinancing with a 5%-interest, seven-year personal loan, she saved $12,000 in interest.
If she’d kept on the same road, she would have paid something like $14,000 in interest alone over 25 years. Yikes.
So even if you’re simply curious about what’s out there, know that checking rates on Fiona won’t hurt your credit score — and can probably save you in interest.
7. Stretch Your Money With These Tricks
Living paycheck-to-paycheck means you’ve probably had to juggle some bills, like skipping one to pay the other. We don’t love that (and you probably don’t, either), so instead of having to prioritize your fixed expenses, rely on your budget and these tricks to help you do less juggling and more managing:
Move your bill payment dates around.
For example, if your rent and car insurance payments are both due on the first of the month, ask to push back the due date of your car insurance so you don’t have to worry about it until your next payday. That helps free some money that can go to paying down debt or growing your savings.
Pay bills incrementally.
Even when you know it’s coming, shelling out $200 for a bill stings. To avoid spreading your money too thin, try paying in increments. That $15 you got in change after purchasing gas? Deposit it into your account and make a small bill payment — when the bill is actually due, you’ll thank yourself for chipping away at it slowly. If paying little by little isn’t an option, then save in increments and set the money aside until the due date.
Think about downsizing.
How much is your rent or mortgage? What about your car payment? Generally, your monthly necessities shouldn’t be more than 50% of your monthly income, though the 60/20/20 budgeting method allows you to account for a bit more than that. Making small cuts is great, but it’s better to make significant changes that really make a dent in your budget, like downsizing from a big house to a smaller apartment, or considering a more affordable car.
Keep a billpay calendar.
Late fees are unforgiving, and forgetting about an automatic withdrawal is the worst. On top of tracking your expenses, create alerts in your calendar for when your bills are due. You get to pay on time and avoid late fees, and you get time to prepare your bank account for the withdrawal.
Wait two days before buying something.
You’re at the mall, and you see a pair of jeans that just have to go home with you. But do they? Instead of flat out denying yourself, take 48 hours to decide whether you should buy those jeans. Giving yourself time to think about a purchase will usually make you realize that you don’t need it, and you get to save your money!
8. List Your Extra Space
Have a spare room? A couch? How about friends or family to stay with so you can free up your space? If so, you might as well try to earn some money by listing your space on Airbnb.
Having a side hustle is a great way to decrease your dependency on your primary source of income, especially if it’s inconsistent. And you get to quit waiting for your next paycheck to help you cover your expenses.
If you’re a good host with a desirable space, you could add hundreds — even thousands — of dollars to your savings account with Airbnb.
A few simple steps can make the difference between a great experience and a less-than-satisfactory one. We talked to Terence Michael, an Airbnb superhost based in Los Angeles.
Here are some of his tips:
- Break out the labelmaker. “I have the entire house loaded with labels,” Michael says. “They look nice; they’re modern. This helps people feel less helpless.”
- Be a good host, and stock your place with the toiletries you’d expect at a hotel — toilet paper, soap and towels. Here’s a little hack from Michael: “I order on Amazon and have it delivered when people are there.”
- Be kind to your neighbors. “I say, ‘I’m not going to put anyone here who I think won’t be good for you,’” Michael explains. “And I turn a lot of big groups away, especially in Nashville. I don’t want anyone going to the cops or the city.”
(Hosting laws vary from city to city. Please understand the rules and regulations applicable to your city and listing.)
9. Save Money on Nearly Everything (Without Clipping a Coupon)
Having less money doesn’t make you any less hungry, which means going to the grocery store still makes it to the top of your to-do list.
But when you’re trying to make ends meet, that sometimes means leaving a few items out of your cart. This app can help you put an end to that.
We know it sounds strange, but Ibotta will pay you cash for taking pictures of your grocery store receipts. Here’s how it works: Before heading to the store, search for items on your shopping list within the Ibotta app. When you get home, snap a photo of your receipt and scan the items’ barcodes, and earn cash back.
Ibotta is free to download. Plus, you’ll get a $20 sign-up bonus after redeeming your first 10 offers within 14 days.
Some cash-back opportunities we’ve seen include:
- 25 cents back for any item.
- 25 cents back on strawberries.
- 50 cents back on frozen fruit snacks.
- $1 back on a box of tea.
- $5 back on a case of Shiner Bock beer.
Notice a lot of those aren’t tied to a brand — just shop for the staples on your list and earn cash back!
*Credit Sesame does not guarantee any of these results, and some may even see a decrease in their credit score. Any score improvement is the result of many factors, including paying bills on time, keeping credit balances low, avoiding unnecessary inquiries, appropriate financial planning and developing better credit habits.
Farrah Daniel is an editorial Assistant at The Penny Hoarder. Write her at [email protected] to let her know some interesting ways you save money.
Data journalist Alex Mahadevan (@AlexMahadevan) contributed to this post.