How to Break the Paycheck to Paycheck Cycle

Kat Tretina

August 31, 2017  •  4 Minute Read

Financial Tips

A staggering 49 percent of Americans are living paycheck to paycheck, meaning they have no savings. They’re completely reliant on the next payday to manage their expenses; if a paycheck is late, or an unexpected emergency comes up, they have no way to handle it.

That’s a terrible feeling. When I was barely scraping by and relying on every penny of my paycheck, I was constantly stressed, scared and I even had trouble sleeping at night. I was well aware that I was one car repair or one illness away from complete financial ruin.

Finally breaking the cycle was better for my wallet and my mental well-being, but doing so is easier said than done. It’s a difficult process that requires serious work. But I promise you; you will feel so much more secure and sleep so much better when you have a financial cushion and can handle emergencies when they come up.

Here’s how to get started.

1. Know What Cash You Have to Work

Too many people only look at their bank account when they need to make a purchase or pay a bill. That approach can hurt you; without planning ahead, it’s easy to think you can afford something when you really can’t.

Instead, look at your paycheck and see how much money you make in after-tax dollars. Then, list all of your set expenses, such as rent, utilities, car payment, insurance and groceries.

The amount left over after paying for your essentials is your discretionary income. If you are like I was, you may have just a few dollars left over each month. While that was discouraging, seeing it in black and white was an eye-opener for me.

2. Cut Every Non-Essential

Once you’ve identified what money is coming in and going out, you need to be ruthless. When you’re living paycheck-to-paycheck, you likely live a pretty barebones existence to start with already. But breaking the cycle means sacrificing right now to help your future.

For example, if you already canceled cable to save money and signed up for a Netflix subscription, it’s time to cancel that subscription. While that $8.99 per month bill seems tiny, those little purchases add up over time. Cutting them can help you start a savings account. Just remind yourself that it’s temporary, and think about the peace of mind you’ll have with money in the bank.

I cut Netflix and home internet for a while. That probably sounds dull, but I used my library card to rent movies and borrow books for free. As a bonus, having time away from electronics helped me sleep better.

If you don’t know what to cut, here are a few ideas:

• If you have a smartphone with a data plan, downsize to a call-only plan, or get a basic flip phone for a fraction of the cost.
• Cancel any subscription services like NetFlix, Kindle Unlimited, or Hulu.
• If you don’t already, brown bag your lunch instead of grabbing fast food or buying meals out with friends.
• Batch your trips. Instead of doing your errands on different days, try to schedule them all at once. You’ll save gas and money.
• Quit making impulse purchases. When you’re at the grocery store or pharmacy, little treats can be tempting. But adding a lipstick or a pack of cookies every trip can cost you hundreds over time.

3. Sell What You Don’t Use

The average home has over $3,100 worth of unused items. Even if you live a frugal lifestyle, you likely have some things around the house that you don’t use anymore that could sell for a few dollars.

When I needed money, I sold gifts I didn’t use, store cards to restaurants and old books. It netted me an extra hundred dollars or so that I used to open a savings account.

Clothes, shoes, accessories, sporting equipment, children’s toys and books can all be sold on Craigslist or eBay, and the proceeds can be used to fund your nest egg.

4. Earn Additional Income

If you’re living on a shoestring budget because your job just doesn’t pay enough, consider taking on a part-time job at night or on weekends to help boost your income. Or, if you need more flexibility, you can do a side gig like delivering groceries, doing laundry or babysitting.

Since you cut your expenses to the bone, you can use the income from your second job for your savings account.

5. Save

All of this hard work is useless if you don’t save. That’s a trap I fell into when I was struggling. I worked so hard and sold so much that I felt justified in rewarding myself with the occasional splurge. But that just meant that all that hard work was for nothing since I still had zero cash in my bank account.

If you sell things online, deposit your earnings into your savings account as they come in. If you cut your expenses, set up automatic deposits to your account for the difference.

For example, if that Netflix subscription payment was due the first of the month, you could set up your bank account to automatically deposit $8.99 into savings each month. Automating the process helps prevent the temptation to spend and ensures your hard work pays off.

Ending the Cycle

Working to break the paycheck-to-paycheck cycle can be frustrating; when you can put just $20 in your bank account, it might feel worthless to keep going. That’s why it’s so important to keep things in perspective. That $20 in the bank is a start; it can cover a copay on a prescription, you can buy a few days of groceries or put gas in your car so you can get to work. Saving a little, consistently, can end the cycle and prepare you for a more secure future.