How to Stop Living Paycheck to Paycheck in 9 Steps

Renee Layberry
Jun 21, 2021

If you want to know how to stop living paycheck to paycheck you need to start incorporating better spending and saving habits into your daily life. Here are some of our favorites we know will hold you accountable.


A healthy personal budget needs to contain a space for savings. If you have no spare money to set aside each month, it'll be hard to deal with financial emergencies without building up debt, and it'll make a comfortable future retirement increasingly difficult to achieve.


If you're always clearing your bank account every month, with no extra cash left over to set aside, you're not alone. It's estimated that up to three-quarters of working Americans live paycheck to paycheck, with the percentage rising even higher when economic times are harder.


However, it's possible to break free from the cycle of spending all that you earn. By taking control of your budget and making some room for regular saving, you can ease the pressure at the end of the month and start to build a vital financial buffer. Here's how to stop living paycheck to paycheck in 9 straightforward steps.


1. Get a Hold of Your Spending Habits

It may sound obvious, but if you're spending all of your income each month, you need to identify exactly where your money is going if you want to change the situation. Start by making a note of everything you spend over the next month, whether it's by cash, automatic bank payments, or storing up a balance on your cards.


Divide your list of spending habits into 2 categories: 

  1. Essentials: Such as rent or mortgage, energy bills, loan or credit card repayments, essential groceries, and so on.
  2. Non-Essentials: Discretionary spending which covers everything else, including entertainment, food and drink luxuries, subscriptions, and other things which are nice to have but not essential.


For some people, even this simple step can be enough to reduce monthly spending, as it can reveal areas where you tend to overspend without really noticing how the amounts build up. When your habits are set out in black and white, it's much easier to see where potential problems may lie.


But for most people, taking a more detailed look at monthly spending is the next step toward escaping the paycheck-to-paycheck treadmill.


2. Examine Your Essential Expenses 

Next, take a look at your list of essential expenses. As a general rule, they shouldn't add up to more than a third of your monthly gross income. If they're higher, then it's likely you can't support your current budget in the long term without building up some level of debt.


But whether you're above or below that threshold, see if you can find a way to reduce every essential expense you have. Here are a few ideas:


  • Downsizing your car could save on fuel and insurance costs
  • Switching your cellphone to a more competitive plan could save you a few dollars each month
  • Change your energy provider to get a lower tariff


Most people find they can reduce their essential expenses with a little examination, and even small savings on each item can add up to a worthwhile sum at the end of the month.


3. Prioritize Discretionary Spending 

Discretionary spending is non-essential spending, typically these are the most costly but the least important. For example, a monthly cable or streaming subscription which you don't fully use could be cut back to a less comprehensive package. An expensive gym membership could maybe be canceled, with your exercise taken in other ways.


The aim isn't to cut back on all the things that make life worth living, but just to see which ones are a drain on your finances without providing a genuine benefit. Slimming down your discretionary spending will still let you enjoy your most important pleasures, but also give you more leeway at the end of the month.



4. Draw Up a Bare-Bones Budget 

Now that you know exactly what you're spending and have maybe found a few ways to cut back, it's time to draw up a bare-bones budget covering all your essential costs plus an allowed amount for 'nice to haves'. As you go through the month, record your spending and compare it against your budget to make sure you're not going too far off track.


It's much easier to rein in overspending early in the month, rather than coping with a severe shortfall at the end.


5. Get Organized with Spending 

For grocery shopping and other items with variable costs, try planning your spending in detail beforehand. For example, write up your menus in advance and buy only the groceries you'll need each week. Even small reductions in wasted purchases will add up to some valuable financial elbow room over the course of a few months.


6. Put Your Savings on Autopilot 

Hopefully, your new budget will leave you with a little spare cash at the end of the month, which you can use to build a financial buffer. But rather than waiting to see how much you can afford to save each month, decide on a set amount and set up a transfer to automate your savings each time you receive a paycheck.


This makes it much more likely you'll save a worthwhile amount, but you'll still have the cash available if you have a genuine need for it.


7. Hide Your Savings 

But while transferring a regular amount into a savings account is a great start, as your savings start to grow it's helpful to move most of the balance to an account that's less easy to access. Maybe set up an account at a different bank, with no ATM card or linked online banking facilities. Your savings will still be there if you need them, but you'll be much less tempted to dip into the balance if it takes effort to reach.


8. Tackle Expensive Debt 

If you're carrying a credit card balance, or another expensive form of debt, the interest charges will be a constant drain on your finances. If possible, divert some of your savings amount toward clearing the debt more quickly.


Consider refinancing your student loans if you have any to get a lower interest rate and better terms. You can save not only a lot of money in interest, but also time it might take to pay it back.


Focusing your attention to debt will push back building a financial buffer for a while, but in the longer term your finances will be much more stable and you'll have more opportunity to save.


9. Ignore Any Raises You Receive From Your Job 

Lastly, if you're already spending your entire income each month, it may be hard to pass up the benefits of getting a raise. However, the unfortunate fact is that your spending will likely grow to match your extra pay, leaving you no better off in real terms.


Instead, when you get a raise, divert most or all of it to your savings straight away, before you've had chance to enjoy the extra spending power. You won't miss what you've never had, but your savings will gain a worthwhile boost to give you a larger financial buffer.


The key to stopping living paycheck to paycheck is to get your spending to a level that suits your income. Setting a budget that has space for savings will take the pressure off funding the last few days of the month, while also building for a more comfortable future.


But it's important to remember that every little bit helps. Even if the savings you can make don't seem impressively large, they'll still work to build a financial buffer, and getting into the habit now means you're on a solid footing to ramp up your future savings as your income increases.


Now That You're Not Living Paycheck to Paycheck, Time to Make More Money

Now that you are comfortable with practicing good money habits, which is the most important step when it comes to resolving your paycheck to paycheck anxiety, it's time to focus your attention to your efforts to make more money with these new habits.


Read more on how to make money online using this step-by-step guide