How to Stop Living Paycheck to Paycheck

If you’re struggling to stay ahead of your finances, you’re not alone. According to a Reality Check: Paycheck to Paycheck survey conducted by LendingClub and PYMNTS, 60% of employed U.S. adults, including more than four in 10 high-income earners, are living one paycheck to the next with little to no financial cushion.

Living paycheck to paycheck means there’s no wiggle room in your budget for rising costs or unexpected expenses. Depending on your personal financial situation, you might be one trip to the grocery store or a couple of large, unexpected medical bills away from financial trouble.

If this sounds like you, there’s hope. You can reverse course by digging into your monthly expenses, taking steps to manage debt, and looking for opportunities to boost your income and save. Here are the basic steps to help you stop living paycheck to paycheck and gain control over your finances.

1. Track Your Expenses

Budgeting starts with tracking expenses. Even if you’ve done this before, you may have good reason to review your spending again. If you’re coping with the rising cost of living or you’ve recently gone through a life change—like the birth of a child, sending a kid off to college, or transitioning from remote work back to the office—your spending (and costs) may have changed significantly. Whatever the reason, if you’re out of cash at the end of every month, putting effort into tracking your expenses will shine a light on what’s causing it.

Take 30 days to account for every dollar spent. From automatic payments to every cash, credit card, and debit transaction you make—divide your expenses into categories and take a look at on what and where you’re spending money.

2. Evaluate Your Spending

Once you know where you’re spending, you can make decisions about how to allocate your money. Be prepared to accommodate increases in some categories. If the price of gas, utilities, or groceries has risen, you may need to cut back elsewhere to make room.

Get rid of waste. Look at your spending and cut out expenses you don’t need or want. Forgotten subscriptions and unused gym memberships are classic examples.

Tighten up spending by shopping at less expensive stores, choosing cheaper brands, getting your hair cut less often, eating in—you know the drill. Set daily or weekly spending targets to help you stay on budget, rather than finding out mid-month that your whole month’s grocery allowance is already spent.

Look at essential spending: If your lifestyle is relatively lean but you’re still having trouble making ends meet, you may want to consider further cuts to your spending, for example, finding a less expensive place to live. These decisions aren’t simple or easy, but making a major change in your monthly spending can go a long way toward easing the pressure on the rest of your budget—and your peace of mind.

3. Build Up Your Savings

Experts suggest keeping three to six months’ worth of living expenses in an emergency savings account. That’s a worthy short- to medium-term goal, and it starts with building a serious savings habit.

When you live paycheck to paycheck, generally nothing (or very little) is going into your savings. Instead, try setting aside 1% of every paycheck—that’s only $10 for every $1,000 you earn. As your finances improve, you can increase your rate of savings gradually. As your emergency fund grows, you and your finances will become more resilient. Eventually, you’ll create room in your budget to build up additional regular savings beyond what you set aside only for emergencies.

Also, consider automating your savings by having a set amount automatically routed to savings each time you get paid. This means you won’t see (and therefore won’t spend) the money you transfer to savings, and you won’t forget to make the transfer. Fund a “goal” savings account with recurring automatic transfers to save for a new roof, a weekend away, or holiday gifts.

Make sure your money is working for you. Interest rates on high-yield savings accounts have risen with inflation and rising interest rates, which means it’s worth your time to open an account that earns a better return. Once you’re set up, the interest you earn is effortless.

4. Manage Debt

One of the potential pitfalls of living paycheck to paycheck could be relying on high-interest credit to cover costs. When you don’t have the cash to meet an unexpected expense—or an unexpectedly high utility bill—you might turn to using credit cards to help bridge the gap.

Most credit card interest rates are variable, and generally are moving up as interest rates rise. For example, according to Bankrate, as of July 2023 the average credit card APR is 20.58%. Rates on individual cards may be significantly higher—25% or more—with even higher APRs if you were to take a cash advance or miss a payment.

Getting a handle on your spending and building up your savings can help you avoid over-reliance on high interest credit cards for your daily expenses. If you already have revolving, variable rate credit card balances, now is the time to find room in your budget to pay them down as quickly as possible.

Getting a debt consolidation loan may help if you carry balances on multiple cards. By rolling high-interest credit card debt into a single, unsecured fixed-rate installment loan, you may be able to streamline your monthly payments, lower your interest costs, and put an end point on your debt.

Managing debt is not only critical to reining in your monthly expenses and minimizing your overall costs, it’s key to maintaining good credit. Making a single 30-day late payment or over-utilizing your credit accounts can lower your credit scores, which makes it more difficult to secure a mortgage, car loan, personal loan, or low-interest credit card in the future. If you’re curious about the state of your credit, check your credit reports for free from all three credit reporting agencies at AnnualCreditReport.com.

5. Boost Your Income

Cutting costs isn’t the only way to rebalance your budget. According to the Reality Check survey, fewer than four in 10 consumers say their current jobs meet their wage expectations. Consider boosting your income with one of these strategies:

• Ask for a raise. In a tight labor market, your proven skills and track record are worth money to your employer.

• Ask for a promotion. Where can you move within the company to improve your income and long-term prospects?

• Look for a better-paying job. If your current employer can’t (or won’t) raise your wages, salary, or offer a promotion, perhaps another employer will.

• Sell what you don’t need. Furniture, clothing, bags, sneakers, collectibles, computers, and any other items you no longer need may earn you a few dollars. Bonus: you’ve decluttered and simplified your life.

• Start a side gig. You don’t have to take on a second full-time job: try doing odd jobs from an online marketplace or rent out a spare room or garage space if that’s an option.

The Bottom Line

Budgeting, saving, paying down debt, increasing your side income—any steps you take to shore up your finances—is work. But putting yourself on solid financial footing can also alleviate the stress that comes with falling short month after month. It puts you on track to meet your financial goals, whether that’s saving for a much-needed vacation, putting money away for a home or college, or enjoying a guilt-free night out without worrying how you’ll pay for it.

As the cost of living fluctuates and your life circumstances change, living within your means can be an ongoing challenge. But it’s also the definition of living comfortably. Figuring out how to meet your expenses with money to spare is the bottom line. Master this skill and you’ll start gaining control over your money and getting ahead.