Breaking The Cycle Of Living Paycheck To Paycheck

Living paycheck to paycheck can be both stressful and limiting. You’re left with little room for savings, long-term planning or financial stability.

And living paycheck to paycheck doesn’t always mean you don’t earn enough money. It can just mean you’re not tracking it well and frivolously spending more than you should. Before I started budgeting properly I would live this way and feel like I was living the dream for three weeks. And then for a week feel like I was a very poor uni student.

In this post I’m going to discuss some steps to try and escape living paycheck to paycheck so you can start building savings for a more secure financial future.

Start by assessing your financial situation

You need to be honest about your financial situation in order to try and break living paycheck to paycheck. Only take into account guaranteed income, so if you work overtime or earn a bonus don’t factor this in. If you get extra income occasionally then this is just an additional bonus.

Take into account your income, your fixed expenses that you can’t do much about (rent or mortgage, council tax etc), variable expenses (water and energy bills etc), any debts you have to pay off, and savings you want to do.

Track your spending in order to identify areas where you may be able to cut back or reasses.

To stop living paycheck to paycheck be brutal with your budget

Chances are you already have a budget if you’re living paycheck to paycheck. And if not then you need to change this now!

A budget is a powerful tool for managing your finances and making sure you know where your money is going. List all your fixed and variable non-negiotable spends like home, utilities an debt payments. Then allocate funds to variable expenses such as groceries, transportation and entertainment. Make sure you factor in savings and debt repayment as well.

Cut expenses

Most of us can cut expenses somewhere so really look into your spending to see what you can do. I know we could spend less on our weekly groceries so this would be an area I’d cut if I needed to. You may have a lot of entertainment subscriptions so can you cut one and alternate them over the year. Or maybe you get the train when you could save money by getting the bus.

Be ruthless in eliminating or reducing non-essential expenses and redirecting these funds towards your financial goals. Your goal may be to go on holiday, or redecorate your bedroom, whatever is important to you.

Stop living paycheck to paycheck by increasing your income

Increasing your income can accelerate your progress and give you more financial stability.

Within your full-time job can you ask for a raise, or are there any promotion steps you can work towards. Or maybe it’s time to move on and look for a new job with a higher salary. If this isn’t applicable for you, perhaps you can take on a part-time job. Even working one evening a week or a few hours at the weekend can give you additional income to support your goals and free up some money.

Pay off higher-interest debt first

If you feel like you’re living paycheck to paycheck because of debt repayments, make sure you’re paying them off in the right order.

Yes you always need to pay the minimum every month, but if you have extra make sure this is allocated off the highest-interest debt first. This is commonly known as the avalanche method and it can save you money on interest.

Build an emergency fund

An emergency fund can provide a financial safety net in cause of unexpected expenses. And having one can mean you don’t go into debt when an emergency happens.

The ultimate aim should be to have three to six months’ worth of living expenses in an easily accessible savings account. And if you don’t have this then you should prioritise your emergency fund saving before anything else. Start small and gradually build up your savings over time.

Automate payments to help when living paycheck to paycheck

Sometimes budgeting, savings and paying off debt can feel daunting and time consuming so automate everything you can. Automating will help you stay on track with your financial goals.

Set up automatic transfers to your savings accounts each payday and arrange automatic debt payments to be taken. This will eliminate the temptation to spend money earmarked for other things.

It isn’t easy to break the habit of living paycheck to paycheck

Breaking the cycle requires a willingness to make sacrifices, and a bit of patience and discipline. By following these steps you can make the first step in trying to break through the cycle and build a more secure financial future for yourself.