Before paying off debt, I frequently found myself wondering where all my money went. I was living paycheck-to-paycheck and had almost nothing left in my bank account at the end of the month.
An empty bank account brings needless stress into your life. Fortunately, it is possible to stop spending your entire paycheck each month.
This guide shares actionable steps you can follow to pursue financial stability and achieve freedom.
Table of Contents
7 Steps to Break the Cycle
Many people know what it’s like not having money left at the end of the month. A recent poll revealed that 56 percent of Americans are in that situation.
This may not pose an immediate problem, but it hinders long-term financial growth.
If you want to know how to stop living paycheck-to-paycheck, here are seven steps to follow to achieve financial freedom.
1. Create a Budget
The first step to break paycheck-to-paycheck living is to get on a budget. Creating a budget sounds overwhelming, especially if you’ve never lived by one. Luckily, it’s not as difficult as it sounds.
You can make a simple budget by writing down everything you earn and all of your monthly expenses. This will help you understand what you have coming in and going out each month.
*Related: Budgeting apps are a great way to manage your money. Read our guide on the top substitutes to Mint.com to stay on top of your finances.
It doesn’t matter if it’s a $5 car wash you get every month. You still want to write it down.
Budgeting is essential to breaking the cycle of having no money left at the end of the month. It’s foundational to the entire process since it educates you on where your money goes each month.
If you’re a budgeting novice, there are free budget tools that simplify the process. Choose one that works for you and create a budget ASAP.
2. Take an Ax to Your Spending
As you study your budget, you’ll see where you may be spending needlessly on items that bring little value. You want to investigate every expense and determine if you can cut it or reduce the cost.
Ultimately, you only need four things:
- Food
- Shelter
- Transportation
- Utilities
Everything else should be open to cutting. Some examples include:
Unused subscriptions: If you haven’t used the service or subscription in the last six months, cancel it for instant savings.
Cable: This is an easy expense to cut if you’re living paycheck-to-paycheck. The top alternatives to cable can help you slash costs. Here is a breakdown of the top choices.
Service | Cost | Channels | Streams | DVR | Rating | Trial |
---|---|---|---|---|---|---|
Hulu Live | $69.99+ | 80+ | 2 | Unlimited | 4.1/5 | Try |
fuboTV | $69.99 | 105+ | 10 | 1,000 hrs. | 4.2/5 | Try |
DIRECTV STREAM | $69.99+ | 65+ | 20 | Unlimited | 3.7/5 | Try |
Philo | $25 | 60+ | 3 | Unlimited | 4.3/5 | Try |
Sling TV | $35+ | 30-50 | 1-4 | 50 hrs. | 4.1/5 | Try |
Vidgo | $55+ | 95+ | 3 | N/A | 4/5 | Try |
YouTube TV | $64.99 | 85+ | 3 | Unlimited | 4.2/5 | Try |
Dining out: This is another fantastic way to increase savings. If cutting it out completely feels impossible, cut it in half to save some money.
None of these reductions have to be permanent unless you find you can live without them. However, they provide easy ways to lower your monthly spending to help create breathing room in your budget.
3. Increase Your Income
Managing your money wisely is essential if you want to break free from paycheck-to-paycheck living. One overlooked area to create momentum is earning extra income on the side.
If your take-home pay from your day job isn’t enough, it’s advisable to pursue a side hustle in your free time. Like cutting your basic expenses, this doesn’t have to be permanent unless you find you like it.
There are countless side gig opportunities. Here are some of the top ones to consider.
Some require specialized skills, though many do not. For example, working for a delivery service is a perfect way to make extra money.
Companies like DoorDash let you work on your own schedule, and you can get paid $23 per hour while on a delivery. If that doesn’t work, ask for a raise at work.
Take the funds from either and inject them into your budget to create the buffer you need.
4. Start Saving
As you reduce your expenses and supplement your income, you will want to start saving some of that money. Undoubtedly some of the extra money will need to apply to your budget, but not all of it.
Reports indicate that most people don’t have $400 to cover emergencies. You want to avoid that as emergencies inevitably occur.
Having no emergency fund will only make your situation worse.
*Related: Have a check you need to cash? Here’s our guide on the best places to cash a check near me to get money now.*
Thankfully, it’s easy to start saving. The amount doesn’t matter, even if it’s as little as $10 a month. Starting is what matters in the beginning.
Most online banks let you start with minimal funds, and you can automate monthly deposits to increase savings.
CIT Bank is an excellent choice to save money every month. Their money market pays 0.55 percent a month and has a minimum opening balance of just $100.
It offers the same FDIC coverage as a savings account and is liquid.
Open an account with $100 and put cash in it each pay period. If you come into found money, put some of it in the account to grow it further.
How Much Money Should I Save from My Salary?
If possible, it’s best to save at least 20 percent of each paycheck you receive. This can be a combined amount of what’s going into your savings account and your retirement savings account.
You don’t want your checking account to be the final destination for your paycheck. You want funds to go to savings and retirement so you can attack different goals.
*Related: Are you looking for a fee-free online bank with no minimum balance requirements? Read our review of Chime Bank here to see how they might fit your needs.
It’s best to automate both so you don’t forget and your money can go to work for you as soon as possible.
5. Attack Debt with a Vengeance
Debt is a common cause of living paycheck-to-paycheck, especially if it’s high-interest debt from a credit card. By nature, the interest can be suffocating and make it difficult to pay off the debt.
This takes money out of a budget instead of using it to attack other long-term savings goals. If you’re in debt, you want to do the following:
- Stop creating more debt
- List out all of your debt
- Create a plan to pay them off
You can either choose the debt snowball approach, which is described below.
Step | Action |
---|---|
1 | List your debts by balance size |
2 | Make extra payments on the smallest balance |
3 | Pay off the smallest balance |
4 | Apply extra payments to the next smallest balance |
5 | Repeat the process until you become debt-free |
Alternatively, you can use the debt avalanche methodology. This philosophy attacks the highest interest rate debt first, while only making the minimum payment on all other debts.
Either option works. The point is to attack debt in a way that works best for you.
If you have credit cards most charge an interest rate of 15 percent or more. It’s often best to consolidate that debt into a lower-rate personal loan.
It allows more money to go towards the principal, eliminating the debt faster.
Credible is a fantastic option to compare rates from multiple lenders to find the best rate. Pick the one that fits your needs and pay it off quickly.
They also refinance student loans if you need to lower your rate on those.
Read our guide here on things to consider when taking out an unsecured personal loan.
If you have student loans, you may want to consider refinancing them as well. Read our review of SoFi student loans to see why they may be a good choice.
6. Avoid Spending Triggers
Overspending a big reason for having an empty bank account at the end of the month. If this is the case for you, it’s essential to get honest with yourself and know your spending habits.
This is critical to avoid adding more debt to your life. Avoiding spending triggers can involve numerous things, including:
- Leaving your credit cards at home
- Not shopping to entertain yourself
- Asking friends to do something that’s more frugal
- Avoiding stores that tempt you to spend
- Staying away from social media or TV if they tempt you to spend
Additionally, don’t convince yourself that using a BNPL app is a good solution to managing spending. Read our guide here on the hidden dangers of using buy now, pay later financing.
You also want to avoid using a cash advance app to make ends meet or make a purchase. Read our guide here on the risks they pose.
Like many other ways to pursue financial freedom, spending triggers are personal. It’s important to extend yourself grace, but it’s also necessary to know yourself.
Doing this will help you balance enjoying life and breaking the cycle of having no money left at the end of the month.
7. Start Planning for the Future
The last step in breaking the cycle is to start planning for what comes next in life. All of the previous steps are short-term, but they build a foundation for the long-term.
You want to personalize this to your situation. This can include virtually anything, including:
- Investing in the stock market
- Saving for a house
- Starting a vacation fund
- Saving for your child’s college fund
- Starting a business on the side
- Saving for a new to you car
As you begin planning for the future, you want to track your spending and income. Give each dollar a purpose to reach your financial goals.
You won’t reach your goals overnight, but a targeted approach is the best way to reach them in a timely manner.
An app like Simplifi can help when it comes to reaching your savings goals. The mobile app provides a big picture of your finances and gives you a snapshot of your money anyplace, anytime. It can help you stay on top of spending and maximize your savings.
What is Considered Living Paycheck-to-Paycheck?
Living with an empty bank account at the end of each month means you’re using all of your income to pay your living expenses. No money is left at the end of the month, and you rely on each paycheck to get by.
Consequently, this leaves you susceptible to a worse situation if an emergency occurs.
The goal is to give each dollar a purpose. This lets you manage anything that comes your way while also working towards multiple financial goals.
You can only do this by reducing expenses, earning more, or both to create more avenues to reach success.
If you don’t know how to earn more income, delivery jobs like DoorDash are a good choice. As you do that, analyze all of your spending to find areas to cut.
Bottom Line
We all crave freedom. Living in a paycheck-to-paycheck cycle is not freedom. It’s overly burdensome.
Some of us finance our futures at the expense of living an imbalanced present and don’t understand why there’s no money at the end of the month.
Then, many of us start the next month hoping this one will be different, only to find ourselves in the same spot.
That is the definition of insanity, but it doesn’t have to be that way. You can break the cycle and pursue financial freedom. It won’t happen overnight, but you can do it if you start taking steps today.
What’s one area you think should be cut if you have little remaining at the end of each month? How much do you have in savings?
*Actual earnings may differ and depend on factors like number of deliveries completed, time of day, location, and expenses. Hourly pay is calculated using average Dasher payouts while on a delivery (from the time you accept an order until the time you drop it off) over a 90 day period and includes compensation from peak pay, tips, and other incentives.