Living paycheck to paycheck is the modern-day way of life. In fact, more than half of Americans state they live this way. To complicate this, nearly half also say they’ve experienced unexpected financial difficulties within the last few months. This can make life stressful and hard to get ahead. But do you have to live like this? Is there a better way? There is if you live paycheck to paycheck the right way!
Tell me if this is your financial lifestyle: you get your paycheck and you’re excited because this is a wonderful day, right? Money in your pocket! You have so many plans and dreams for that cash, but within a few days more and more of it is gone. Someone or something else demands it from you. Rent. Mortgage. Food. Heat to keep you warm on those cold days.
Then life becomes a bit depressing: you start feeling the pinch of your money. You intend to make it stretch this time. But the washing machine broke. Your car is acting up. That couch you’ve been waiting for is finally on sale.
Then those dollars are gone. No more left over. But payday is two more days away. You might make it till then but you also might have to spend on your credit card because the kids need a lift to a basketball game and the gas tank is on empty. Life is continually stressful.
You’re living life like everyone else: you live paycheck to paycheck. Money comes in, you spend until there is nothing left, and you anxiously wait till the next paycheck to start this vicious cycle all over again. If you miss a paycheck, you simply won’t have enough to pay your bills.
You’re Living Paycheck to Paycheck
Sound familiar? I know it does for me. I lived it for years. And you know what? If you’re in a similar situation, you’re definitely not alone. Statistically three out of every four people live this way. Surviving from one paycheck to another. And it doesn’t matter if you’re from the poorer section of town or have a lot of money coming in monthly. I have found that many people tend to spend their entire paycheck.
I just spoke to a nurse today about this. She is a nurse manager and her husband makes good money as well. They probably make more than $200,000 every year in combined income. She stated the same thing, that she lives paycheck-to-paycheck. And for her, she didn’t state it in any sort of positive way: she sounded like she needed the next paycheck to come quickly.
She’s living like this on +$200,000 a year? Yep, it’s true, she lives paycheck to paycheck and doesn’t have a lot to show for it.
Why Do We Live Like This?
So, let’s start with a few basic questions:
- Why do we live like this when it is obviously so stressful to do it?
- Is there a right way to live paycheck to paycheck?
- And what can we do to stop any negative cycle and create a better financial lifestyle, one that works with our needs, gives us a little breathing room, and builds up our future?
It’s Programmed Into Us
Think about it.
It’s not by chance that you’re dependent upon the next paycheck for survival. We are a society of consumers. Many of us are taught from a young age that it’s almost noble to compete with our neighbors, to have more than them. We feel that we have to obtain the latest phone, the sharpest TV, and to upgrade our homes as soon as we sell the one we’re in (yeah, no buying and living in just one home. We’re conditioned to want the bigger one across town).
Forget about keeping up with the Joneses, we’re trying to outdo them!
We are bombarded with constant advertisements from our TVs to our magazines to our phones about things to buy, things to make our lives easier, and things to improve the quality of our lives. So you want to get that latest hybrid car with those sleek lines that will certainly impress your friends? Well, it’s only a cool $45,000 (if you’re lucky).
We aren’t educated properly about ways to improve our financial well-being. That there are choices that we can implement to give us an edge for success.
We’re not taught from a young age about the importance of financial education
There are numerous studies that reiterate this point: we are a society that doesn’t put its money to better use. This is proven by the lack of savings we have as a nation. We also have an abysmal retirement contribution rate that will only help our future selves. In fact, many people do not have enough emergency savings to cover even a $500 expense.
The Words We Use As Our Measuring Stick Are Outdated
How much money do you have to have nowadays to consider yourself rich?
What does that word even mean today? I think the typical person’s view would still lean towards someone who can throw out large amounts of money without
thinking about it. Someone who has an endless supply. Celebrities, athletes, CEOs of large corporations certainly come to mind. And perhaps some of them do tout a large bankroll. However, used unwisely wealth can become a curse. Money is not endless even for them. Ever read about movie stars who lost everything? Who owe the IRS millions of dollars?
The amount of money we have is a poor measuring stick. What we do with it matters more.
Many times we don’t count the blessings we already have. If we looked close enough we would probably realize that we have the opportunity (and funds) to pull ourselves out of the predicament we’re currently in. We always think we need more when we might actually have enough. In fact, if we looked even closer we would realize that others might feel they could conquer the world with your current income level!
Ever think of that?
Remember that nurse I told you about that made a household income of over $200,000? She doesn’t consider herself rich at all. In fact, she’s living paycheck to paycheck. However, some people would consider making $200k as being rich, that they would never have to live paycheck to paycheck with that sort of money.
Would $200,000/year be life-changing for you? Is it enough? How soon before this too becomes a paycheck-to-paycheck lifestyle?
So the words we use to describe money is a relative term, dependent on the person whom you’re talking about. The word “rich” is misleading. I rather prefer net worth because it shows what we have after we’ve spent our income.
Is it easier to not live from one paycheck to another with this sort of income? Certainly. But when we start considering our income as “normal” we too can sink into the rigors of living from one check to the next just like everyone else, even though someone may consider your income liberating for them, something that would pull them from the cyclic paycheck dependence.
How To Not Live Paycheck to Paycheck
Ok, let’s get to the meat of things! So, how de we get out of the rat-race of living paycheck to paycheck? How do we not live dependend on the credit cards to pay for necessary items that paycheck should be taking care of?
Create a budget and stick to it!
Are we talking about budgets again? Yes, we are. Without a budget you will undoubtedly spend your way through each and every paycheck and you’ll probably end up borrowing on credit as well. Been there and done that myself, no thank you!
And if you think that you don’t need a budget once your annual salary is past let’s say, $100,000 think again. I don’t care if you make four times that. Without a budget (albeit you may have more flexibility here) you will most likely blow through that money. I know physicians who make more than $450k per year that are having trouble paying on their mortgage.
One of my favorites is the Zero-Based Budget. Here, you plan for every dollar in your budget. This makes you intentional with your money. It helps you to recognize your expenses (and excess ones) and to consider savings and investing as well. It also helps you to fine-tune your expenditures and hopefully increase those savings.
The overall key here is to spend less than you earn. Simple in theory, hard in practice. Unless you develop a system that works for you.
Find out why you’re doing this in the first place
Most of us are fixed in our habits. Including the way we save and spend money. So it’s very difficult for us to change our habits unless there is a very good reason. And even then it can be hard to change. Ever hear that it takes at least 30 consistent days of change to form new habits?
That means it’s hard to do.
For myself, not living paycheck to paycheck was encouragement enough. Also, ever hear of the phrase that we’ll need to spend less in retirement? But what about creating a richer lifestyle in your retirement than the one you have now?
Who says you can’t have a better life because later because you’re making changes now? But you have to identify the “why” you want to stop living paycheck to paycheck. And it has to be a strong enough reason to keep you committed.
Pay yourself first
Wow, this sounds like a great idea, right? Well it is. The only way you’re going to get out of the rat race and being dependent upon your next paycheck is to start setting aside savings now that will break this cycle. One of the easiest ways to do this is to “budget” those savings into your bills.
Meaning, make those contributions to your savings something that you “have” to do.
Just like a bill.
If you don’t pay the electricity, your lights are shut off. So you do it. Treat this the same here. If you don’t get that $50 bucks into your savings, your future will suffer. And you have to do it right away! Make it first on your list. This happens before you examine whatever is left over for “fun”.
An easy way to do this is set up an automatic transfer from your checking account to a separate savings account. Trust me, $50 bucks here and there will add up. Then get serious with it and notch it up every chance you get. The bigger your savings account grows, the less dependent on the next paycheck you will be. It will give you a feeling of liberty you may not have felt before.
Track your spending
Yes, believe it or not, this is an important step. If you don’t know where your money is going, you won’t know where to cut back and save. For myself, I found out that I was spending way too much on eating out and also on internet shopping. Heck, I was buying things that I “might” need. It literally became a habit. I would get paid and go shopping.
It wasn’t until I tracked my spending that I realized that I didn’t need to continue this habit. Why? Because it was so expensive!
Make your savings automatic and separate
Do you want to know one of the easiest ways to save money? It’s to make it electronic and make it automatic. I know we just discussed this, but this one is important and it works! A lot of employers now offer this option. They can set up automatic deposits from your paycheck into a savings account (if you direct deposit your paycheck that is).
This makes it easy since you don’t have to actually move it yourself. It happens the very day you get your paycheck before you realize the money. Then just live on what is actually deposited into your checking account.
Here is a little bonus move: take each pay raise and add to this account. Say, you are lucky and get a 3% raise. Take 1% and add to your savings and enjoy the rest. Not only will you enjoy your raise but you’ll be securing your future as well!
You can also have money automatically moved from your checking to any number of other accounts you set up. If you’re tempted to use that money, keep it at a separate bank. If you have a really hard time not touching that money, make it so that you physically have to go in and get it! Remember, the more out of sight it is (and the more difficult to get to), the less you’ll be tempted to dip into it.
And this means the account will grow!
Carve out an emergency fund
Let’s start small here. Sometimes it’s hard to set aside money for an “emergency”. First, the word emergency is different for everyone. And it just seems like the money is just sitting there not being used because we’re not going to have a disaster, are we?
We’re certainly not planning on having one and out of sight, out of mind…
It’s also intimidating to save “6-8 months of living expenses”. Heck for some that can be $40,000! Who the heck can suddenly do that?
So, start small and gradually build it up if you have to. Remember, small steps and you’ll eventually get to your goal.
It’s important to note that once you get this started and build up a reserve account, you’re technically not living paycheck to paycheck anymore. Congratulations, you’re heading in the right direction! And you’re ahead of most people out there…
You’re already ahead of 50% of everyone else
Get out of debt!
Here is another simple truth: getting out of debt will help you break out of the cycle of living from one paycheck to another. It will be one of the biggest hurdles you eliminate that will propel you towards financial success. It will also just make you a happier person. Why? Because I believe you’ll immediately have less stress in your life.
Some of the more popular methods are the debt snowball (where you focus on the smallest debt first) and debt avalanche (where you focus on the highest interest rate first). The simple version is you have to stop spending and putting yourself in debt. Then you have to start buckling down and paying off what you owe! There are a few other tricks like debt consolidation and lowering your interest rates as well.
I was able to pay off $28,000 in 12 months using this method.
Cut back or downsize if you have to
What are the areas you’re spending most? Likely it’s your housing (rent/mortgage, electricity, etc), food bill, and all the “extras” that can add up in life. Things like eating out frequently, paying for numerous streaming channels/programs, and internet shopping can drain your accounts quick. For some, transportation costs are also very high.
If you look close enough, you can probably cut back on most of these. I know people who routinely eat out at a cost of over $1,000 per month (not counting their in home grocery bill). And it’s not unusual to find out that you’ve spend lots by online shopping. For myself, once I quit “shopping” I saved hundreds per month. I also found out that I didn’t really need most of what I bought or thought I needed at the time.
Just cutting back some might save you hundreds as well. Drastic changes may require relocation to another home if your budget is severely taxed by your rent or mortgage (try to keep these costs to below a third of your income), so be careful if you’re shopping for a home. Only buy what you can truly afford.
Earn extra
There is nothing like earning a bit more income to take you out of living paycheck to paycheck! Unless of course you just increase your monthly spending to match this income!
So, don’t do it.
Start a store on Etsy for those who are crafty. Drive for Lyft or Uber in your spare time. Rent a room on Airbnb. List any skills you have in local Facebook groups or Craigslist and get paid for them. The opportunities are out there, you just have to use your imagination a bit. Then take 100% of those funds and save it!
For myself, I ended up getting a second part-time job. Yeah, it’s not as fancy as a side-hustle that may be more temporary, but it allowed me to pay off my debt, save, and build for my future. Thus, I was not dependent on my next paycheck.
Is There A Right Way To Live Paycheck to Paycheck?
Well, In my opinion, there is.
You have to look at the process a bit differently: this is what makes it work.
Unless you’re financially independent (and thus don’t need money from an employer), you’re relying on that income in some capacity. We all have to pay bills
and feed our families. But in many cases, we don’t need to use all of the money coming in to take care of basic needs. We have a little leftover if we look closely enough.
- The first step is to not be totally dependent on every bit of the income you make. Meaning, you don’t need every penny just to survive. We’ve seen the downsides to living like this. Money problems are believed to be one of the top causes of stress. This of course can affect our self-worth and can be very depressing for families. So our goal is to live from one paycheck to the other without having this stress. It’s to pay every financial obligation you have this month and still have money left over.
- The second step is to figure out what you really need to live on and separate what is needed from what is extra
- The third step is to develop a mindset that you will live on this new paycheck amount – this is your budget
To start, you need to live on less than you make. For myself, I try to live on about 75% of what I make. This becomes my new budget and we live paycheck to paycheck on only those funds.
That means 25% of what I make goes into savings or investments. My goal, however, is to gradually increase those savings/investing rates to greater than 40%. But the trick is I live on the rest of my paycheck month after month and only gradually increase that as the cost of living increases. So, I live paycheck to paycheck. I wait to buy things I want when the next paycheck comes in. The “extra” as something I can spend: it’s out of reach.
I certainly try to keep our expenses low but allow wiggle room for fun stuff as well. But it’s important that I try to live on my “paycheck” income. We run our finances according to this system, forcing us to live within our means but still be able to aggressively invest for our future.
We are then not literally dependent on the next paycheck but we act like we are. Yes, we still have to say no to some things we want, but living like this is less stressful and allows me to fine-tune my finances so I’m less dependent on money and more in control.
As my savings and investing amounts increase there is a sense of freedom I hadn’t had before.
Once I eventually quit working I’ll continue living paycheck to paycheck from my investments. It will keep me grounded and in check so my finances last as long as I do. If you don’t do this, it will be easy to overspend your retirement accounts and before you know it, you’ll be broke. So, yes, there are good ways and bad ways to live from one check to the next. The rules are simple to follow:
- Spend less than you earn
- Stay out of debt
- Live paycheck to paycheck on necessary items (with a few fun things mixed in!)
- Save and invest the leftovers
- Keep the two separate and just live on your newly “adapted” paycheck amount
- Repeat
Summary
Yes, it’s tough to stop living paycheck to paycheck especially when things are at their harshest. When you don’t make much money. And we’ve all been conditioned that this is a normal, acceptable practice. But it doesn’t have to be. You can, in fact, live paycheck to paycheck the right way!
We have to start by having a changed mindset about living this way. If you don’t, well… the rewards aren’t great.
I’ve been in this situation myself. Living like this can certainly cause stress and anger. Money problems only tend to get worse if we don’t manage them properly.
This is a battle that must be won each and every time. But gradual steps toward your goal will get you there. If you can’t start out with a lofty goal, just start out with living on 95% of what you make and saving/investing the other 5%. See how it feels.
Then increase that amount. Bring that amount up to 20, 30, or even 40% savings rate. Budget more stringently when necessary. Make more when needed. But live paycheck to paycheck the correct way. You’ll feel the difference, trust me!
And the rewards are certainly worth it. You just have to make that first step…
Question: Does it surprise you that we live paycheck to paycheck even if we are able to have extra money to save and invest? Do you keep a tight reign on your paycheck or do you mix all the funds together, saving only when you can?
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