How to Stop the Paycheck-to-Paycheck Cycle

How to Stop the Paycheck-to-Paycheck Cycle

Ever catch yourself counting down the days until payday?

Maybe you charged a pair of running shoes last month, and the bill just came in. Or maybe your check-engine light is on, and you’re dreading the repair. Either way, that paycheck can’t come fast enough—and might not be enough.

For 78% of Americans, living paycheck to paycheck is a way of life—an endless cycle of money going out almost as soon as it comes in.(1)

But around here, we have this crazy idea that you can break the cycle of spending more than you make by setting up a solid budget. You don’t have to live paycheck to paycheck! Here’s how:

5 Steps to Stop Living Paycheck-to-Paycheck

1. Build an emergency fund. Before we start talking budgets, let’s talk emergency funds. An emergency fund keeps your budget on track when your water heater dies or your car breaks down. If you’re in debt, you should begin with a starter emergency fund of $1,000.

How? Sell stuff you no longer need or want, cut back on restaurant visits, and buy generic brands at the grocery store. Remember, these are temporary measures. Once you have $1,000 saved, don’t spend it. The emergency fund is a buffer for emergencies only. If you can budget to fix the crack in your windshield instead, do it. And don’t be tempted to empty your emergency fund on large-but-unnecessary purchases like a weekend trip to the beach. (We’ll talk about saving for a vacation in a little bit!)

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2. Make your EveryDollar budget. You work too hard to have your entire paycheck slip through your fingers by month’s end. Wouldn’t it be nice to actually do something with your income—like pay off debt or pile it up in a savings account? That’s where an EveryDollar budget can help. Tell your money what to do, and you’ll know where it’s going so you don’t overspend.

Here’s how to budget the EveryDollar way:

  • Create your budget before the month begins.

  • List your expected income and your outgoing expenses.

  • Give every dollar a name, so that income minus expenses equals zero.

That’s it! For a more detailed walk-through, check out our guide to creating a budget. And if you’re working with an irregular income, we can help with that too!

When you create a plan for your income, you can manage it better and stretch it further—without earning a penny extra.

3. Put your priorities in place. After you plug in some numbers, give your budget a second look. Your income minus your expenses may equal zero, but does your paycheck fully cover your essentials?

In other words, did you budget for food, housing and transportation? What about giving, saving and debt repayment? Are you saving up for potential home and car repairs or medical bills. If so, confidently budget for fun like a night out with friends. When your necessities are taken care of, you can breathe a little easier the next time you swipe your debit card.

4. Track your spending and stick to your budget. Are you about to buy the perfect pair of sconces at that fancy home decor place knowing it will send you over your shopping budget? Wait! Run your purchase through the following questions:

  • Do I need this right now?

  • Can I buy this for less money somewhere else?

  • What money can I move around to make the purchase possible?

If you decide you don’t actually need the sconces today, make a note of the cost and look for ways to build them into next month’s budget. And if you just can’t wait, be sure you’re getting the best price and move money from another category to keep yourself from going over your budget.

5. Save for the big stuff. You might be wondering what to do about the really expensive stuff like a summer vacation or Christmas gifts. This is where a fund comes into play.

A fund is a way to save a specific amount each month for a certain length of time. For example, if you want to go on a $1,000 beach vacation in roughly eight months, start putting aside $125 each month until then. Imagine a blissful week in the sun without a financial sunburn after! Perfect.

Give your money some room to breathe with an EveryDollar budget. Simply tell all your dollars where to go before you spend them in the store. Then stick to your plan, save for what you want, and watch your money last all month long. Living paycheck to paycheck is no longer the lifestyle for you.

Take the first step to stop living paycheck to paycheck and create a free EveryDollar budget today!