Are you the type of person that runs out of money as soon your paycheck hits your bank account? Do you pay your bills and then have little to no money left to cover an emergency or discretionary spending? If you answered yes to these questions, you're living paycheck to paycheck—and you're really and truly not alone.
As of 2024, the percentage of Americans living paycheck to paycheck ranges from 20% in households earning less than $150,000 to 35% in households earning less than $50,000, according to a Bank of America Institute research. With cost of living and inflation rising as salaries don’t keep pace, these numbers aren’t surprising.
But there may be other factors at play, including poor spending habits and lack of financial education—and that is the part you can control. Here's how to stop living paycheck to paycheck.
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What does “living paycheck to paycheck” mean?
Living paycheck to paycheck means you rely on each weekly, bi-weekly, or monthly paycheck to cover for basic necessities. If you become unemployed, you won't be able to keep up with your financial obligations or meet basic needs, like paying for food and utilities.
“When you live paycheck to paycheck, you don’t have enough money left over to work for you,” says Melanie Musson, a finance specialist at InsuranceProviders. “Without emergency savings, an emergency will force you into debt. Then you’ll have a debt payment in addition to your maximum monthly lifestyle.”
People who live paycheck to paycheck are often referred to as the working poor—individuals with limited skills and education, who earn the lowest wages. However, as demonstrated by the Bank of America Institute research, people with higher incomes can also live paycheck to paycheck, depending on their lifestyle choices.
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Why living paycheck to paycheck is not ideal
When you live paycheck to paycheck you're unable to save money for emergencies or for future plans (e.g. retirement, vacation). “You should be saving for retirement and building an emergency savings account,” Musson says.
Having no savings and depending on being employed to make ends meet can rapidly get you into debt. “A car repair bill could put you into debt; a health emergency could set your finances back,” she says. “Needing a new furnace, new roof, or new siding might make it seem impossible to catch up on your finances.”
Once you take on additional debt, you can get deeper into the living paycheck to paycheck cycle. “You won’t be able to keep up without making a change,” Musson says.
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How to stop living paycheck to paycheck
If you earn a livable wage, getting out of this cycle is mostly about developing better financial habits. On the other hand, if you're a low-wage earner, increasing your income is also key. Here's a step-by-step plan to stop living paycheck to paycheck.
1. Create a budget
How much are you spending on each expense? How much is your gas bill every month? Other utilities? What about your phone plan?
Since budgeting relies on tracking your spending, it paints a clear picture of your financial life. “A budget will help you identify where you’re spending money that you shouldn’t,” Musson says. “Then, you can eliminate that kind of spending and have extra money to work with each month.”
This might help: How to Make a Budget in 7 Steps (Plus, a Spreadsheet For You)
2. Cut down unnecessary expenses
While creating a budget, evaluate where you could be spending less. If you're really living paycheck to paycheck it's unlikely that you have a lot of discretionary spending—but if you are spending money on subscriptions, takeout, or other entertainment, cut it back.
Your priority should be covering the most basic expenses to keep yourself (and your family, if applicable) alive: shelter, food, utilities, and transportation. “You don’t have to eliminate all discretionary spending forever, but you should do a three-month reset to help you break bad habits and boost your savings,” Musson says.
You can also look at where those essential expenses can be cut down a little. For example, will meal planning and buying store brands help trim the food budget? Could your household be more efficient with water and electricity usage?
3. Create an emergency fund
An emergency fund keeps you afloat if you have an unexpected expense, such as medical bills or a car repair. Financial experts generally advise people to save three to six months of living expenses. So, if you spend $1,500 monthly, your emergency fund should have $4,500 to $9,000.
How to save money living paycheck to paycheck? It’s not impossible. To start your emergency fund, use the spare money you'll have after budgeting and cutting down your expenses—even if it's a small amount, it'll add up with consistent saving.
It might take a while to achieve your savings goal, especially if your income is low, but starting and consistently saving will eventually get you there.
4. Get rid of debt
Some financial experts recommend building an emergency fund first, then starting a debt repayment plan. Others say you should build a cushion in case any emergency happens, while also making minimum payments on your debts. But they all agree that getting rid of debt—and not making any new debt—is key to a healthy financial life.
How you approach it depends on your salary and how much money you have left after covering your basic necessities. There's no right or wrong. If you have multiple debts, debt repayment strategies like the debt snowball method and debt settlement programs can help you get organized and create a plan.
Read this next: How to Become Debt-Free: 7 Steps to Get There
5. Increase your income
If a low income is part of the reason you struggle with your finances, work towards increasing it. You could start a side hustle or get a second job as a short-term solution, as long as it doesn't jeopardize your main source of income. In the long-term, consider furthering your education and upskilling yourself to find higher paying jobs. (Gentle reminder: You can find opportunities here on The Muse!)
6. Live below your means
Once you start earning more and getting your finances in better shape, keep living below your means. People often fall for the trap of spending more once they start earning more, which can cause problems in the future if your income shrinks again. By living below your means, you're able to save more and plan for big future financial goals (e.g. retirement, vacation, house downpayment).
Break the cycle
Living paycheck to paycheck often isn't a lifestyle that people choose. Low wages, unexpected expenses, and inflation can definitely make it hard to keep up with your finances as a regular worker in this society. Though you can't always control how much you earn—and definitely can't control inflation—you can control your spending habits and little by little get a healthier financial life.
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