Breaking the Paycheck-to-Paycheck Cycle: Accelerating Your Path to Financial Freedom

Simply put, living paycheck to paycheck is the worst.

It’s just plain awful. During this period you may feel like there is no way out.

You are also putting yourself under emotional stress because you’re trying to figure out if you can pay your bills or have enough money to last until the next payday.

Every person has different financial circumstances and circumstances which may have led to the paycheck-to-paycheck lifestyle. But everyone can escape it.

Below I will share some tips on how to improve your financial situation and stop living in anticipation of your next paycheck.

Table of Contents
What is considered living paycheck to paycheck?
Paycheck to Paycheck Statistics
How to Stop Living from Paycheck to paycheck
My Paycheck to Paycheck Story
Additional Questions
What is considered living paycheck to paycheck?
If you live paycheck to paycheck, you will have little or no money left over at the end the month. You are spending your pay to cover all your expenses and have no money for savings.

Paycheck to Paycheck Statistics
I want to share some statistics about this topic before we get into the basic steps that you can take to avoid living paycheck to paycheck.

You may feel embarrassed or ashamed if you are living paycheck to paycheck.

At first, I did because I thought I was failing as an adult. I also felt that I was behind other people. It’s natural to compare yourself with others.

It is not uncommon to find yourself in this situation.

According to a Charles Schwab survey, 59% of U.S. adult respondents said that they live paycheck-to-paycheck.
According to a Motley Fool report, only 38% of Americans have an emergency fund.
According to a Northwestern Mutual survey, 1 in 5 Americans have no retirement savings.
It’s not only low-income earners that live paycheck to payday. Even the upper-middle class and middle class can live paycheck to paycheck.

CareerBuilder’s survey shows:

One in ten workers earning $100,000 or more live paycheck-to-paycheck
28% of those earning $50,000-$99999 live paycheck-to paycheck and 70% are indebted.
Although these statistics aren’t necessarily good, they should let you know that you are not the only one in this situation.

You can also add that, despite the fact that wages are increasing, purchasing power hasn’t changed much. Add to that the fact that costs are outpacing income growth.

Pew Research has released this amazing image:

How to stop living paycheck to paycheck [sooner rather than later]
Your financial troubles could also be due to lifestyle inflation, or lifestyle creep. Or they may be a result of the unfortunate economic situation that you have been given.

You can stop yourself from drowning by taking steps to create a better future financially.

How to Stop Living from Paycheck to paycheck
Here are some steps that I took personally to stop living paycheck-to-paycheck.

I was responsible for a lot of my problems, including poor financial decisions and lack of preparation (you can see this in the following section). But these things could also apply to you.

The timeline for escape depends on your attitude and finances. It is ultimately up to you to change and become financially secure.

  1. First, pay yourself
    This simple idea can help you save money. It can be difficult to save money. Listen to me.

Automatically transfer a certain percentage of your income into a separate account. This account should be kept separate from your main account to reduce temptation.

You can choose to look into online banks.

When you pay yourself before paying your bills, you are establishing your budget and prioritizing your spending.

I began by saving 5% of each check to ensure I could pay my bills. As I became more knowledgeable, I increased my savings rate.

  1. Start a side business that pays instantly
    If you’re not satisfied with your current income, it is time to consider a side job. Even if you have a decent paycheck, I recommend a second source of income.

Finding ways to earn extra cash is key to escaping the cycle of living paycheck-to-paycheck.

A side hustle can be a great way to generate income immediately.

What should you do with the money from your side hustle? Use it to pay off debts faster or save 100%.

I did some freelance marketing jobs, which gave me extra income and saved me when I was suddenly laid off.

  1. Downsize your lifestyle
    Even though you may not like it, to get out of the cycle of living paycheck-to-paycheck requires a lifestyle downsizing.

It all depends on the current state of your finances.

You can save money by reducing the size of your home.

Rent or housing is one of your biggest expenses. You might want to move or downsize to find a place that is more affordable. When I was in a bad situation, I had to go back home with my parents. I did pay them rent but it was significantly less than what I would have paid on my own. It was a privilege to be able to do this for a little over a year. I know that not everyone is so fortunate. My other option was to downsize my apartment in order to get a cheaper rent. Saving $100-200 is a big deal, but saving more will be even better.
Car – Many people may opt to buy a used car, borrow one from a family member, or simply get rid of their vehicle and take public transport, walk, bike or use a bicycle. I decided to keep my car because I was in need of it. Was this the right decision to make? It may not have been the best decision at the time but I made it. You can get a car in the future, but now it’s about making sacrifices.
Food – The cost of grocery shopping and eating out is more expensive than you might think. You should now stop eating out and start budgeting/couponing your groceries. You can save money by packing lunches, cooking for the week and sticking with simple meals. While you won’t get five-star meals, you can still save money and eat reasonably healthy.

  1. Spending habits: Understand them
    You’ll also need to examine your spending habits in general.

It is possible that you are struggling financially because of a spending issue. It’s not always the case but you should track your spending and understand where your money goes.

Once you have all your numbers in order, you may also discover ways to save money that you never thought of before.

Most people think they know what their expenses are, but in reality have no idea. I was surprised at how much I spent and what I paid for.

To break the cycle of paycheck to paycheck, you may have to be aggressive and cut as many monthly costs as possible.

  1. Use your credit cards responsibly
    You can limit your credit card usage, or even stop using it altogether for a while.

Don’t add to your credit card debt. It can ruin your finances. You may have to get rid of your credit cards if you cannot control yourself.

You can now start repaying any debts and not add more money to your account with the increased interest.

You can use the side hustle as a way to pay off debt and accelerate your repayment strategy. You can then use the extra money you earn from your side hustle and paycheck to save instead.

  1. Do not rely on tax refunds or bonuses
    When it comes to your finances, never depend on tax refunds, bonuses or possible raises.

Even if you have received something before, you cannot guarantee it if you are working for someone else.

You can manage your finances and spend more effectively if you remove this dependency.

  1. You don’t need to listen to your family or friends
    You can also use this tip to help you avoid living paycheck-to-paycheck.

You can get into financial trouble if you try to maintain a certain lifestyle in order to keep up with friends, family or colleagues.

It is particularly true if your finances are already tight.

You can now start to rack up even more debt on your credit cards or spend frivolously for the sake appearances.

Ignore what other people have, and focus on your own finances.

You don’t even know the exact financial status of everyone. You may not know if the people you’re trying to keep up to are also in debt or have a hard time getting by.

My Paycheck to Paycheck Story
In the previous section I said that it was my fault for living paycheck-to-paycheck. Even though I was underpaid at the beginning of my career, there was enough for me to survive.

My problem was that I wanted things out of my budget and to be independent. I wasn’t a big spender, or flashy, but I didn’t care about math and money management.

I basically ignored the problem, thinking it would disappear. My relationship with the money was broken. I didn’t realize I was living paycheck-to-paycheck until I woke one morning.

It is not a sad story because many people are in much worse situations. But I did want to share this story because I was heading for financial ruin by living above my means.

I was a healthcare professional with a career, but I never had any money at the end each pay period. I had to pay rent, utilities and student loans as well as credit card payments, car payments, and rent.

The following is what brought me to my lowest point financially:

I didn’t save enough money for an emergency before moving out (less than $1000 saved).
I didn’t track my spending or add up all my bills to see where my money was going
A new car was purchased when it wasn’t my place to do so (adding debt).
Renting an apartment where the rent is 85% of a paycheck
I should not side hustle more and look for a job sooner in order to increase my income.
Though I regret the time spent, in a certain way, this period was not a bad one.

I don’t want to go back, but I learned so much during that period about personal finance and the value of money.

The above steps helped me to achieve my financial goals in less than two years.

Additional Questions
How can I stop living paycheck-to-paycheck?
Keep track of your spending
Save money before you spend it
Place your savings in a different account
Reduce your big three expenses: Housing, food, and transportation
Compare your wants and needs
You can bank your extra income or raises
Set financial goals for yourself
What does it mean when you work from paycheck to paycheck?
Some people live paycheck to paycheck. They barely cover their expenses and rely on their paychecks from their employers. The person’s financial needs would be impossible to meet without the paycheck.

How do I pay my debt if I live paycheck to paycheck?
Live more frugal
Make a budget you will stick to
Pay off all debts and stop using credit cards
Make an emergency fund for you
Use the Avalanche method or Snowball to pay off your debt
Negotiate debt reductions with companies
Increase your income by working on side hustles
You can use extra money towards your debt by following frugal practices (even if they are extreme). It is important to make sacrifices now, as it will help you get out of debt and improve your financial situation.

It is difficult to stop living paycheck-to-paycheck and it won’t happen overnight. You may also be limited by other circumstances. Keep at it, and you will achieve financial freedom.