If you’re living paycheck to paycheck, you’re probably frustrated. Working all the time, but never getting ahead.
Spinning your gears. It starts to feel pointless. I’ve been there.
Early in my acting career, I would set my alarm for 6am audition sign ups. Spending the day waiting for my name to be called before getting my 30 seconds in the audition room. Then hustling across town to make it to my survival job before my 5pm shift began and I finally started getting paid for my working hours.
I’d take the bus home a little after midnight, only to wake up and do it all again. It was exhausting, and often disheartening.
Like the day I went to the dentist only to find out I needed a nearly $2,000 dental implant. I started crying right there in the dentist’s chair. True story.
Despite my best attempts to save and get ahead. Life, and it’s many unexpected expenses, just kept happening.
I recently got an email from a reader that reminded me of that time and the overwhelm of paycheck to paycheck living…
“I still live paycheck to paycheck and it’s stressful and leaves me feeling immature and a failure as an adult.”
It got me thinking…
While there are basic financial steps you can take to stop living paycheck to paycheck, there are at least as many emotional aspects to consider.
Feeling immature. Feeling like a failure. Feeling like less than an adult.
Unfortunately, it’s those kinds of thoughts that keep us stuck in a losing cycle.
Related Reading: 5 Money Mindsets that are Keeping You Broke
So today I’m going to walk through the steps you can take to stop the cycle of living paycheck to paycheck – both financially and emotionally….
Financial Steps to STOP Living Paycheck to Paycheck
Figure out the gap between what you’re making and what you’re spending.
It’s imperative that you quantify the gap between your income and your expenses.
Start by adding up your income for a period of 90 days. Then go back through your credit card statements and bank account transactions to see how much you spent.
I HIGHLY recommend using a software like Personal Capital track your income and expenses going forward. Personal Capital aggregates all of your financial transactions across all of your accounts so you can make informed decisions about your money. What you’re earning and how you’re spending.
Without a full picture of how much you earn each and spend every month, there’s no way to set and stick to the savings and debt repayment goals that will help you break the paycheck to paycheck cycle going forward.
Ps. Personal Capital‘s tracking software is free to use, so no excuses.
Reduce your spending.
This may be tough to hear, but if you’re spending as much or more than you earn, it’s time for drastic measures. Like cutting your cable bill, your gym membership, vacations, gifts, etc.
Anything that isn’t housing, food, transportation, medical or insurance should be on the chopping block.
Related Reading: How to Stop Buying Stuff You Don’t Need
Remember, you’re not giving these things up forever, you’re just giving them up until you have an emergency cash cushion totaling one month’s worth of living expenses in place.
You’ll eventually want to build that cash cushion to cover 6 month’s worth of living expenses, but I’m not going to deprive you of your indulgences for that long.
Once you’ve built up a one month cash cushion, you can start reincorporating the discretionary expenses that are most important to you back into your spending plan. But only as you’re able to afford them, meaning as long as your expenses remain well below your income, and only while you continue to make contributions to your emergency cash cushion.
Disrupting the routine of your current spending can help you identify which expenses are truly priorities and which have simply become a matter of habit.
So consider these spending cuts a practice of mindfulness, as opposed to a painful sacrifice
To expedite your savings goals, look beyond the discretionary expenses you can cut out and target your top expenses. Think housing, transportation, etc. While you can’t cut these expenses to zero, you can likely make some significant reductions.
Your housing cost, for example, can be significantly reduced by downsizing, moving to a cheaper neighborhood and/or getting a roommate.
The impact of a 20-50% reduction in your housing costs is going to be far greater than the $5 you save by skipping your morning latte.
So as you’re looking at ways to reduce your spending, remember that trimming your biggest expenses has the greatest potential to break the cycle of living paycheck to paycheck. And that spending cuts, be they sharing your living space or brown bagging your lunch, are temporary measures to help build your savings and reassess your priorities.
Increase your earnings.
As you look for ways to reduce your spending, you should also be looking for ways to earn more.
Remember, saving money is finite. Even if you reduce your monthly expenses to zero, you’re only saving as much as you were once spending. But money earned has no such limits. You can increase your income well past the point of potential savings because there is no cap on how much you can make.
So ask for a raise, improve your skill set to demand a higher wage, and consider ways to leverage your unique skills, talent and experience to meet more profitable market demands. And in the meantime, hustle for all the extra money you can. Uber driving, dog walking, putting together IKEA furniture. Nothing is too menial or random. As long as it pays – it has potential!
Related Reading: The Complete Guide to Making More Money
Save 10% AUTOMATICALLY.
Every time you get paid, (paychecks, gifts, bonuses, your tax refund, money found on the street, etc.), put AT LEAST 10% of it into your savings.
If you’re a salaried employee, set up an auto transfer the day you get paid. If you’re an entrepreneur or self-employed, manually transfer 10% anytime you get a paycheck. The more automatic you make it, the more likely you are to get into the habit of paying yourself first, building the savings that will ultimately enable you to break the paycheck to paycheck cycle.
Related Reading: 6 Ways to Make Saving Money a Habit
Related Reading: How to Save Money with Irregular Income
Emotional Steps to STOP Living Paycheck to Paycheck
Know you’re not alone.
According to the Federal Reserve Board, 47% of Americans could not come up with $400 in the event of a financial emergency.
Not 47% of stupid Americans. Or 47% of low-income earning Americans. But 47% of ALL Americans. Including well educated and highly ambitious individuals
So when you’re staring in the mirror, reflecting on what a failure you are, remember that 1 out of every 2 Americans is feeling the same way, and that good financial habits take time and effort to master.
The only failure is not setting aside the time or putting in the effort to develop the good financial habits (see above) that will enable you to live securely and freely on your own terms.
Let go of shame.
Maybe you’ve even made some decisions, bad decisions, that have brought you to the situation you’re in today. So, you should feel ashamed that you’re living paycheck to paycheck, right?
Well, here’s the thing about shame – it’s unhealthy and it’s holding you back from making better financial decisions.
Brene Brown, one of the top researchers on shame, talks about why shame is ineffective at motivating change, “Shame isn’t a motivator of positive change. Yes, it can be used in the short term to change a behavior, but it’s like hitting a plastic thumbtack with a 100-pound anvil — there are consequences to the crushing.”
In the case of your finances, those consequences typically manifest as a combination of disengagement, procrastination and resignation to your less than ideal financial circumstances.
Instead of internalizing feelings of shame and failure, adopting an identity of “being bad with money,” identify the specific behaviors that are hurting your finances. The objective is to get away from the idea of being (that is, identity), and move toward the idea of doing (that is, behavior).
After all, identity is who you are, but behavior you can change. If you identify the financial behaviors that are keeping you in the cycle of paycheck to paycheck living – ex. overspending, ignoring debts, failing to save, etc. – you can start to identify specific next steps and behaviors you can do differently to move towards your financial goals, as opposed to just wishing you were different.
Evaluate your social circle
Learning to say ‘no’ is a powerful tool on your journey to a better financial future.
No to unnecessary expenses. No to happy hours and weekend trips that aren’t in the budget. No to living paycheck-to-paycheck any longer than you have to.
And no to friends who are going to keep you poor. Which friends are those? The ones who always insist on the most expensive brunch spot. Who make jokes about their debt and credit card balances, but don’t make any meaningful changes. The friends who act resentful, threatened or insensitive when you assert your financial priorities or say can’t afford something.
Real friends are the ones who will stand by and support you as you work toward achieving your greater goals.
Living paycheck-to-paycheck is a financial and emotional hardship. Only when you tackle both aspects simultaneously will you be able to get ahead of your finances.