5 Ways to Break the Paycheck-to-Paycheck Cycle

You may be familiar with the phrase, “living paycheck-to-paycheck” — it might even resonate with your current financial situation. Don’t worry, you’re not alone. If you're living paycheck to paycheck, barely making it from one pay period to the next without running out of money, you may be ready for a change. You can break the paycheck-to-paycheck cycle by evaluating where you spend money, creating a budget, cutting costs, and developing other good money habits.

Not only is living paycheck to paycheck stressful, but it can make it difficult to reach financial goals like paying off debt, buying a home or reaching financial freedom in retirement. Luckily, you can make immediate changes and strive for financial security with these four key steps for breaking the paycheck-to-paycheck cycle.

Pay Yourself First

This means putting as much as you can afford into a savings account as the very first ‘bill’ you pay each month. Be sure to put it in an account that you will not touch except for its intended purposes such as a down payment on a house or a true emergency. Even if you have to start as small as $5 or $10 a paycheck, a little is better than nothing. Consistency is key and before long, you’ll be saving more than you ever thought possible.

Track Your Spending

Start by tracking your expenses for the previous month to get an idea of your current spending habits. Going forward, track your expenses as part of a weekly or monthly routine.

Sort your expenses into categories such as essential and nonessential spending; you can then further break down those categories into housing, utilities, groceries, eating out, car, clothing, savings, and more to get an overall picture of how much you're spending in each area.

Make A Budget

Start by adding up your take-home pay after taxes and other payroll deductions each month. Next, subtract your fixed expenses (housing payment, utilities, phone bills, car payment, and any other essential expenses). Make a category for savings too.

After you've subtracted your essential expenses from your income, whatever's left is your discretionary income. This goes toward everything else: groceries, pet expenses, clothing, beauty and hygiene products, entertainment, hobbies, and so on.

Cut Expenses

Here are some areas where you might be able to cut costs:

  1. Cancel unused subscriptions. Look at any unused or minimally used subscriptions
  2. If you're dining out regularly, you can substantially cut costs by cooking at home. If you're already prepping your meals at home but need to lower your grocery bills, try couponing, cooking meals with low-cost ingredients, and creating a meal plan that takes advantage of leftovers.
  3. Try cutting back by wearing what you already have, sticking to a limited clothing budget, or shopping secondhand. The same can apply to home goods, technology, or any other items you frequently spend on.

Once you’re debt-free and have an emergency savings cushion to fall back on, you’re closer to being free of the paycheck-to-paycheck cycle.


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