How to Stop Living Paycheck to Paycheck

Tips to Stop Living Paycheck to Paycheck

It seems that it is getting harder and harder to get ahead financially particularly if you aren’t in a blue collar or service based job. Along with the COVID fallout for many their financial positions are the worst they’ve been in years and not likely to get better any time soon 

For some it may seem like you can never get ahead and there could be a tendency to want to give up. It may seem forlorn to get ahead financially, however the worst thing that you can do is to put your head in the sand and do nothing. Get on the front foot and see what you can do. 

Below we’ll touch on some tips on how to get out of living paycheck to paycheck, tips that were important in improving our financial circumstances.

Why are you living paycheck to paycheck?

Has it always been the way? Did your parents or parental figures live paycheck to paycheck and you just assumed it would always be this way?

As the Tony Robbins quote goes “success leaves clues”, analyze successful people or companies and there is usually a blueprint to that success. The sports champion that works harder than their competitors, the successful business owner working continually hustling to beat their competition. On the flip side, the same can be said with failure or underwhelming results. 

If we take the situation of someone who is in a poor financial state, there are usually compelling reasons as to why that person is in financial peril. Is there a spending problem or an addiction problem, was there a relationship breakdown or is it an issue on the income side such as not enough income to fund even the most basic of lifestyle expenses?

So take a look (a really honest one) at your current financial situation, can you see the clues that have led to your financial situation (good or bad)?

If your situation is in good shape, keep doing what you are doing. However as you are reading an article on living paycheck to paycheck it’s likely your financial situation is less than ideal and work needs to be done. Start with a financial review and see if there are any obvious (or not so obvious) clues as to why you are living paycheck to paycheck. 

If there are underlying issues (such as low self esteem) that have been a big part of your financial downturn, please seek out a qualified counselor or specialist to look for a solution.

Are you avoiding your financial issues?

A poor financial situation rarely springs up overnight, there are crumbs or as mentioned above clues. These could be missed credit card payments or spending money on fancy clothes while not having enough for next month’s rent. The key is are you picking up on these red flags or are staying in denial and putting your head in the sand?

Yes there are some months when even the most financial fiscal people might be stretched however this would rarely affect their ongoing financial situation.  

So ask yourself, are you being completely honest with your financial situation? Is there something serious that you are ignoring or trying to sweep under the carpet? This could be living above your means or something more serious such as an addition that is crippling your finances. 

Before you can fix a problem you need to acknowledge that a problem exists. The quicker you accept you have a financial problem or that your financial situation needs fixing, the quicker you can move on from living paycheck to paycheck. 

Do you believe you can turn your financial situation around?

Belief is one of the more powerful forces in life. Positive belief can help you achieve things that you never thought possible. Negative beliefs can act as the heaviest of anchors and stop you in your tracks. 

Not only can negative beliefs stop you from achieving, they can also paralyze you into taking any action. You keep getting caught in this negative feedback loop and never break out of this 

For example you might have a goal or resolution that you want to achieve and start to get excited thinking about this. After a short time these positive thoughts turn negative and your underlying negative beliefs rear their ugly heads, wiping out any positive momentum and eventually stopping you or severely hindering you from taking action.

This has happened to nearly everyone and this can be fixed!

How do we do this, how can we challenge these ruling negative beliefs? Intensely scrutinize every negative belief you have or operate under and shine a bright light on these negative beliefs to see that they aren’t worth the space in your mind and offer no value or truth.

Let’s look at some of these negative financial or money beliefs that may be holding you back 

  • I’m not smart enough to invest or make money
  • I’m too old to make money
  • I’m not tech savvy enough to make money
  • Why make money, I’ll just get taxed more
  • The system is rigged against people like me
  • Only insiders or dishonest people can make money

It’s not just finances where our lives experience negative thoughts, it can be in relationships, career, or even something personal

  • I’m not smart enough
  • I’m not pretty/handsome
  • I’m not thin enough
  • I’m not tall enough or I’m to short
  • He, she, they wouldn’t like me so why bother
  • I’m not wealthy enough
  • They are out of my league

And I’m sure you can add many other negative thoughts to this list!

Any time you have a negative thought that comes into your head, challenge it. How do you know if that thought is true? Are you a mind reader or a psychic? The only way you will know if something is true is if you are that person and they truthfully answer you. 

Don’t get hung up on rejection, it happens to everyone and the sooner you make rejection an acceptable part of your life, the more successful your life will become. Let rejection motivate you, push you to evolve until you get that goal or achievement. 

Remember, the best in the world in any field started from a base similar to where you are starting from! 

If there are areas of your life you wish to work on, by all means do it, but do it for the right reasons, not because you don’t think you are enough in an area of your life and don’t let any negative thoughts derail you from starting something!

Finally, when looking at your finances, all the financial tools or experts in the world will struggle to help you if you don’t have the belief that you can move out of the situation of living paycheck to paycheck. 

 What is your financial education like?

Financial education can mean many things. On a simple level, do you have an understanding of the finance basics such as budgeting or savings? Do you understand interest and how credit cards work (and their interest rates)? What about the basics of investing?

If your education is low, it’s likely a big reason that you aren’t as successful financially as you should be. No matter what your starting point or current situation you can improve your financial education. 

Start small, look for people who have come from a similar background to you and become financially successful. Who did they learn from, what tools or techniques did they use?

Everyone deserves to be educated and to have access to quality education. Even if your background is low in education you can improve your knowledge as much as you believe you can and how much you want to improve. 

What (if any) areas in finance do you enjoy or have a basic understanding in and would like to learn more? 

There are a lot of free government provided resources such as CFPB and  NFCC (USA), Money Helper (UK) and Moneysmart (Aus) that can get you on the path to improving your financial education. 

This website has some great information and quality resources and if you have a specific question or want further information about a topic feel free to send us an email. 

Improved financial education is one of the most important tools to get you out of living paycheck to paycheck. 

Now that you’ve addressed some of the reasons and beliefs, let’s look at ways to turn your financial situation around. 

What is your current financial position?

Once you’ve got an understanding on the why or the how, you can then move towards improving your financial situation and end living paycheck to paycheck. This means knowing exactly where you stand financially, all the income you earn, all debts you owe (and their repayments), all the money you have spent on lifestyle, everything! 

Yes this will be a very scary experience, particularly if your finances need a lot of work!

However the quicker you do this, the quicker you build a foundation to move forward from and build on. We discuss completing a financial audit in more detail here, essentially it should be one of your first tasks when reviewing and improving your financial situation.

Once you’ve got that starting point then you can put together a plan to move from where you are to where you want to be. 

Do you have a plan or financial goals?

Now that you have an understanding of your true financial position, how do we turn this around? More importantly, where do you want to go financially? Whilst there is no one way to do this, one method that has helped many is to set out a list of financial goals that they wanted to achieve. They then broke these goals down into short term (max 1 year) and long term financial goals. 

As with most journey’s it helps to have a destination in mind and in this case, goals can act as a destination. We go into more detail into why you need financial goals however at a simple level setting financial goals offer you a target for you to go after without thinking too much about it. 

In a previous article we go into more detail about setting financial goals, however on a basic level, ask yourself what do you want financially in the long term? For some this could be financial independence, for others this could be being debt free living in their dream house or traveling the world. 

Usually better results come about when you go deeper with this exercise so look at asking questions along the line of:

  • What do you want out of life?
  • What is financial independence for you? 
  • Do you want to help others, give back to the community? 
  • Do you want to travel? 
  • Where do you want to live when you retire? 
  • What is your dream job and what do you need to do to get this?
  • Do you want to take up a hobby that you need to fund, i.e. private guitar lessons or private painting lessons?

I’m sure you’ve got plenty of other financial questions you could ask yourself and if not, start with the above list and go from there.  

Once you’ve got one (or several) long term goal(s), look to set some smaller short term goals that align to your chosen long term goal. An example of smaller, shorter term goal aligning with a long term goal could revolve around a savings target. Let’s use a long term savings target of $100,000 in 5 years and a shorter term goal could be $20,000 in a year. 

The beauty about aligning your shorter term goals with those long term goals is that they can tell you if you are on track or if changes need to be made early into your long term goal journey. In the above example if you have only saved $10,000 in the first year rather than $20,000, this would likely to stall your attempt to save the $100,000 in 5 years (unless there is an increase to income, decrease in expenses or both) and is feedback to say that your $100,000 goal in the 5 year time frame is too hard to achieve. 

Don’t get too hung up about setting all these goals, find one of two longer term goals with some shorter aligned goals and look at outlining your plan to achieve these goals. 

Now that we’ve covered goals, what is the plan to achieve these goals? Whilst we don’t suggest you need to have an intricate plan in place that would make Hannibal Smith from the A-Team proud we do suggest you have the basics in place to achieve what you set out to do.  

The reason we don’t suggest you go into significant detail is that this plan will change and likely very early on. So you suggest a fairly simple plan that is easily adaptable and fluid. 

The important point to take out of this area is taking inspired action. Set some long term financial goals along with shorter term aligned goals, have a basic plan of action then most importantly take inspired action!

Where does your money go?

You’ve set your financial goals and put together a simple plan, now it’s time to execute. As we mentioned earlier the two ways to save money is to cut expenses or to increase income (or both). In this section we will go a little deeper into your expenses and review where your money goes.  

In point 5 we talked about a financial audit analyzing all aspects of your financial position from assets and liabilities through to income and expenditure. After you’ve reviewed your expenses, it’s likely that you will see a pattern. Is your spending skewed towards items that you really don’t need such as clothes, electronics, handbags, entertainment or shoes? 

Or is your financial situation severe enough that expenses are only going towards basic living expenses and you aren’t making ends meet due to skyrocketing costs of living.  

If your expenses are significantly going towards the items you don’t need then with a few small adjustments and the creation of a budget your financial turn around won’t be too hard. For those who’s financial situation is more dire than others (i.e. you’ve racked up significant credit card debt or personal loans) then the cuts to your lifestyle budget are likely to be more severe to right your financial ship. 

For those who are struggling to put food on the table or to cover housing, heating or simple clothing then it’s about getting more income (both short and long term) into the household (or getting whatever help you can get with your living expenses). 

We know what it’s like when you are in survival mode, it can be hard to have the energy or mental capacity to think of ways to boost your income. Is there a friend or family member that can help in the short term to get some breathing space or somewhere you can go or who can you reach out to for help with shelter or food? Go through all state or federal agencies, local missions, churches, charities you can think of that can help.  

Automating your finances will turbo charge your improvement

Once you’ve created a budget it’s time to get these finances automated. The easiest way we’ve come across is to set up a financial hub where all your expenses come from and all income is paid into. This can be a mortgage account (provided there is a redraw option) or a simple transaction account. 

The key is to automate as much as you can for your finances. Get all your income paid into this account, get as many of your lifestyle expenses to come from this account, either via direct debit or through a debit card linked to this account.

Once you’ve stabilized your finances and your net income is greater than your expense you will then be able to build savings then eventually an investment portfolio. 

Limit personal debt and give your credit card debt the heave ho

In most cases, if you are living paycheck to paycheck you have likely racked up significant credit card and personal debt. If you’ve had little training in budgeting then you likely have little chance to turn your situation around.

One of the first steps down the dark path to financial peril is through the use of personal loans and credit cards on items that aren’t essential. This could be using your credit card to pay for a whole new wardrobe of clothes (when you already have suitable clothes) or taking out a personal loan to pay for a fancy new car (where you already use) that is well outside your budget. 

Before you know it your credit card is maxed out, you are struggling to repay your large personal car loan and you are well down the path to financial destitution. 

It doesn’t have to be that way. 

Using a credit card and repaying the monthly or periodic outstanding balance before the interest period kicks in is a great way to earn reward points that can go towards various items such as household gadgets or plane tickets. For most however they lack the discipline in using a credit card the right way and find it hard to get off the credit card “minimum payment” hamster wheel!

According to Lending Tree, US credit card debt is at its highest level in history. 

Use of personal credit should only be used in conjunction with your long term planned expenses (i.e loan or lease for a reasonably priced car or SUV) or in the case of an emergency (i.e credit card use for plane tickets to visit a sick relative). In all other cases a diligent budget and savings plan (with larger future expenses built into cash flow and savings) should be used to grow your financial position. 

Build your emergency fund

Living paycheck sucks, it absolutely sucks and the feeling that you have no money in your account if an emergency pops up can leave you depressed. Living paycheck to paycheck means you have no form of savings and if an emergency occurred you would be (financially speaking) up the creek without a paddle! 

As part of your financial reclamation project, setting up an emergency fund is an important step. 

With any goal, start small. After you’ve got into the routine of having your finances automated and seeing (hopefully) a small weekly or monthly surplus being saved it’s time to focus on building your emergency account

Look to build up an emergency fund for one week’s worth of living expenses. Once you’ve achieved this then expand this emergency fund to one month’s worth of basic living expenses and once you’ve achieved this then look for 3 months. 

Ideally your first big emergency fund target will be at least 3 months worth of lifestyle expenses. Not only will you feel at peace, achieving something financially significant such as 3 months of lifestyle expenses saved will likely spur you to wanting to do more things financially and set bigger goals to achieve (such as investing).

Once you’ve built a solid emergency fund you’ll barely recognise the person who was once living paycheck to paycheck. 

Let’s increase your income and begin investing

Last, but certainly not least, if this isn’t the most important point on this list then it is very high. Whilst understanding the reason for your poor financial situation (and any behavioral issues that have been a cause) is very important, increasing your income (and reviewing expenses and cutting unnecessary expenses) is also very important to improve your financial situation

As we touched on earlier in this article, the two ways to save money are to cut your expenses or to increase your income (or a combination of both). Obviously there is a certain limit to how much you can cut your living expenses to, however (in theory) there is no limit to what you can increase your income to (either directly or through investing). 

We’ve addressed reviewing your budget and expenses above; however the quicker you get to a position to increase your income and build your investments, the quicker you will achieve your long term financial goals. 

So how can you increase your income (and the income to your household)?

Let’s start with the low hanging fruit regarding income. Can you get a pay rise with your current job or If not are there jobs you are suited for that will give you a pay rise?

If those two options are off the table, can you take on a 2nd job? Simple options for this would include delivery driver, Uber driver, shelf stacking or babysitting friends or relatives. 

Are there opportunities in the area you live in such as dog walking or basic landscaping options?

If you have spare tools at home you can rent these out. You can rent out your car when you don’t use it or if applicable you could rent out a room in your house. 

Alternatively if you’ve got access to a computer and the internet there are plenty of opportunities to make extra money. From a virtual assistant role to an online writing role there are plenty of options to boost your income even if you don’t have a lot of experience. 

Do you have any skills or education that you can earn some extra money from? This could be teaching someone a musical instrument or teaching someone how to sew or knit.

Once you boost your income make sure you avoid lifestyle expenses creep which can hinder any improvement to your financial situation. Stick to your budget, save and invest surplus income and you will be well on your way to financial independence in no time at all! 

Whilst living paycheck to paycheck can feel like the end of the financial world, you can get out of this. Yes hard work will be needed however the sooner you accept this, the sooner your financial situation will improve. A lot of people like to make excuses and blame others for their financial issues, take responsibility and begin to repair this. 

Stick to your plan, stay focused and consistent and you will be hitting your financial goals and milestones in no time.