A few years ago I looked like a very different person financially. Back in college, I was always working several jobs at once. I worked, I got paid, and I spent every dime I made. I’m pretty sure I never had a savings account in college. Heck, even after finishing grad school and getting a “real job” that was still me to some extent.
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Looking farther back, I recall my single mother always lived this way as well. I recall her frequently asking folks like the mechanic to hold her check for a few days before cashing it. Plumbers, furnace repair people, and basically anyone who ever did any sort of urgent or semi-urgent work on our house were usually asked to hold onto the check for a few days before cashing it. There was simply no room for extras in the budget until the next paycheck arrived. We were living paycheck to paycheck.
What is Living Paycheck to Paycheck?
Essentially, living paycheck to paycheck means that all the money that you bring in goes toward your essentials like rent, food, transportation, etc. By the time the next paycheck rolls around, you’ve usually already been sweating it out for a few days, holding off paying some things until more money arrives in your checking account.
First Step to Break the Paycheck to Paycheck Cycle
It sounds silly, but I think that the first step if you want to break the paycheck to paycheck cycle is recognizing that as the place that you are at. I vividly recall an instance in college when I had written a check that I knew full well there was not enough money in my account to cover. However, I felt fairly confident that by the time the check arrived at my bank, my next paycheck would have been deposited and it would be fine. I remember jokingly telling a coworker what I had done, and he looked at me with great concern on his face. “Dee… that’s really bad,” he said.
I was taken aback by his reaction. In my world, that sort of thing was fine. After all, I had seen my mother do it before. She usually seemed to pull it off- at least, I was never made aware of any overdraft charges. I personally had done it before as well, and I’d never had any overdraft charges.
But that conversation stayed with me. It had never occurred to me before that other people didn’t live like that. I think that was one of the beginning steps in turning my financial world around.
Building an Emergency Reserve
If you are going to break the paycheck to paycheck cycle, building some sort of an emergency cash cushion has got to be tops on your list of things to do. After all, life happens. Cars break down, kids and pets get sick, and you know that the only time the air conditioner ever breaks is during the hottest week of summer.
It’s ok to start slow. $10 here, $30 there. Designate a special savings account just for your emergency cash, and start building it. If you have to put it in a different bank altogether to make it harder to access, then do it. Many financial advisors (like Dave Ramsey, author of The Total Money Makeover) recommend getting this emergency cash stash up to $1000 as a start. To begin with, that’s an excellent goal because $1000 should be enough to cover most standard cash emergencies. However, for the bigger emergencies (like when our basement flooded seven days before we were to drive out of state to adopt our daughter last year), you’re eventually going to need a bigger emergency fund, more along the line of 6 or so months’ worth of expenses.
Change Your Mindset
For me, I had to come to terms with the idea that not all of my paycheck should be spent. In other words, I needed to learn how to pay myself first. This started slowly in the months after finishing grad school, but eventually we were able to build on this and save more and more of our income. For us, using free online resource Personal Capital (review here) really helped us to see where our money was going and establish a better budget, as well as better plan our retirement savings strategy. They have lots of cool graphics too, which is super appreciated by me (I’m a total visual person!)
One of the fastest ways to have a little more wiggle room in your monthly budget is to increase your income. This does not necessarily have to be something as big as getting a second job (although that would probably help if you can swing it). There are tons of ways to make money in your spare time; everything from dog walking to renting your space on Airbnb to taking surveys online through a place like VIP Voice or Harris Poll Online. And everything in between. Every little bit of extra money that you can bring in will help you keep more of a cushion in your bank account. If you are looking for more great ideas for potential side hustles, check out this article.
Trim the Extras
If you’re serious about wanting to break the paycheck to paycheck cycle, finding a little extra breathing room in your budget is going to be a key step. We’re talking about ditching the extras here- cable TV, Starbucks lattes, and pricey cell phone plans are among the first that come to mind. If you need help in this area, check out Trim to help you analyze your bills and reduce your rates.
Other helpful steps include cutting back on restaurant meals by menu planning and cooking at home. If your brain hurts just thinking about menu planning, look into something like $5 Meal Plan, and spend a few bucks a month to let someone do it for you. These changes don’t have to be forever- although if you are serious about wanting to break the paycheck to paycheck cycle, learning to be content with fewer extras and less “stuff” will be helpful to you.
Ultimately, there is only so much money you can save by doing things like getting a cheaper cell phone plan, getting rid of cable, and avoiding expensive coffee. Sometimes if you really want to get ahead financially, the best thing to do is to focus on the elephants, not the lattes.
The financial “elephants” in your life are things like your house and your car. Are those payments killing your budget? If so, you may want to consider moving to a smaller house/apartment or downgrading to a cheaper car. I know those aren’t necessarily fun things to think about, but taking steps like that can really be a fast way to immediately free up extra cash in your budget AND eliminate some debt at the same time. As an added bonus, smaller living spaces set the stage for future life spending, often taking less time and money to maintain.
We downsized when we moved to a different state in 2012, and it is one of the best financial decisions we’ve ever made. We have so much more room in the budget now than we did before, and it’s allowed us to make big progress on other financial goals such as killing our student loan debt.
Get Your Family Members on Board
It’s going to be difficult for you to make as much progress as you want on ANY goal if your loved ones are not on board. Sometimes this is not easy, but if you can talk to your partner and determine your money goals as a couple, getting others (like children) to fall in line with the overall plan should be easier.
Have you taken steps to break the paycheck to paycheck cycle? If so, what do you think was the most important thing that you did to help this happen?
Suggested Reading: My very favorite personal finance book, The Millionaire Next Door, is one that I highly recommend because I think it does an excellent job of highlighting the importance of living below your means. If you want to hear more inspiring stories of how it’s possible to achieve wealth no matter your income, this is a truly excellent read.
CMF’s favorite FREE money management tools!
Some of the best online tools out there for money management are at Personal Capital, and the awesome news is that they are all FREE! Cash flow tracker, 401(k) fee analyzer, investment checkup, net worth monitoring, and many more! I’m a net worth junkie, so the net worth monitor is my favorite. Check out my Personal Capital review here, or click here to check out all the awesome tools for yourself!