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
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!)
Increase Income
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.
Consider Downsizing
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
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This is extremely similar to a massive post that I have in draft form. I love your term “elephants” for the big, but not necessarily fun, changes that make appreciable differences to the bottom line.
I always think of things like the house and car as elephants because they can have a MASSIVE impact on the bottom line! It’s so easy to just look at payments and say “I can afford that.” But it’s harder to look at paying that $250 bigger mortgage payment over 30 YEARS! Once we started re-framing our thoughts and thinking of expenses this way, it really put things into perspective, for us anyway.
I lived paycheck to paycheck for a long time until I decided to track my expenses. Tracking my expenses showed me where my money was really going and helped me cut back on a lot of things. By cutting back, I had more money to start my emergency fund and pay my debts. I had to make a lot of changes, but I think tracking my expenses was the most important since it was the first step.
Good for you! Tracking expenses is the place to start for many of us. Until I started really paying attention, I had no idea where my money was going. Sadly, a lot of it was going to eating out at fast food restaurants, ugh! Thank goodness I/we stopped that.
I think that’s great that your eye were opened by your friend and that you were able to make a life change financially. I think many people haven’t hit that awareness yet. I have had to tell people to wait to cash a check and that isn’t a good feeling. I’m definitely trying to find ways to pay down my debt.
We are working hard core on student loan repayment right now, too. Should be gone by 2016! Good luck on your debt repayment- keep your eye on that awesome prize of debt freedom!
I lived paycheck to paycheck all during college and it was so frustrating! However, it was all my own fault! I had plenty of money, I just didn’t know how to budget or say “no”. Once I started to actually, save money, I found that I had broken the cycle–and it was such a relief! 🙂
I can SO identify with you here, Niomi. Looking back, I really think I made plenty of money as well- I mean, I was working four jobs at one point! But I spent a ton of money on eating out, clothes, and gas to drive out of state to see my boyfriend all the time (a boyfriend who ultimately did not last!) I’d like to blame my age at the time, and I think it was partly that, but also the fact that I really had very little idea of how to manage my money. I hope to educate my daughter, or at least give her the very basic understanding of personal finance that I really lacked heading into the world.
Changing my mindset was a big one for me. I was just tired of having to watch every dime and waiting on a payday. I realized one day that I was living below my privilege. Great tips!
Good for you for changing your mindset! That’s one of the biggest hurdles- once you’ve crossed that, I really think things only get better from there in terms of personal finance. Good luck in your goals!
Great post Dee! I used to REALLY live paycheck to paycheck and though it’s not perfect yet, I’m moving further and further away from that all the time.
That’s awesome Kayla! I think the biggest sign that you are moving away from it is that you’ve RECOGNIZED that fact! Becoming aware is a key step, and poor financial literacy is a huge hurdle for many people.
We lived the paycheck-to-paycheck life for a bit while we were paying off debt. We’d throw everything we had at it, then watch the funds in our account slowly dwindle. It was exhausting, so I can’t imagine people doing it forever.
Unfortunately, that’s exactly how my husband’s old friends live. They live like the money’s never going to last anyway, so they might as well enjoy it.
I remember standing in the living room of one friend while her kids were watching cable (and not a basic package) while she talked about how they could be late with rent, since her guy’s mom owned the place. But she was concerned about the water getting shut off.
Someone came by and dropped an overdue, under-the-table payment off, and the guy’s first reaction was to go to the casino. We said that we really couldn’t afford that, and he offered to spot us! She nixed that idea, but did have us all go out to eat. I think they spent about $30 on dinner that night. I was just so incredibly tense on their behalf.
Oh wow. I cringe when I hear stories like that too. If they are your hubby’s friends, it’s hard to even think about approaching them about that- you probably don’t know them well enough to do that? Even if you do know someone well, it’s hard to bring things like that up. Especially when priorities are so mixed up that rent is overdue and water might get shut off, yet the casino sounds like a good idea! Ugh.
Tracking your spending and creating a budget are great first steps. Since most people fail to do those things, they wind up spending all the money they make. It’s easy to do!
I agree. When Mr. CMF and I had cable, we used to watch Gail Vaz Oxlade’s show on CNBC (‘Til Debt Do Us Part,’ I think it was called?) It was always fascinating to watch Gail show the couple’s monthly spending tally to them- very often they truly appeared to have no clue at all the level that their spending was at!
I think not “paying yourself first” part is the biggest problem with living paycheck to paycheck. Paying yourself first means that you need to be able to take out enough money to fund your retirement/savings/investment goals first and then have enough to pay all of your bills. If you are not paying yourself first, this will likely involve cutting expenses or boosting income somehow, or both. This is a difficult transition, but necessary to start growing financially.
I truly believe that increasing your income is the key here along with the emergency fund. Unfortunately not many people are willing to reach their full potential. However, there a tons of opportunities to make extra income and find wonderful money saving tips online.
I completely agree about the resources online! Ever since I began blogging and became more a part of the online personal finance community, I have discovered soooo many more ways to make money and super creative ways to save. I have seriously learned a ton from other bloggers, and have probably saved hundreds if not thousands of dollars thanks to tips I’ve discovered online.
Wow, I grew up in exactly the opposite circumstances (I didn’t have a single parent, either, though my family did have only a single income). It’s astonishing to me that people don’t have the money to pay a bill; it’s easy to see how people in that situation get so stressed out and angry all the time!
I’m glad you and your husband were able to escape that kind of cycle and get your finances set on a more productive path! I wish you all the best!
Well, I think my hubby’s situation was more like the way you grew up. His parents seem to have mastered the art of living within their means. To be honest, I think a big part of what helped me become more financially savvy was the influence of my husband! It took a few years though; definitely not an overnight change!
This is an awesome post! My husband lost his job last November and I’m happy we had an emergency fund to lean on until I went back to work from maternity leave. We were able to maintain for two months — rent included — until my maternity leave was over. Such a blessing. While he’s still looking, we’ve been trying to figure out ways to simplify. This will probably be the topic of my next post.
Thanks! My favorite thing about having a solid emergency fund is not even the money itself, but the sense of security it provides. We just FEEL so much safer knowing that if something happened to either of us or our jobs, we would have a safety net to lean on.
Here’s a weird idea. I thithe. I learned not to see and spend money as ‘my money’ . It has a bigger impact. Many people have told themselves that ” I’ m going to spend it ALL,” Will spend it all.I have found that taking 10% and giving it to my church as helped me be more watchful of the the other 90%.I was able to create a good emergency fund in time & pay off my small mortgage, early. I know it does sound weird; it does work though.
That’s great! I’ve actually heard others say similar things about how tithing has helped them to become better stewards of their money. What an awesome way to both gain control of your money and help others at the same time.
How do I get my husband on board? He’s an impulse buyer, hides purchases from me, and “surprises” me with spontaneous gifts. (Came home from work with a new travel trailer in the yard, though we owed the IRS $13,000 in back taxes!!)
He uses the excuse “I work 7 days a week and I deserve to have nice things”. My response, “If you’d stop spending for 1 year, I could have us in a place where you could only work 5 days per week.”. I’ve tried everything. Should I just try to save what I can on my own? I don’t get my hair cut, nails done, I don’t go shopping. I haven’t had NEW clothes in 11 years. I’m VERY frugal. But I’m starting to feel a little resentment that I’m not able to “afford” things I need or would like, while he spends like there’s no tomorrow. 🙂
Any ideas on how to create an emergency fund that will be safe from his impulsive spending?
Thanks!
Kate,
Thanks so much for your question. I think this is an issue that many couples deal with. I don’t think there’s any sort of quick fix, but I DO think there are things that you can do that will help. First, make sure that when you communicate about money that you try hard not to point fingers and launch into a list of what’s wrong with his spending. I think the best way to approach this is by telling him how the spending issue is making you FEEL. In other words, rather than going off on him for specific things that he has spent money on, start by saying things like, “I am worried that we may not have enough money to pay the bills/send Junior to college/retire/etc.” He probably has given little thought to how this is making you feel, so making him aware of this may help. Also, there are things you can put in place to help control spending such as credit cards with low limits, etc. Also, you could try out separate checking accounts, making sure that the bulk of your money needed to pay bills goes into the account that he does not touch for his daily spending. You could also involve him more in the family money by asking him to help out with some simple tasks like calling the credit card company to see if you can get a lower rate, call around looking for better savings account rates, etc. And don’t forget to praise him when you see behavior that is moving in the direction that you’d like to see it go! I could write a whole post on this (and I might!) but I hope these suggestions are enough to get you started. Best of luck to you! Dee
Great post! The paycheck to paycheck cycle is so common these days, I feel like most people don’t even realize they’re doing it! For us, it took tracking our expenses with a budget to realize the power we could have over our money. Thanks for sharing!
Yes! Totally agree! If you don’t track your spending it’s awfully hard to ever have a real grasp on your monthly cash inflow and outflow.