Nearly 4 out of 5 (80%) Americans live paycheck to paycheck. Personal finance doesn’t get taught in school so many people struggle with money their entire lives.
You can stop living paycheck to paycheck no matter what your current financial situation is, all you need to do is make some smart, lasting changes to see huge results!
What is Living Paycheck to Paycheck?
Living paycheck to paycheck means you have very little savings and cannot pay your bills until you receive your next paycheck from your boss.
Many people rely on credit cards, payday loans, or personal loans from friends and family to take care of unexpected expenses until the next pay period comes.
Is It Possible to Stop Living Paycheck to Paycheck?
If you find yourself in this situation then you’ll need to change your financial habits to change your life.
The good news is living paycheck to paycheck can be fixed quite easily but you need to follow the steps below to get yourself out of this mess.
I know personally how hard it can be but I was able to change my finances and provide a better future for my family.
Stop Living Paycheck to Paycheck in 10 Simple Steps
Here are the simple steps I took to go from $0 to savings several years’ worth of living expenses.
1. Pay Yourself First
This is by far the most important step of all. In fact, if you just follow this one step then you are guaranteed success.
Most people live paycheck to paycheck because they pay their bills first and try to save or invest what’s left.
All the money goes towards their mortgage/rent, food, clothing, car payments, gas, electricity, insurance, medical bills, etc.
Usually, there is no money left at the end of the month and people put off saving or investing for another time.
Paying yourself first will free you from living paycheck to paycheck and help you take a giant step toward financial freedom.
How Does Paying Yourself Work?
Paying yourself first means you direct a portion of your paycheck into a separate savings account or investment account and let the money grow.
How do you pay yourself first?
Open a new savings or investment account and have your employer deposit at least 10% of your paycheck into this new account.
If you are self-employed like me, then transfer 10%+ of your income into this account. Many banks or brokerage firms have automatic deposits so you can put this on autopilot.
This is the secret to quit living paycheck to paycheck. At first, you won’t have much in these accounts but after a few months, your balance will grow like a weed.
This is exactly how I saved over $10,000 in less than 1 year.
Pay Yourself First means you are guaranteed to grow your investments & emergency savings over time.
2. Create a Spending Plan (Budget)
Most financial bloggers use the word budget but the word carries a negative spin.
Creating a Budget sounds like you are missing out on things you enjoy just to save money. That’s not cool.
You work too hard to miss out on fun stuff. Besides, tomorrow is not guaranteed. Enjoy the moment now because life is short.
I prefer the word: Spending Plan.
How Spending Plans Work
A spending plan is like a budget. It describes how you plan to spend your money every month.
Before my son was born, I was using the Shaq Budget of saving 50 to 75% of my income.
My expenses increased a lot once he was born so I moved to the 70/30 plan.
70% of my income goes towards living expenses.
30% of my income goes towards savings, investments and my son’s UTA account.
For example, if you earn $3,000 a month then $2,1000 goes to expenses and you save $900 a month.
$900 per month adds up quickly.
That’s $10,800 in savings per year.
If you don’t have kids and are single, shoot for at least 50/50.
Heck, go for 90/10 where you save 90% of your income if possible.
3. Track Your Spending
Tracking spending can be an eye-opening activity for most people. Almost everybody knows how much they earn. The question is: How much do you spend every month? Most people have no clue.
If you are tired of living paycheck to paycheck, then you need to know exactly where your money goes each month. I mean you need to track EVERY SINGLE DOLLAR.
How to Track Your Spending
I use Mint (it’s free!) to track my monthly spending. Download the app to your smartphone and link all your credit cards, checking & savings accounts. If you don’t have a smartphone, then sign up online and use the desktop website.
Every month, I group my transactions into categories to see where the majority of my spending occurs.
Once I knew where my money was going, I simply cut extra spending and reduced necessary bills to the bare minimum.
Cut Unnecessary Expenses & Reduce Your Cost of Living
Here are a few steps I took to cut down my spending:
- Quit Alcohol & smoking
- Cancelled my Cable TV & started working out from home or in nature
- Turned Vegetarian to save money on expensive meat based meals
- Avoided the costs of car ownership
- Used debit cards instead of credit cards to avoid paying interest
- Negotiated a lower rent with my landlord and downsized to a cheaper room
4. Track Your Net Worth
Do you remember how nervous you felt in high school when report cards were due? Your report card showed your parents how well you performed in school no matter what you told them otherwise.
When you graduate from high school, you obtain a different report card in adulthood: your net worth.
Net worth is the simple calculation of your assets minus liabilities. It’s a simple metric to determine how well or poorly you are doing financially.
Tracking your net worth is another key strategy to stop living paycheck to paycheck. It’s an honest view of what your finances look like.
I also recommend some net worth communities like NetworthShare to track your net worth publicly. You don’t have to share your real name or anything. Create a username and start entering your assets and liabilities every month.
Your goal should be to have LOTS of ASSETS and very few liabilities.
In a perfect world, you should have zero liabilities which means your long-term goal should be zero student loan debt, zero credit debt, and a paid-off mortgage.
Owning nothing means you don’t have to spend your paycheck servicing debt on purchases made in the past. This frees up cash flow and increases your savings/investments much faster.
5. Build an Emergency Fund
Your emergency fund is the first line of defense in case of a setback like illness, job loss, or unexpected emergency.
My recommendation is to build your emergency fund in a separate account from your regular checking & savings.
Because you won’t be able to easily spend the money. Making it difficult to access gives the cash time to build up and provide a nice financial cushion for yourself.
For risk-takers, I recommend Stash Invest as a great way to increase your emergency savings faster by investing in fractional shares of stocks/ETFs. Most of my emergency savings is invested in companies like Apple, Google, Microsoft, and Mastercard.
6. Open a Brokerage Account
The richest people in America built their wealth through the stock market. Guys like Warren Buffett, Bill Gates and Jeff Bezos own millions of shares in some of America’s greatest companies.
Stock ownership made them rich and it can do the same for you. You can own stocks no matter your race, age, color, sexual orientation, or religious background.
And why wouldn’t you? All of us spend money every day with companies who trade on the U.S. Stock Market.
Not convinced? Let me give you a breakdown of how often I personally spend with US-traded companies. Here’s a quick list:
- I’m typing this article on a HP 13 inch Laptop (NYSE: HP)
- My laptop mouse is made by Logitech (NASDAQ: LOGI)
- My laptop software is made by Microsoft (NASDAQ: MSFT)
- I drank a cup of Lipton Tea (OTC: NSTL)
- I spoke with my Dad via Skype (NASDAQ: MSFT)
- I’m searching Google for other references to improve this article (NASDAQ: GOOG)
- I invoiced a client earlier today using Paypal (NASDAQ: PYPL)
- I ordered some food online using my Visa debit card (NYSE: V)
I could go on and own but you get the point.
Write down all of your spending & consumption for a day and see how many of the companies you support are publicly traded.
Take this list as a starting point for your investment portfolio. Since you use these products/services daily, you know more about the companies itself than if you chose some random stock.
Warren Buffett recommends you invest in companies you understand. Using the product/service before investing is a wonderful way to build a solid investment portfolio.
It’s about time you owned a part of America.
If you’re not American, then do the same exercise above in your local country. Invest in stuff you already use.
This turns you from a consumer into a producer because you become a part-owner in a real business as a shareholder.
7. Negotiate Your Bills Lower
I touched on this briefly in step 2 but it deserves its very own section in your goal to stop living paycheck to paycheck.
Most people overpay for things like insurance, rent, food, monthly subscriptions, etc.
The truth is you can often negotiate your bills lower with a few phone calls or emails.
Rent/Mortgage is usually your biggest expense so start with that. Here’s a few tips:
- For Renters: Talk to your landlord and ask for a lower rent if you lock into a longer term lease. Offer to pay with cash to lower your rate even further. Cash in hand is worth more than a check, Paypal, or bank transfer.
- For Homeowners: Refinance your mortgage to a lower rate to save money every month.
Do the same with your insurance companies and ask for a lower rate. Most will agree to a lower rate rather than lose a loyal customer.
Downsize your monthly subscriptions to a cheaper plan. If you really need it, then purchase a longer term plan to save money. Many subscriptions offer annual plans at a 30% or more discount.
Get in touch with these companies and see how you can reduce your bills. You’d be surprised how much you can save in a few days with these tiny tweaks.
8. Add Extra Income Streams
Studies show millionaires have 7 different streams of income.
Most people who live paycheck to paycheck earn 1 source of income through their job.
Adding a 2nd (or more) stream of income improves for your finances and helps you save money even faster. Best of all, this income can go straight towards your long-term goals of paying off your home, building a college fund for your kids, or early retirement.
Now, most people say they don’t have time to build a 2nd income but I think that’s crazy.
If you don’t have enough time, start tracking your daily activities and you’ll be surprised at how much time you waste.
Write down on a piece of paper everything you do hourly for one day.
Then sit back and figure out if you can replace time-wasting activities with more productive ones.
These 3 activities wasted A LOT of time so I stopped going out at night and only watch Netflix for 2 hours max. I deleted most of my social networking apps on my phone and only use Youtube sparingly.
With all this extra time, I was able to write more for this site and track my investments more closely.
For most people: Social Media is a massive waste of time.
Replace social media time with side hustle time and you can stop living paycheck to paycheck.
Here are a few cool side hustles to earn extra money right now:
- Start a money making blog (like this one you’re reading
- Ask your friends what you are really good at then charge money for it
- Sell stuff on Amazon or eBay
- Sell your freelance services on Fiverr or Upwork
- Become a housesitter
- Make money as a dogwalker
- Drive for Uber or Lyft (if you have a car)
There are so many different ways to build a 2nd income stream. Use the 2nd income wisely. Save as much of the money as possible until you have at least 6 months of living expenses saved up.
9. Change Who You Spend Time With
This step was a very tough one for me because I had to cut many people out of my life.
There’s a famous quote by Jim Rohn stating: You are the average of the 5 people you hang around.
It’s really true when you think about it.
You pick up the habits of people you hang around. If you hang around 4 smokers, then you become the 5th.
If you hang around 4 broke people then your finances usually become a disaster.
Conversely, if you hang around 4 millionaires then you are more likely to become a millionaire.
That’s the power of association.
Be honest with yourself.
Who in your life is holding you back?
When I stopped hanging out with friends who struggled with money, my finances changed for the better.
If you’re living paycheck to paycheck then take a look at your close circle of friends. Are they struggling with money too?
If the answer is yes then I think it’s time to find new friends or spend more time with family instead.
I don’t like the idea of hanging out with people based on bank accounts. But I hate the idea of living paycheck to paycheck even more.
I let go of friends who struggled with money. I got tired of hearing their complaints and money problems.
It never stopped. They never took the time to realize that they needed to change their spending habits. It was always someone else’s fault.
All the blame rested on someone else except them.
So I cut them off and pursued financial freedom instead.
Nowadays, I keep a close circle of friends and spend most of my time with family and my infant son.
Ending friendships hurts but living paycheck to paycheck hurts even more.
Step 10 – Think Long Term
The last step is an important mental tip for everybody.
My biggest mistake financially was failing to think long-term.
If I had thought long-term, I would be much better off financially.
For my younger readers under age 25, start planning for your future today. Don’t wait!
Time passes by and I’ve lost some close family members and friends along the way. I’m very thankful to be alive and financially stable enough to provide for my young son.
You will need money in the future. Don’t kid yourself! We always spend money on food, transportation, kids, housing, and other stuff. These expenses never disappear.
So follow the steps above and stop living paycheck to paycheck so you can build up savings after putting in years of hard work and sweat for the man!
For my readers over age 25, think in 10 years in advance
Many of you guys over 25 have spouses, kids, mortgages, and all the responsibilities of a working adult.
Start planning your financial actions with a 10-year mindset. That’s the mental shift you need to escape the living paycheck-to-paycheck financial hell.
Visualize your life 10 years from now then build the foundation right now. Every financial decision you make should move you toward your goals.
Need inspiration? Here’s a picture of my life in 2030:
- Healthy, active lifestyle
- Early retirement from work
- Beautiful home with a paid-off mortgage in the countryside with my own organic farm
- Multi-millionaire in assets due to sound investments in stocks, real estate, gold & silver, and cryptocurrency
- Spending time with my family and watching my sons move toward puberty
I have many more mini-dreams but those are my 5 biggest ones.
What are your long-term goals?
Write them down in the comments and share your thoughts below.
You Can Do This. Start Taking Action Today!
It’s time to leave the 80% masses who are living paycheck to paycheck and join the 20% who are building wealth for the future.
You can do this no matter what age. It’s never too late to change for the better.
Start at Step 1 and get started today. Try these tips for 1 month and let me know how it’s working for you.
I’m not selling you an expensive personal finance course because I couldn’t afford it when I was living paycheck to paycheck.
In 2018, I stayed up all night worrying about the bills while suffering in a dead-end relationship with an abusive, alcoholic girlfriend.
Less than 4 years later, I’m alcohol and drug-free with tens of thousands of dollars saved up.
I spend time with my children instead of strangers at a dirty bar.
I’m looking forward to the future.
I’ve changed so much in a short time and you can too!
Share your personal story in the comments section below. Why are you living paycheck to paycheck? What did you do to change your situation?