According to a recent study, 7 out of 10 Americans live paycheck to paycheck.
If that’s you, you’re not alone. But it’s probably not where you want to stay either.
Here are 10 steps to stop living paycheck to paycheck:
1. Believe it’s possible.
One of the biggest obstacles to overcome for any change we desire in life is self-doubt.
If someone’s first reaction at the thought of stopping paycheck to paycheck is, “It’s impossible because of x,” they’ll never get there.
And it doesn’t even matter what x is. If you’ve already decided that the circumstances in your life are so opposite that you can never advance financially, then you never will.
Circumstances may be more difficult for you than for others, but they are never impossible. Believe that it is possible and that you have the power to make a change.
2. Don’t wait for more money.
Just like thinking “it’s impossible” will keep you stuck. Like, “I need more money to move forward.”
Of course, it is true that some people need to earn more to break out financially. But when we fall into the trap of thinking we’ll never make it without it, we never even give ourselves the opportunity to find out.
Let me try to prove it:
7 out of 10 Americans live paycheck to paycheck. But why do 70% live without a financial margin? Is it because 70% of us don’t make enough money? Or maybe because many of us buy things we don’t need and spend money where it doesn’t need to be spent?
This is an important distinction. Because we are either held hostage to an unjust economic system that needs to be completely blown up, or we just need to take more personal responsibility for our overspending. It seems to be the latter in many cases.
Look deeper into the numbers and you will notice something important:
- 62% of consumers earning between $50,000 and $100,000 a year live paycheck to paycheck.
- 54% of consumers earning between $100,000 and $150,000 a year live paycheck to paycheck.
To put this into context, the median household income in the United States is $67,000. More than half of American households earn twice the median income living paycheck to paycheck!
There are mitigating circumstances, of course, but not for the 54% of Americans in the upper income group.
All of this says there’s no way to change if we keep falling into the “I just need more money” mindset.
Instead, the more money people earn, the more money they end up spending. It’s time to move out of your paycheck to live with a paycheck Now— without waiting for a big raise.
3. Make the life change you most desire.
There are more important things in life than a financial advancement. But it is a change worth striving for as it brings both peace and freedom to your life and your family. It’s a worthy pursuit.
If you’re ready to make it happen, I finally recommend making the life change you most desire. Changing how you spend your money will require focus and intention. This will require a seriousness that forces self-reflection and energy.
Decide today, once and for all, that this is the victory you will strive for in your life.
And make sure your immediate family is on board. When trying to get buy-ins from your partner or children, explain the benefits in a way that works for them. Be clear on the conversation about what will be needed to achieve this. To get it right, you will need steps 4 and 5.
4. See the benefits of having less.
The most important foundation of financial freedom is spending less than you earn. If you cut back on spending, you’ll be able to get out of debt and start saving. We’ve all heard this advice before.
But why is this step so difficult to implement?
One of the reasons why I believe that spending less is such a difficult step for many is that the solution seems unattractive to many. Buying less sounds like going backwards in life. In a world where success is often defined by acquiring materials, spending less seems boring, unfashionable, and condemned to ridicule.
I thought so too – until I tried it.
Fourteen years ago, I made a deliberate decision to have less and buy less. It turned out to be one of the best decisions I’ve made in my life. As a result of reducing most of my possessions and choosing to buy only the things I really need (rather than everything I ever wanted), my life has improved in a very significant way.
Now that I have less and spend less, I have more time, energy and money than ever before. Because I have fewer things to take care of, I spend less time cleaning, organizing and managing. I have more opportunities than ever before to pursue my greatest passions in life – but I choose to define them.
Instead of racking up a credit card bill chasing after every new product or fashion line sold in a department store, I can invest in the things that make my life worthwhile and meaningful.
With this simple decision to buy and spend less, the financial dissatisfaction in my life has been resolved. It also paved the way to a more conscious life.
See the benefits – and get carried away by the lifestyle.
5. Sit down and count.
Overcoming the paycheck to paycheck life cycle will require you to sit down with a piece of paper and compare your income with your expenses. But that doesn’t necessarily require a detailed, daily-tracking monthly budget.
Instead, I recommend making a spending plan. I have found it to be extremely useful in my life.
To get started, specify your monthly takeaway salary (not pre-tax gross income, but net income – the actual amount on your check or direct deposit).
Second, compare yours fixed monthly costs to your monthly takeaway salary. These are the expenses you currently have in your life that eat up a portion of your income each month – no questions asked. Your actual monthly expense may vary (within reason) from month to month, but you know it will be there every month.
For example, your fixed monthly costs may include: Charity, Mortgage, Groceries, Auto Fuel/Maintenance, Savings/Pension, Utilities (Gas, Electric, Water, Garbage), Insurance (Car, Health), Student Loan Payment, Internet , mobile phone, homeowner fees, school/children’s activities, etc.
Once you have determined your monthly income and monthly fixed costs, any remaining dollars are your monthly discretionary income (money that you have left over to spend at your discretion).
This is your margin to start making progress each month. If you haven’t spent other dollars on golf trips, concerts, eating out, cinnamon rolls, or travel, these are dollars you can start saving up and use to get ahead of your paycheck.
And of course, if monthly fixed costs already exceed monthly income, drastic changes must be made to the basic standard of living.
6. Admit that you probably spend more on unimportant things than you think.
According to one poll, The average U.S. adult spends $1,500 a month on non-essential items.
I’ve quoted this statistic before and the comments are always the same:
“It’s not real”.
“Of course that only applies to rich people.”
“No way! I don’t spend nearly that much.”
And to some extent, there is probably truth in these answers. Since this is an average number, roughly half of us spend less than this amount.
But if we’re ever going to stop living paycheck to paycheck, we have to admit at some point that we probably spend more money on non-essential things than we’d like to admit. Once we start buying things and incorporating them into our lives, it’s very easy to stop imagining life without them – and we start to consider them essential.
Consider this, you might not think you’re spending $1,500 a month on unimportant things. But even if you spend half that amount ($800 a month), you can save $10,000 next year just by not buying things you don’t need.
The choice is yours.
7. Transfer your savings to another account.
As you begin to see the benefits of having less and change your spending habits accordingly, you will spend less.
Open a new account at your bank or use an online bank (Capital firstfor example) to hold these funds. Transfer money every month – automatically or manually. Choose the appropriate dollar amount and transfer it at the beginning of each month or billing period.
Only check your new account balance twice a year. Just let it grow slowly every month.
Taking money out of your regular spending account will prevent you from spending it.
If you need a goal to save for, one paycheck worth saving will technically remove you from the paycheck to paycheck stats – and that’s the goal here.
Other experts recommend saving 3-6 months of living costs. There is nothing wrong with this goal, but it can seem very difficult for someone who is trying to stay ahead of one paycheck. That’s why I recommend choosing “one paycheck worth saving” as your first goal to aim for.
8. Take a period without spending money.
Commit to buying nothing for a month. (With a few obvious exceptions: food, utilities, health, etc.)
Experiments without buying offer many benefits: they help us save money, reset consumption trends, provide time for other endeavors, and are environmentally friendly.
Are great examples people who have committed not to buy anything for a whole year – or even longer.
I’ve never embarked on a year-long experiment, and I’ve never wanted to. But I take inspiration from their example. I see it this way: “If someone else can do this experiment for a whole year, then I can certainly do it for one month.”
For most people, just one month of not buying anything would save nearly $1,000. You may be closer to overcoming paycheck to paycheck than you think.
PS: It should be mentioned here that achieving financial success does not require lifelong changes. Adjustments only in the short term can help you achieve your goal of putting one paycheck aside for savings. This is why a predetermined no-spend period can be so helpful.
9. Don’t be afraid to consider drastic changes.
The cost of living varies greatly from part to country. And I understand why making drastic changes may be impossible for some. But that should never stop us from considering them.
Maybe you’re happy living paycheck to paycheck because it allows you to live in a certain part of a city or country.
Of course, if that’s the case, you probably didn’t click to read this article. But if you do and your mind is constantly racing to “you don’t understand what it’s like to just live in my neighborhood,” you may be right. And you can always keep choosing it.
But every time we want something new in our lives, changes are necessary. Sometimes small, sometimes drastic. Don’t be afraid to consider them all.
10. Be gentle with yourself and give yourself some time.
Overcoming the paycheck to paycheck lifestyle is possible. But this may not happen immediately, it may take some time. Especially if we have families who can take part in this decision.
Any change that takes time comes with some setbacks and mistakes. Try to deliberately eliminate as many of them as possible, but be patient when they appear.
Two steps forward and one step back is still one step closer to the goal than never trying.
7 out of 10 Americans live paycheck to paycheck. But you don’t have to be one of them.