How to Break Free From Living Paycheck to Paycheck

Over 55% of Americans Live Paycheck to Paycheck: Learn How to Break Free From the Cycle

As of June 2023, about 57% of Americans live paycheck to paycheck, according to a report by PYMNTS and LendingClub. The percentage is trending down, and 85% of those people said they didn’t have any issues paying bills. Still, living on the edge can be emotionally draining and puts you on the brink of falling behind. 

If you can build a financial buffer, you will give yourself some literal and figurative breathing room.

What's behind the paycheck-to-paycheck grind

First, we always want to be transparent and direct, so let’s address the elephant in the room. Many households track every penny, find the best deals, avoid unnecessary purchases, and still struggle to make ends meet. 

The 57% headline is the average overall, but it’s 73% for households that earn less than $50,000 a year. Sadly, there are historical and systemic issues that can make this a difficult cycle to break. We wish we had the answers, but we don’t. 

What we can offer is a structure for those who don’t feel in control of their money. Knowing where your money goes is the first step in money management. And if you can also build savings and improve your credit, you can open up new opportunities.

6 tips to stop living paycheck to paycheck:

1. Track your spending

2. Find your financial baseline

3. Look for new savings opportunities

4. Try to increase your income

5. Start building a buffer

6. Automate your finances and regularly reassess

1. Track your spending

Managing your personal finances is easier when you know where your money goes. You might have a vague sense, but many people don’t realize how quickly takeout, streaming services, and impulse buys add up. They might be overspending on things they don’t truly value or need.

To start, track every dollar you spend over the next few months to find trends in your purchases and notice how often unexpected expenses pop up. You don’t necessarily need to limit the amount of money you spend or create a strict budget. The goal is to understand your spending habits and get insight into your financial situation. 

However, a budgeting app might be the easiest way to track and categorize your purchases. You might even be able to connect your checking accounts, savings accounts, and credit cards to import data from the last year and quickly understand your spending. 

2. Find your financial baseline

With your actual expenses in hand, figure out how much money you need each month. 

First, add up your necessary monthly expenses, including housing, transportation, utilities, childcare, healthcare, and food. Include the monthly portion of predictable but irregular necessities, such as annual bills, gifts, and car repairs. 

Add an estimate for your nonessential expenses and compare the results to your income. The difference is how much you can save. It might be small, or you might not have enough money coming in to cover everything. Let’s explore ways to change that. 

3. Look for new savings opportunities 

Every dollar you save is extra money that you can put toward your financial goals. 

Some savings options require changing habits: eating out less often, canceling subscriptions, or shopping at different stores. But there are also ways to save that don’t require drastic changes, such as switching to cheaper insurance policies.

You can also use apps that give you rewards or cash back on purchases you’re going to make anyway, such as: 

  • Groceries: Apps like Ibotta and Fluz offer cash back or rewards on select purchases, including groceries. 
  • Gas: GasBuddy, TruNow, and Upside offer cash back at gas stations. 
  • Online shopping: Cashback Monitor shows the rewards rates for over 15,000 online stores from dozens of online rewards portals.

4. Try to increase your income

From delivery apps to dog walking, the gig economy offers accessible side hustles that you can use to make extra cash. 

These don’t necessarily present a long-term solution for building wealth, but they can temporarily boost your monthly income. At the same time, look for higher-paying full- or part-time jobs, and ask your employer what it would take to get a promotion or raise. 

5. Start building a buffer 

As you decrease your spending and increase your income, set aside the savings in an emergency fund. The money isn’t for a specific purchase or other long-term goals—it’s going to be your buffer.

Once you have enough of a buffer to cover a pay period’s worth of expenses, you’re off the paycheck-to-paycheck cycle. Keep it going! If you can create a buffer for a month, two months, or six months’ worth of expenses, you can give yourself more options and work toward financial freedom.  

6. Automate your finances and regularly reassess

Keeping track of all your expenses, income, and savings can be difficult, but automation can make building your buffer easier. 

For example, set up automatic transfers each payday or split direct deposits and have a portion of your paycheck go straight to your emergency fund. You can use automatic minimum payments for car loans, credit cards, and other bills to avoid late payment fees. 

But don’t just set it and forget. Try to go through the entire process every few months to avoid overspending, monitor your progress, and see if there are any changes you want to make. 

Improving your credit can make things easier

Managing your monthly payments is an important part of financial planning, but your credit score can also affect your options. 

Good credit can lead to direct savings as you’ll qualify for loans and lines of credit with lower interest rates and fees. These can be helpful in an emergency, and you can use them to consolidate or refinance higher-rate debts to save money and lower your monthly bill.

Having good credit can also help you when you apply for a new home or certain jobs. And in many states, insurance companies might partially base your premiums on your credit.

Small actions can lead to big changes

Unless you win the lottery or drastically change your lifestyle, breaking the paycheck-to-paycheck cycle is going to take time and effort. However, the small changes you make today—and stick with in the coming months—can have a large impact on your financial future. 

Try to start by tracking your spending this week, and learn more about saving money and improving your credit.

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