Do you find yourself constantly asking the calendar to please move faster, counting down the days until your next payday? Relatable, because money.
But also, it might be because you need that money ASAP. A recent survey by Charles Schwab found that 59% of Americans live paycheck to paycheck — they wouldn’t be able to pay their bills or cover basic expenses if something happened to their payday.
That’s the bad news. The good news is that there are steps you can take to help you break out of that cycle.
Step 1: Make a plan
A lot of people get big “nope” vibes when the topic of budgeting comes up, because they imagine things like spreadsheets and denying themselves the things they love. But the good news is that a budget — or a “spending plan,” as we prefer to call it — can be flexible, doesn’t have to be super restrictive, and will be really, really helpful if you want to stop living paycheck to paycheck.
In that Schwab survey, 78% of people who had written money plans said they were able to pay their bills and save each month, vs only 38% of non-planners. And 68% of people with written plans had an emergency fund, vs only 26% of non-planners.
Bottom line: Having a spending plan is a BFD, because breaking out of the paycheck-to-paycheck cycle doesn’t just happen — you have to do it on purpose.
How to make a spending plan
Usually, the 50/30/20 rule is the method we recommend. It’s flexible, high-level, and easy to follow. Traditionally, it involves divvying up your take-home pay into the three buckets: 50% to needs (bills, groceries, etc), 30% to fun (restaurants, stuff you want, etc), and 20% to Future You (debt payments above the minimums, saving, and investing). But you can tweak those percentages to whatever works for you.
But if you’re living paycheck to paycheck, saving 20% of your take-home pay (or even any of your take-home pay) might not feel very realistic at the moment. So splitting your money into those three buckets might not be the best approach for you for now.
Here’s a different method you could try instead: the one number approach — in which the “one number” to keep in mind is how much you can afford to spend on non-essentials.
Here’s how it works:
Add up the total amount of income you expect to receive for the month. This number is your spending max.
Add up all the things that you must pay for each month — your needs. This includes bills you have to pay, like rent, utilities, and the phone bill. It also includes fluctuating costs, like groceries and gas for the car.
Subtract your total needs from your spending max. The amount left over — your extra, if you will — is how much you can afford to spend on other things that month, like eating out, going to the movies, etc. Then you just have to try not to spend more than that one number each month.
If you want, it can help to divide your “extra” by the number of weeks in the month to see how much you can afford to spend each week instead of each month. That way, you’re less likely to spend too much at the beginning of the month and have too little left over at the end.
If you can, we highly recommend including your money goals (emergency savings, extra debt payments, etc) in that “needs” number. That way, you’re telling yourself that they’re non-negotiable. But if your “extra” number is very small (or zero), that’s OK — do what you can for now. You can work your way there.
Step 2: Spend intentionally
If your income isn’t enough to cover your needs, or if you want to buff up that “extra” number so that you can save more toward your goals, then you either have to trim your expenses or boost your income (or both).
A great way to trim your expenses is to spend your money more intentionally. That doesn’t mean that you can’t buy anything fun — we’re the first ones to tell you to treat yourself without guilt and buy the f***ing latte, after all). It means you’re paying close attention to what you’re spending your money on.
Look for places where you’re spending habitually. Maybe you’ve always shopped at one grocery store and go there on autopilot, but there’s a less expensive one you could try nearby. Or maybe you’re paying for cable, but you rarely watch it. Things like that. Also look for opportunities to shop around or negotiate for services, like your internet or cell phone plans.
Once you’ve gotten really mindful about where you can cut back, then it’s time to think about where you want to spend your money. Think of your larger goals — starting with saving money up — and also think about your values. Maybe it’s important to you to buy more environmentally sustainable products. Or shopping from minority-owned businesses. Or really great birthday gifts for your family. Sometimes those things cost more, but if you can realistically fit them into your spending plan, and they matter to you, then they belong there.
If you’ve trimmed as much as you can and it’s still not enough, you might need to think about picking up a side hustle, if you can (here’s some advice for freelancing). Or you can start preparing to negotiate higher pay. Or you might look into networking toward a new and better job — or making a career transition, if that’s possible for you.
Step 3: Spend what you already have
When money is tight, it can be easy to fall into a pattern of thinking, “I’ll just charge this purchase to my credit card for now and then pay it off after I get paid this Friday.” Or to borrow some money from a loved one, just to tide you over. Or even to let your account get overdrafted, knowing it will be replenished in a few days. And once you find yourself in that cycle, it can be hard to get out.
But if you can get back to a place where you’re only spending money you already have, you’ll be a lot closer to your goal of ditching that paycheck-to-paycheck lifestyle.
That might mean aggressively trimming your expenses for a little while, just until you don’t have to “borrow” from your future self anymore. The good news is that you don’t have to do it all in one month. For example, if you find yourself consistently “borrowing” $100 from your next paycheck, and you can afford to cut back your expenses by $20 per pay period, it will take you five paychecks to get back on track.
Once you do, shift your focus to staying ahead of your paychecks going forward. Maybe the spending plan you’ve been following is enough for you — you got this. But if you’re looking for stronger guardrails, here are a few things you could try.
Step 4: Build an emergency fund
Finally, the ultimate version of not living paycheck to paycheck is having a fully stocked emergency fund, aka a reserve of cash that you can tap into if you have an unexpected but necessary expense — or if something happens to your income. That way, you’d be financially OK if your next paycheck never comes.
(One thing to note, though: We recommend starting your emergency fund — just one month’s take-home pay — before you start paying off your high-interest debt, like credit cards. The interest payments are expensive, so those are a priority, but we also recognize that having a cash buffer can offer a sense of stability and safety while you’re working to minimize those extra costs.)
Ultimately, your emergency fund should total the equivalent of three to six months’ take-home pay. (If you’re not sure exactly how much is right for you, we’ve got some advice on that.) That might sound like a lot, but consider the past couple years and how uncertain they were for everyone! It’s better to have that safety net and not need it than need it and not have it. Besides, now that you have a spending plan, you have a roadmap to help you work up to it a little bit at a time, month by month. Start with that one-month mini-fund. (And then you have a mini-celebration to match — maybe a toast to yourself and your hard work.) Then, once you’ve taken care of your high-interest debt (i.e. anything upwards of 10%), you can move onto two months. (Celebrate.) Then three. (Celebrate.) Then four. (Celebrate!) And so on.
Breaking out of the paycheck-to-paycheck cycle is a lot easier said than done, but you owe it to yourself to try — because honestly, if that’s not self-care, then what is?
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