The paycheck-to-paycheck life is rough.
And that’s putting it lightly.
It’s a hard knock life of not being able to spend money on special things, and constant soul-sucking worry. It’s like constantly struggling to squeeze the ketchup out of an empty bottle.
This got me thinking—
The biggest killer about living paycheck to paycheck is the emotional toll it takes on you.
It constantly makes you feel like a failure, too stressed out to feel like you can turn things around.
But you very much can. And one of the first steps is changing a losing money mindset.
Let’s dig in and look at a detailed plan on how to stop living paycheck-to-paycheck for good.
Determine who you are financially
How do you see your ideal financial self? Are you a spender that visualizes yourself as a frugal saver?
Or maybe your ideal financial self is someone who masters their budget and has spending self-discipline. Making a decision about how you see who you are financially is a good base to start habit changing.
If the way you see yourself financially doesn’t match with what you are trying to do in the practical sense then you’ll have a much harder time reaching your financial goals.
To stop living the paycheck-to-paycheck cycle it’s important to make a conscious decision about your financial identity.
A saver’s mindset will garner saving habits.
Create a completely new savings account with $5
This is where we get into the tactical part of finances. To be able to break your habit of spending every last dime, try to open a separate bank account.
Out of sight out of mind works well when it comes to money. Try an online bank account like Chime.
It has plenty of perks like no ATM fees, an automated 10% savings plan, a round up to the next dollar savings plan, and early paycheck deposit (up to two days early).
Best of all there is no minimum beginning deposit. You can set up your brand new online account here.
If you keep a separate bank account, you’re more likely to not touch those funds.
Find the spending gap and close it
This is where you need to audit your finances and see where you are overspending.
Usually, when you’re living paycheck to paycheck, you are burning more money than you are bringing in.
Take a look at all the places you’re overspending, and make a conscious effort to eliminate or lower those areas.
One big example and a place where a lot of us overspend are groceries.
I wrote a guide on how to save money on groceries you should check out right after this to learn to spend less on your shopping list.
You need a side hustle
This is why you need a side hustle: Stopping the paycheck to paycheck cycle not only means spending less but also means earning more.
It’s like burning the candle at both ends.
Earning more might not mean ditch your current job and find a better one (though that’s always an option). It means doing some extra work on your free time that will reel in a nice piece of extra cash at the end of the month.
For example, I started freelance writing not too long ago and it has made a nice difference in my income.
Educate yourself on what’s out there
The best ways to not repeat the mistakes of the past is to know better.
And you can’t KNOW better if you don’t put in the effort to actually do the knowing part.
That’s why financial education is so important and something that sadly isn’t taught enough in our general education.
This means you have to take it upon yourself to get educated on the best ways to handle the money coming in and the money going out.
Here are some helpful resources to learn and to help you manage your dollars better you can look into in your free time:
Personal Capital App: This is a FREE app that helps you track all your spending and income across all accounts to keep you on track and help you save.
Rich Dad Poor Dad by Robert Kyosaki: The gist of this book is— what the rich teach their children on personal finance that isn’t common knowledge but should be. Check it out for a mind bending good read and good knowledge to get your finances in shape.
The Total Money Makeover: A Proven Plan for Financial Fitness: Dave Ramsey has become a well known financial figure. His book touches on a lot of important finance points everyone should read on.
Tally App: A free downloadable app that can make your credit card debt refinancing easier and save you money with a lower interest rate if you qualify for it. It just takes a few simple steps to set up and see if you qualify.
The Four-Hour Work Week: This has been a life-changing classic book for many people around the world from Tim Ferris, a lifestyle blogger and ‘life hacker’. It touches on money, and how to stop the time for income trade that can be life sucking. Definitely a good read for a mindset change.
Sell any old things constantly
Chances are, you have a ton of things at home lying around that could be turned into cash and stashed away.
The trick is to actually take the initiative to do so.
Sell your things with Decluttr, you can easily sell your old DVD’s, phones, or old electronics lying around.
Or with ThredUp, you can sell the clothes you don’t use (they’ll even send you a prepaid bag to send your clothes in).
Sell on eBay, Offer Up, Bonanza, Craigslist…the list goes on. But the point is to make use of your resources as best as possible.
As an extra perk, you’ll feel so much lighter after letting go of things you simply don’t use.
Create a frugal 50/20/30 budget
I talk about this in my budgeting guide that you can find below and it’s a general rule that helps you make sure you are on track with where the bulk of your money is going.
Basically, the 50/20/30 budget means:
50% of your income goes essentials/needs
20% goes to savings
30% goes to personal needs
It helps to make sure your budget isn’t out of whack and the bulk of the money is going where it should be.
Take Note: Looking for more ways to save money? I’ve compiled a list of cheap dinner ideas that are perfect for a tight meal budget. Finding quick and easy dinner ideas is yet another great way to be proactive about saving.
Audit your debt
There are many ways to audit your debt and eliminate it faster, like the snowball method by Dave Ramsey.
The other day I was reading a genius way to get rid of debt faster. Though this might not work for everyone, the gist is:
Take out a personal loan with a lower interest rate than your current credit cards’ and pay them off, then immediately start paying off the loan with the lower interest rate.
It makes for less money thrown away on paying solely interest and you get out of debt faster.
I recently wrote a post on getting debt free that touches on this more in-depth.
Set up money alarms on your phone
Accountability when setting financial goals has more pros than you can count.
And your phone can help you with that. I like setting reminder alarms on my phone for important dates, or even for questions I’m supposed to ask at a certain time that I know I’ll be seeing someone (yeah, my memory is that bad).
So set up financial alarms. They could be weekly or monthly alarms like:
“It’s the first of the month, by now, you should have X amount of money saved”
“It’s month two, it’s time to start looking into selling the clutter in your garage.”
“It’s week two, it’s time to audit your spending and go over your receipts”
You get the idea. It helps tons as they’re a constant reminder of your goals.
Cut off all EMOTIONAL spending
I get a feeling this one is a big one for many of us (I know for sure it is still a work in progress for me).
Hands down, emotional spending will only dig you deeper into debt, no matter how you cut it, and there isn’t one beneficial thing that comes out of buying things on a whim (I seriously can’t think of one).
We often do it because we think it’ll help us feel better and that ends up not being the case.
Some ways to help you cut out emotional spending for good are:
- Making a strict list (and stick to it) of only the things you need before you go out and buy them
- Taking less last-minute trips to the store
- Sleep on it. Don’t make a hefty purchase until you’ve given yourself enough time to think it through.
- Even meditating can help
Ask yourself what you do for fun
So you’re on your ending the paycheck-to-paycheck journey. This means you might need to forgo some (or all) your money guzzling hobbies.
This can mean going out to eat less often (or get used to going out to eat with high discount Groupon deals ), canceling some magazine memberships, or working out at your local park instead of at the gym.
Cutting back on ‘fun spending’ for a couple of months while you build up a nice financial cushion to be less stressed and worried later is definitely worth the sacrifice.
Financial freedom is not about what you give up, but about what you gain in the long term.
And sometimes that might mean standing firm and saying ‘no’ to certain requests/wants.
From now on sleep on big financial decisions
Hasty money decisions can result in bad investments in the end.
When there are big money decisions to be made, make it a point to ‘sleep on it’ to think things through on if its worth spending the money on X thing.
Beating yourself up only makes it worse
Beating yourself up won’t make money magically appear. It also won’t stretch your paycheck more than it already is.
Practicing self-awareness is a much better substitute to mentally beating yourself up because it just wears you down.
Trying to be conscious of bad financial decisions, and putting effort in to turn that around are much better ways of spending your time.
So don’t beat yourself up, but stay accountable to yourself when you mess up.
Remember, the rule of thumb on this whole journey is: Constantly lower your spending and increase your incoming dollars.
Now, here is a month-to-month savings plan to get you out of the paycheck-to-paycheck hamster wheel.
The Month-to-Month Savings Plan
Open your new bank account with Chime and download the app (they’ll send you your own debit card within a week).
Start looking for a side hustle. Get a quick start filling out surveys with Swagbucks and
Make $20 with your side hustle of choice to put away in your new bank account for the month.
Audit your grocery spending. Make sure you check out How To Cut Your Grocery Bill In Half for savings ideas.
Keep working on your side hustle and add another $20 to your new savings account.
Keep working on your side hustle and add another $20 to your bank account.
Audit your debt and budget spending. Cut off spending where you can.
Keep working on your side hustle. Possibly find a new one to start (like teaching English on the side with VIPKID).
Add another $20 to your new bank account.
Try to start saving 10% of your paycheck into your separate bank account. If you can’t do 10%, do 5%.
…If you can’t do 5% do $5…if you can’t do $5 then roll pennies and collect all your change.
$65-$90+ should be saved by now
Make sure you aren’t spending too much on groceries and keeping all receipts.
Audit any emotional purchases you’ve made, be self-aware about it, and reconvene.
Keep growing your account …
10% of your paycheck + side hustle money
Selling your old things again.
By now the amount of money you can have saved realistically varies from person to person depending on the size of their paycheck, and how much side hustle you do.
Really, there are so many ways to earn money online, it’s within reach if you put in the time and the research.
By month 8, you can have well over $400 dollars saved up. And that’s enough to start easing up the paycheck to paycheck situation.
It’s also a big motivator in saving more money, kind of like a snowball effect.
Stop Living Paycheck To Paycheck
Remember to adjust the plan according to your needs. This is to give you a general idea of what is possible with some effort and planning.
It’s time to seriously ask yourself: What will you do to stop your paycheck to paycheck cycle? Comment below. ☺