How to Stop Living Paycheck to Paycheck

SHORT ANSWER: With a few simple tweaks, you can start building savings and stop living paycheck to paycheck. Find the steps here and start this week.

If you're waiting for each new paycheck to cover bills, you're not alone. A February 2023 LendingClub and PYMNTS survey reported that "as of January 2023, 60% of United States adults, including more than 4 in 10 high-income consumers, live paycheck to paycheck." 

Those numbers haven't changed much in the last year. Whether earning $30,000 per year or $150,000 per year, you could be living paycheck to paycheck if your spending is equal to or outpacing your earnings. 

That situation can add extra stress to your daily life and strain relationships. If you're ready to set yourself up for financial freedom, read on to learn how to stop living paycheck to paycheck with the tips below.

What Does Living Paycheck to Paycheck Mean? 

Living paycheck to paycheck means spending all your income on your monthly living expenses. While it often means you have no savings, you could also be living paycheck to paycheck with savings. However, living paycheck to paycheck more commonly means living with limited or no savings. That means those living paycheck to paycheck are at greater financial risk if they suddenly become unemployed. 

In either case, it means your monthly expenses, such as rent or mortgage, utilities, healthcare, groceries, transportation and discretionary spending, are equal to what you earn. You have little to no money left over after paying those. 

11 Tips to Stop Living Paycheck to Paycheck

Managing finances to build savings and stop living paycheck to paycheck is a multipronged approach that involves changing your thoughts about spending and saving. How much you need to make to stop living paycheck to paycheck isn't a single number. Instead, you just need to make more than you spend. Here are steps you can take to stop living paycheck to paycheck. 

1. Track Spending

The first step to stop living paycheck to paycheck is to know how much you're spending and on what. Then, look at the easiest areas to cut back. You can use a budget tracking app or simply note your expenses in a spreadsheet. You can find many excellent free or cheap expense-tracking apps to make this step easier. Get more ideas about how to cut expenses. 

2. Set a Budget

Once you know how much you've been spending and decide where to cut back, it's time to set a budget. Include all necessary expenses like housing, utilities, transportation, healthcare, insurance and food. You'll also need to include a budget for discretionary expenses like eating out, entertainment, clothing or recreation. To get started, consider the best budgeting apps.   

3. Automate Savings

You can set up automatic transfers from each payment or "pay yourself first" by transferring a percentage of each paycheck to a high-yield savings account or retirement account. How much you save depends on your earnings and expenses. If you're earning less than the national average, you might start with a smaller amount, like 5% of each paycheck. But if you're a high earner, give yourself a bigger target, ideally 10% to 20%. Find more benefits of saving money here. 

4. Use the 70/20/10 Rule 

The 70/20/10 Rule suggests you use 70% of your after-tax income for essentials like food, housing, transportation and insurance. Then, you'll save 20% for an emergency fund, saving for a mortgage down payment, retirement savings or other long-term savings goals. The final 10% is for discretionary expenses and fun. 

5. Pay Off High-Interest Debt

High-interest debt can cost you a lot, taking away from money that could be used for an emergency fund or long-term goals. If you're carrying credit card debt, prioritize paying it off. You can also consider consolidating high-interest debt with a debt consolidation loan or personal loan and plan monthly payments into your budget. 

6. Ask for a Raise

One of the simplest ways to save more is to earn more and allocate the difference to savings. With inflation and expenses everyone steadily increasing, consider asking for a raise. Better yet, offer greater value to your employer before approaching them about a reasonable raise. 

7. Consider a Side Gig

Wealth-building often involves multiple streams of income so you have greater flexibility and security. A side gig can be a way to create new income streams and add extra money into your budget for savings. Consider everything from doing yard work to teaching online to offering courses or consultations. If you have specific expertise, you could work in that field or pick up extra work as a rideshare driver, delivery driver or virtual assistant. Find more ideas to make money fast or consider the best money-making apps. 

8. Downsize Big Expenses

If you can, consider downsizing. This can mean moving into a smaller house or apartment, renting out an extra room in your existing house or exchanging your new car for an older model you can pay off in full. Look at your biggest expenses and see where it might be possible to cut back. 

9. Build an Emergency Fund

An emergency fund is a cash reserve for unexpected or emergency expenses. How much of an emergency fund you need is up to you, but a good rule of thumb is to have three to six months' worth of savings in your emergency fund. This is often the first savings goal to hit when you want to stop living paycheck to paycheck, as it provides a cushion in case of big expenses or unexpected losses. 

10. Delay Discretionary Expenses

If you want to make a big discretionary expense, for example, a new TV or other significant expense, consider whether you can wait for it and save up over time. If you plan for big expenses and save up ahead, you'll avoid paying interest if you can't pay off a credit card charge in full when the charge is due.  

11. Get Support

Surround yourself with other people who also prioritize saving and share your goals with family and friends. They may be willing to join you in free or low-cost activities to help you save more. Surrounding yourself with like-minded people can make savings feel rewarding. With time, financial freedom brings its own rewards, but early on, when you need to choose between a fun, expensive experience or savings, support goes a long way. 

For example, when you're stuck choosing between Taylor Swift Eras Tour tickets or retirement savings, having others who share similar goals can make a huge difference in reaching your goals. You can also check out the best personal finance software or check out the best financial advisors.  

Set Your Course for Financial Freedom This Year

Whether your first goal is to build an emergency fund or you want to consider early retirement, the first step is to stop living paycheck to paycheck. With the right strategy and a multi-pronged approach, you can save more, live within your means and pursue your passions. 

Saving more doesn't have to mean giving up on fun. You can find travel hacks to take amazing vacations for free or within any budget. With small steps and consistently building savings, you can build habits that will help you achieve your biggest financial goals that create greater security and freedom.