“Thank God it’s payday!” If you’re like many Americans, you’ve probably uttered that phrase at some point in your life. Three-quarters of workers are living paycheck to paycheck, a 2016 CareerBuilder survey found.
Stretched budgets and overdrawn bank accounts are a problem for people at all incomes levels, the survey found, though minimum-wage workers unsurprisingly were hurting the most. To get by, some people said they had stopped contributing to their 401(k)s, and many others reported being in credit card debt.
Constantly scraping by takes a toll, both financially and mentally. There’s the worry about whether you’ll be able to pay your bills, the high cost of late fees, debt, and last-minute loans. There’s the nagging uncertainty about the future. (Will I be stuck renting forever? Will my kids be able to go to college? Will I ever be able to retire?)
Getting out of the paycheck-to-paycheck trap isn’t easy. You might need to rethink how you spend money, make big lifestyle changes, or even take a long, hard look at your career choices. But the good news is you can make it to stronger financial footing. Follow these 10 steps to make it there.
1. Diagnose the problem
You need to find out why you’re living paycheck to paycheck. Clearly, it’s because the money you have coming is either just barely enough or not enough to cover your regular expenses. But how did you end up in that situation? You could have a six-figure income and still always end up broke at the end of the month if you have a shopping addition. Or you could be stuck in a low-wage job in a high-cost city, which makes it hard to make ends meet. Maybe a lifestyle change, such as one parent quitting work to stay home with the kids, has left your finances out of whack. A little soul-searching early on will help you get a feel for what’s causing your money problems.
2. Figure out where your money goes
So you suspect it’s your taste for last-minute weekend getaways that are doing a number on your bank account. Now is the time to figure out whether that’s actually true. Sign up for a service, such as Mint or You Need a Budget, which will import information from your bank accounts and credit cards to show you how much you have coming in and how much you have going out. Looking over the results can be revealing to say the least. Once you realize how much you’re spending not just on travel, but also lunches out at work, inflated grocery bills, Uber rides, and subscriptions you don’t use, you can start thinking about how to make smarter financial decisions.
3. Set spending targets
You need money for rent, but you already spent it on groceries. Whoops. Setting spending targets allows you to assign a home for every dollar you bring in as soon as it arrives in your bank account. You know you make $4,000 every month. Subtract your monthly costs for rent, bills, savings, and groceries — all the essential stuff. The amount left over is what you have for everything else. (If you’re not sure how much you’re spending in each of these categories, go back to your spending breakdown from No. 2.) With tools, such as You Need a Budget, you can give yourself a spending limit — say, $150 a month on eating out — and once you hit your limit, you’ll get a warning.
4. Cut the hidden fat
In a perfect world, you’d earn enough money to cover all your essential expenses, save for the future, and have a little left over for fun. Real life isn’t always so simple. What if your paycheck-to-paycheck problems aren’t the result of reckless spending on frivolous stuff but rather unaffordable rent or mortgage, high debt, or other cost-of-living issues? You can still to stop living hand to mouth, but it is going to take more work.
To start, look for ways to cut back on “fixed” expenses. You have to spend money on food, for example, but are you wasting money at the supermarket? Could you save by shopping at a store, such as Aldi, or using coupons? Perhaps you could switch to a cheaper cellphone plan or drop collision coverage if you have an old car. Auto-paying your student loans often qualifies you for a slight interest rate decrease, and a quick call to your credit card company might yield a lower interest rate. If you’re low-income, you might even qualify for a break on your electric or phone bill. A family of three earning a little less than $28,000 a year can qualify for a phone service discount, for example.
5. Find the fun in frugal living
Cutting back on extras certainly seems like a joyless activity. Sure, you can live without movies, dinners out, Netflix, and vacations, but will you enjoy it? Actually, you can, if you can replace your budget-busting habits with more frugal ones. Movies at the theater might be off the table, but you can rent DVDs from Redbox for cheap (or even free). Public libraries have books, movies, and even classes for your kids at no charge. Local museums might have discounted or free admission days. Local parks are free. Quality entertainment doesn’t have to be expensive.
6. Get organized
Tracking your spending is just the first step in getting out of the paycheck-to-paycheck trap. Getting organized is essential, too. Develop a system, even if it’s just a folder on your desk or in your email, for keeping track of bills, account statements, tax forms, and other financial documents. Use a calendar to note due dates, and plan ahead so you’re not getting hit with late fees or overdraft chargers or scrambling to come up with the cash to cover your annual car registration renewal.
7. Increase your income
You knew this one was coming, right? Earning more money won’t necessarily solve your paycheck-to-paycheck problems because spending has a curious way of expanding as our incomes increase. But if you’ve trimmed your budget, are spending responsibly, and are still having trouble making ends meet, making more money is the obvious way to cure your financial woes.
A second job might be the only way to close the gap when money is tight. Half of minimum-wage workers CareerBuilder surveyed said they had to work two jobs to make ends meet. Side gigs, such as Uber, are easy to get and can help solve an immediate cash crunch. But it also makes sense to think long term. Think about teaching yourself skills that could net you a bigger salary or consider whether it’s time to go back to school to pursue a more lucrative career.
8. Save a little
Not having a financial cushion makes it nearly impossible to escape from paycheck-to-paycheck living. Even if you spend carefully, a single emergency can upend your meticulously planned budget. A small emergency fund of $500 or $1,000 means you might not need to borrow to pay your car mechanic or an unexpected medical bill.
But where will that money come from if you’re just barely making rent every month? You may need to get creative to jump-start your savings. Consider selling items you no longer need, taking on a few odd jobs, or using an app, such as Chime, which will round up your saving to the nearest dollar and give you a 10% bonus on your savings every week. Or switch banks. It takes a little work, but you can sometimes snag bonuses of $100 or $200 for opening a new account.
9. Learn to DIY
Having basic life skills can save you money. As Trent Hamm of The Simple Dollar pointed out, sudden, unexpected expenses can blow you budget, cause you to rack up debt, and keep you stuck in the paycheck-to-paycheck cycle. Teaching yourself to do certain tasks (such as car repairs) means you won’t always have to rely on professionals in an emergency. Minor clothing repairs, cleaning your own gutters, and washing your car are all everyday tasks you might be able to DIY to save money.
“Learn how to do basic maintenance and repair yourself, so you’re not turning to an expensive repairman every time something little goes wrong. Not only that, you can often do basic maintenance like oil changes and air sealing your home yourself without nearly as much effort as you might think,” he wrote.
10. Get support
Talking about money doesn’t have to be taboo. As you go through the ups and downs of learning how to better manage your finances, you might find it helpful to talk with other people in the same boat. There are numerous online forums, such as Mr. Money Mustache, MyFICO, and the Personal Finance subreddit, where you can chat with other people about saving money and get advice on your financial struggles. Or you can find a money-related MeetUp in your city or join Debtors Anonymous group if you’re struggling with debt. Some places of worship also have support groups or offer classes on personal finance topics.