Living Paycheck To Paycheck: What It Means And How To Stop The Cycle

A common challenge many households face is making ends meet. From the higher cost of living to financial emergencies or carrying too much debt, many Americans are struggling to cover their basic necessities. In other words, many are living paycheck to paycheck.

We can show you how to break free from this cycle, introduce financial flexibility into your life and help you stop living paycheck to paycheck.

What Does Living Paycheck To Paycheck Mean?

Living paycheck to paycheck means you spend all your income on your monthly living expenses – like your rent or mortgage, utilities, groceries and transportation – and have little to no money left over. Among other issues, it also means you have no extra money to deposit in a savings account for expenses beyond your immediate needs, like clothes or retirement savings.

4 Common Reasons Americans Live Paycheck To Paycheck

People live paycheck to paycheck for a variety of reasons. We’ve listed four common explanations for why people experience limited financial flexibility.

Unplanned Expenses

An unexpected expense – like a car accident, a pet emergency or a home repair – can throw your finances into disarray, especially if your budget is already stretched thin and you don’t have an emergency fund.

Chronic Health Conditions

The long-term costs of treating a chronic health condition (whether for yourself or a family member) can also force a household to survive paycheck to paycheck. Even with health insurance, the cost of long-term care can affect your finances and ability to earn enough in the long run.

Economic Upheaval

External factors – like the COVID-19 pandemic or economic turmoil – are beyond our control and can trigger unexpected increases in expenses that disrupt the global economy and local economies.

Economic upheaval can cause the price of necessary goods, like housing, food, fuel and medicine, to skyrocket. The spike in prices may eventually taper off or stabilize, but the short-term effects can stress a balanced budget.

Long-Term Debt

Another reason many Americans live paycheck to paycheck is long-term debt. The most common forms of long-term debt include student loan debt and credit card debt. When your debt burden increases, especially as interest rates climb, it gets more difficult to set money aside.

No matter what causes someone to live paycheck to paycheck, the situation is incredibly stressful in real-time and when planning for the future. The good news is that there are steps you can take to break free from the paycheck-to-paycheck cycle and take control of your finances and your future.

How To Stop Living Paycheck To Paycheck

Let’s walk through some steps and strategies to help you stop living paycheck to paycheck and set yourself up for financial success.

1. Understand Your Expenses

Living paycheck to paycheck is an indicator that you likely don’t have much wiggle room in your budget for spending beyond your immediate needs. So, when revisiting or creating a budget, separate your fixed, recurring expenses from your variable, discretionary expenses.

The cost of fixed expenses stays the same from month to month. Examples may include your rent or mortgage payment, internet bill, health insurance, car loan or gym membership. And don’t forget to include fixed expenses – like property taxes or life insurance premiums – that may be billed quarterly or annually.

Variable expenses can change from month to month. To factor in variable expenses, estimate how much you spend on average for each. Some variable expenses to incorporate into your budget include groceries, transportation (like gas for your car or bus fare), medical bills, household repairs, car repairs, new clothes or even gifts.

2. Create A Budget

The next step is to create a budget. Learning how to create a personal budget is a valuable skill that can help reveal overall financial health and highlight areas where you’re overspending. Without a budget, you may not know how much of your paycheck you spend on immediate needs, like your mortgage payments or gas for your car, and what you spend on discretionary expenses, like takeout or travel.

If you have a limited amount of money left over from your paycheck after covering your fixed expenses, you’ll need to prioritize your spending and tackle areas where you’re overspending.

Budgeting can help you identify where you can cut back on costs and reallocate any extra money toward savings or paying off a high-interest credit card.

3. Renegotiate Your Monthly Bills

After reviewing your monthly expenses, it’s a good time to ask yourself how critical 100 streaming services or multiple monthly subscriptions are to your lifestyle. You may be paying for products and services you hardly use. Canceling just one subscription can save you money and give you more funds to work with in your budget.

You should also try to renegotiate your monthly bills. With the Rocket Money℠ app, you can lower your bills by scanning them and discovering options that may save you money.

Shopping around for better prices or switching providers can help lower your fixed monthly expenses and put more funds back into your budget.

4. Limit Credit Card Use

One of the most productive things you can do while living paycheck to paycheck is avoid more debt – especially on your credit card. Using your credit card during an emergency can be a lifesaver, but if using your credit card becomes a habit, it can set off overspending.

Be mindful of when and how you use your credit card. It’s crucial to breaking the paycheck-to-paycheck cycle and finally saving money. The more you spend on your credit card, the more interest you’ll owe if you don’t pay off the card’s total balance every month. And when you’re already working with limited funds, the last thing you should spend money on is interest.

Try limiting credit card spending, especially if you’re hard at work paying down your credit card debt.

5. Start An Emergency Fund

When you live paycheck to paycheck, the financial cushion to fix your car when it breaks down or pay an expensive medical bill is likely nonexistent. Once you’ve budgeted for your essentials, start depositing small amounts of money into an emergency fund so you can cover emergencies without the risk of falling deeper into debt.

The size of your deposits into an emergency fund doesn’t matter. What matters is having an emergency fund in anticipation of life’s unexpected situations. When you have the room in your budget, start diverting a comfortable amount of money to your emergency fund every month. If you want to reduce the temptation of tapping into the fund for nonemergencies, consider opening the account at a separate bank or financial institution from your checking account.

6. Be Patient With The Process

Living paycheck to paycheck can be stressful, so it’s understandable why someone would want to speed up the process. But you must be patient with yourself and your financial journey. Saving money and paying off debt can take time and effort. Keep your finances organized and stick to your budget to stay focused on ending the cycle.

Depending on your financial goals, you’ll reap the reward of trusting the process with a paid off credit card or enough in your savings or emergency fund to finally experience some financial freedom.

FAQs About Living Paycheck To Paycheck

Do you still need information about living paycheck to paycheck? Let’s go over some frequently asked questions.

What percentage of Americans are living paycheck to paycheck?

According to a 2023 from the Harris Poll, with Barron’s, about 65% of Americans live paycheck to paycheck.

How do I budget by paycheck?

Budgeting strategies will vary, but the most straightforward strategy may be to see what’s left of your paycheck once you’ve covered your basic needs. You can start by budgeting for your fixed, recurring monthly expenses (like rent, mortgage payments or car insurance) before moving on to other costs.

How do I save money living paycheck to paycheck?

Saving money while living paycheck to paycheck can be challenging, but you can use several budgeting techniques to help boost your savings. The 50/30/20 rule breaks your check into three categories, with 50% of your paycheck going toward needs, 30% toward wants and 20% toward savings.

If your paycheck is $1,000, you should deposit $200 into your savings account. Of course, if you need more flexibility, especially if you’re having a hard time paying for more than your immediate living expenses, you should deposit less money. Even putting a few dollars from every paycheck into savings or an emergency fund can be a great way to start saving more money.

The Bottom Line

Living paycheck to paycheck can be stressful. Taking a step back to review your income, monthly expenses and spending habits can help you create a budget that supports your lifestyle and allows you to live within your means. Having a realistic budget can also help you recognize where you’re overspending and where you can save money every month.