I read a fair amount of financial news and a recent story caught my eye talking about how 63% of Americans say they are living paycheck to paycheck. Yikes. The sad reality is that having been a personal finance blogger for going on 11 years; I’ve seen a lot of these articles. It seems that no matter how good or how bad the economy is doing, way too many of us are living paycheck to paycheck. The question then becomes – what’s there to do about this?

Here are a few thoughts on things I think we can all do to try to reduce our reliance on living paycheck to paycheck:

Build that emergency fund

For frequent readers of the blog I’ll sound like a broken record but part of living paycheck-to-paycheck means you’re more heavily at risk for suffering a financial emergency. I always pull out the quote from this article where it says that 57% of Americans couldn’t survive a $1,000 financial surprise expense. It’s truly not a matter of if but when something will pop up ranging from higher than expected utilities…an unexpected car repair, an unfortunate traffic ticket, unplanned house repairs, unplanned for medical bills…truly you will get hit from time to time with surprise bills.

If you want to get out of a paycheck to paycheck lifestyle, one of the first tips I’ll have for you is to build an emergency fund. I’ll get into making more money or spending less money later but if you don’t have an emergency fund, no amount of income or controlled spending will matter when a surprise expense pops up.

Open a brand new savings account. I recommend it’s through a bank that offers a high yield savings account. You might as well earn all the interest you can if you money is just sitting there. See my recent article on high yield savings accounts to learn more. Try to say no to as many purchases as you can for the next month and instead put that money in that account. Pause/cancel streaming. Don’t get takeout. Delay holiday shopping. Carpool with a friend. Pack your lunch everyday. Make coffee at home. Take that money you would have spent there and put it into that savings account. Rinse and repeat until you have $1,000. Once you hit $1,000, pause to high five yourself as you’re now doing better than 57% of Americans knowing you could survive a $1,000 financial setback.

Then you can take your foot off the gas slightly but I recommend keep working to stock up this account. Experts recommend 3 to 6 months of expenses stashed away. Just in case!

Make more money or spend less money

Ok now that you’ve got a safety net for if you fall off this paycheck to paycheck treadmill so now let’s talk about how to not feel you have to run so fast on it just waiting for that next paycheck.

There are two ways to improve your financial situation – either make more money or spend less of it. Sure it might seem a bit over simplistic but those are your two options.

For the make more money route you’ve got options! If you’re currently employed, you have a few options. You can start by asking for a raise at work, or inquiring more about promotions and raises and how they work. I’ll never forget how at my very first job at Dairy Queen I somehow mustered up the courage to go talk to the big boss and negotiated me and my 3 colleagues a $0.50/hour raise. It doesn’t always work like that but you never know until you ask! If you get a ‘no’, the next question you’ll get into is more details on how it works at your company. Historically in my experience I’ve found that companies aren’t often advertising the promotion and raise process and instead you have to initiate first and force the conversation. It’s not a pleasant one to have but I think companies sometimes do that on purpose because they don’t want to pay you more if they don’t have to!

Or perhaps you can ask for more work or more responsibility. Mrs. Money is going through this now at her work and candidly told her big boss that she needs to make more money to support the family. Now her boss is keeping her in mind when extra jobs or tasks pop up! Making more people aware never hurts!

Or perhaps you could find a job opportunity outside of your current job. There are a ton of freelance gigs in this gig economy. You could become a taxi, a delivery person, a dog walker, a personal assistant – there truly are lots of options out there! Or perhaps you could extend your current skill set to others – sites like Fiverr are great for lending the skills you have to others.

The spend less money is another option in this equation as well. This might feel like an impossible task and this one might be a bit more painful vs. the option of earning more money. Spending less money essentially involves saying ‘no’ to things in your monthly routine and saying ‘no’ can be difficult. Perhaps you think there is no way you can live without your __________ coffee/takeout/streaming etc monthly expenses. Perhaps you’ve already cut out so much and feel there’s not much else you could cut out!

I would wager – I could be wrong that there are a few things you could cut out and a few ways you could cut back. Perhaps it’s all groceries no eating out. Perhaps it’s all groceries all rice and beans, beans and rice as Dave Ramsey refers to it as. It all depends on how much you want to get out of this paycheck to paycheck routine.

If you are determined to stop living paycheck to paycheck, go through last month’s credit/debit card statement and circle a few things you could have said ‘no’ to. Feel like you’re at a loss and can’t find much? How about asking a friend to do it for you instead?

Find a way

As I asked earlier in the article – how much do you really want to get out of this paycheck to paycheck routine? Depending on how tired of it you are, the more likely you are to find a way. Change is hard and that includes financial change as really it’s just habits and how we spend our time. Going back to the tips on getting out of this mess – you either need to make more money or spend less money. Neither are super easy and both take time and effort. It won’t be easy or much fun driving for Uber or dog walking or personal shopping or delivering packages or doing extra freelance work. Saying no to spending isn’t much fun either. You’ll see your friends living differently than you and have major FOMO. You’ll start telling yourself that you deserve it and what’s the point of life if you aren’t enjoying it.

Or, if you are feeling the pain, you’ll start making the change. It will likely be slow and steady progress and you’ll from time to time feel like quitting. You may also struggle to find ways to make more money / spend less money. But if you are determined to make a change, you’ll find a way to make it!

Invest for the future

Ok phew, if you’re made it this far you’ve made it past the hardest part. You’ve successfully found a way to increase your income and / or have decreased your spending so hopefully you’ve reduced stress in your life and are living a bit less of a paycheck to paycheck lifestyle. If you want to stay out of this for a longer time / forever, you’ll need to start making some smart financial decisions, namely saving and investing your money.

I always say that Income = Expenses + Saving/Investing. Previously when you lived paycheck to paycheck, your equation looked like this: Income < Expenses or Income = Expenses. This is not sustainable and even a slight hiccup could throw you off. Now you can factor in the Saving / Investing piece of the equation.

You’ll presumably have already setup your emergency fund and have some money stashed away for that inevitable rainy day. From here you can start investing your money – either in a savings account or the stock market. Depending on your risk level and or comfort with investments (it might be new!) I would start by opening another high yield savings account and stashing some money there. It’ll earn interest – currently paying around 4-5% which isn’t bad! I think it’s always a huge mental win to see your money grow.

Then as you get more comfortable you can start investing in the stock market. In a very TLDR I recommend the KISS (keep it simple, silly) method. I invest 95% of my stock money into an index fund, specifically ones from Vanguard. You can easily open a brokerage account with them and they always have the lowest fees. Picking stock winners is hard and I’ve basically given up. Instead I play the averages – i.e. an index fund which basically buys most stocks on the market.

In conjunction with this you can also start thinking about tax-advantaged accounts like a 401(k) or a 529 or a HSA, but I definitely don’t want to boil the ocean in one post here!

Saving and investing will allow your money to work for you – and start growing. Slowly but surely you’ll feel further and further away from that paycheck to paycheck lifestyle you’ve left behind!

TLDR

Living to paycheck to paycheck sucks. It’s an emotional roller coaster just holding your breath till the next paycheck and hoping you have enough to pay your bills. Also forget getting sick or laid off – there’s no time for that! If you find yourself in this category you are not alone – 63% of American are in this boat.

It’s simple to get out of this boat but you’re going to have to want it and start working hard towards it; either by earning more and saving more money each month. From there once you have a little breathing room you can start investing and saving and have your money start working for you!