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10 Steps to Stop Living Paycheck to Paycheck

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Goran Bogicevic / Shutterstock.com

Living paycheck to paycheck makes it nearly impossible to achieve your financial goals. Breaking this pattern might seem impossible, but it’s not as hard as you think.

If you’re having trouble paying down debt or saving for a rainy day, it’s time to make a change. The good news: You don’t need to score a high-paying new job or a winning lottery ticket to finally enjoy financial security. Follow these steps to stop living paycheck to paycheck.

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Change Your Thought Process

The first and most important step is to change the way you think about money.

Take a long look at your relationship with money. Do you spend money as soon as you receive it? Do you shop around for deals or buy the first item you come across? Do you shop out of necessity or because you’re bored?

Answering these questions will help you become a conscious spender instead of letting your money slip through your fingers each month. The goal is to become proactive about saving money and eliminating debt, both of which are essential to getting away from living paycheck to paycheck.

Moreover, you need to reconsider how you feel about budgeting. Some people are annoyed by budgets — after all, who wants to be strapped down by limiting spending on entertainment? If you realize that long-term goals — like retiring or buying a new car — require saving and attention, then maybe you can feel better about trimming the fat off your expenses.

Make Your Money Work Better for You
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Gather Your Financial Statements

A good exercise is to create a personal cash flow statement. Set aside one evening to look at your total financial picture. Gather all your bills and list your sources of income so you can see how much cash you have coming in and the minimums you owe each month.

If looking over your bills and debts makes you uneasy, that’s all the more reason to take this step. Work up to a point where reviewing your finances is commonplace — not a chore or a kind of punishment. Also, make a habit of opening your bank’s mobile app and reviewing your spending each day.

Once you can gather a clear financial picture, you’ll be able to track your monthly gains and losses. This will be important in helping you get to the point where you have extra money in the bank each month.

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Develop a Plan

You now have a better idea of your income, expenses and to whom you owe money. This knowledge is the first step toward financial freedom. The next step is developing a plan to attack these debts and other expenses.

You will also want to create a list of financial priorities, which will help you decide what to do with the extra money in your budget. If you’re starting out living paycheck to paycheck, then your priorities list should include reducing your debt and other expenses so you can increase your cash flow — and ultimately your savings.

Make Your Money Work Better for You
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Create a Budget

It doesn’t matter whether you choose to create your budget with an advanced budgeting software program like Mint or with a paper and pencil. What matters is that you use a system that works for you.

At the end of the day, your budget should list all the income you have coming in, your fixed expenses, your variable expenses and the date your bills are due.

This step will take you a couple of hours at first. However, once you’re over the hump of figuring out realistic budgets to set for spending on groceries, entertainment and other categories, you’ll only need to make small tweaks month to month.

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Put Your Budget Into Action

Every dollar in your budget should have a job. That means each time you receive your paycheck, you should know where and how your money will be used. Part of it should be used for fixed expenses (like housing and insurance), variable expenses (like groceries and utilities) and savings (or investments).

If you have extra money in your budget, use it for your financial priorities. This way, you always have your money working toward the most important financial goal. Eventually, you’ll reach your financial goals of eliminating debt and increasing savings — and somewhere along the way, you’ll notice that your cash flow has increased.

It all starts with getting ahead that first month, then slowly increasing your savings from there.

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Trim Your Expenditures

Making a budget is the first part of the money-saving process — but you can do more. Take a closer look at the amount you’re spending in categories like housing, transportation, food and entertainment.

If your monthly rent is sky-high, consider getting a roommate or downsizing to a cheaper place. Trade your luxury car in for a reliable used model, or eliminate the expense altogether and use public transportation to get around town.

Lower your food budget by learning to cook and sticking to super low-priced meals at least a few nights per week. And check local blogs to find free weekend activities in your area.

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Supplement Your Income

Chances are, you have some free time on your hands — so put yourself to work. Get a part-time job for a while to help pay off debt or save up some extra cash for an emergency fund.

If getting a second job is out of the question, generate extra cash by cleaning out your home and selling unwanted items on eBay or Craigslist. Direct 100 percent of your earnings to reaching a specific financial objective.

Make Your Money Work Better for You
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Pay Yourself First

Your budget calls for you to save a certain amount of money each month, but that’s often easier said than done. Eliminate the temptation to spend it elsewhere by transferring the money directly to savings as soon as it lands in your account.

Prepare to be pleasantly surprised at the amount of money you can acquire when you commit to putting a certain amount of cash aside each month. Watching your savings account balance rise will make you feel proud and encourage you to keep up the great work.

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Set Up Automatic Bill Pay

Late fees can add up fast, so make them a thing of the past by putting all your bills on autopay. Many companies allow you to link a bank account or credit card to your account, which is automatically charged each billing cycle.

Most banks also offer bill pay service, so find a method that works for you and stick to it. Just be sure to keep a close watch on your statements to ensure you’re being charged the correct amount and that you have the funds to cover the balance.

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Make Your Money Work Better for You
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Realize It’s Okay to Say ‘No’

Indulging occasionally is fine, and can make the event you’re attending more fun. But think twice before committing to social events because things like dinners out, birthday drinks and concerts can add up fast.

Any friends worth your time understand the importance of reaching your financial goals. So, they shouldn’t make you feel bad about bowing out of expensive invites.

Up Next: 50 Ways to Live the Big Life on a Small Budget

Michael Galvis and Ryan Guina contributed to the reporting for this article.