This ultimate guide teaches you how to stop living from paycheck to paycheck in 2021.
Stressing out about money because you have nothing in the bank? Discover how to stop living from paycheck to paycheck and reclaim your peace of mind.
Disclaimer: Posts may contain affiliate links. We earn commissions if you shop through the links on this page. As an Amazon Associate, we earn from qualifying purchases. For more info, read our disclosure policy.
You still have about a week to go until the end of the month, and you’re counting the days.
£2 is all that’s left in your account, and your fridge has nothing but mouldy cheese.
You sigh as you pull out your phone. Guess you’ll have to phone the Bank of Mom and Dad again and ask them for a loan to tide you over this month.
Maybe next month will be better, but you’re not holding out much hope with the way things are going.
You’d love to learn how to stop living from paycheck to paycheck but really, what’s the point? Unless you win the lottery, there’s just no winning here.
Or is there?
Keep reading this post. It contains all the info you’ll ever need to finally break out of the cycle.
Enjoy! Your 2021 is about to get better.
What is living paycheck to paycheck?
Before we talk about how to stop living from paycheck to paycheck, let’s discover what living paycheck to paycheck means first.
Living paycheck to paycheck is when you need to use your entire monthly income to cover your monthly expenses.
Sometimes, you even need to get a loan to top up your income because it isn’t enough to pay for your spending.
Why is living paycheck to paycheck bad?
As long as you can pay for your income, that’s alright, right?
Who cares if you have no savings. So long as you pay your bills, you’ve got food to eat and a house to live in, it’s okay. Right?
I suppose it’s okay. But sometimes, you want better than okay, don’t you?
You want the stability that comes from knowing that you have enough to survive whatever life throws your way.
Living paycheck to paycheck is also bad in other ways.
To buy or not to buy – that is the question.
Your money is all tied up. You know this. But you really need to get a laptop for your new job.
You have a clunky one just now, but it’s barely working. What if it gasps its last electronic breath?
But what if you’re just judging your laptop based on its bashed cover?
Do you buy a new one or not?
When you live from paycheck to paycheck, you feel stuck. You can’t quite bring yourself to buy something that you might need because you know there are some things you definitely need.
Emergency? What emergency?
When you live from paycheck to paycheck, unplanned costs can take epic proportions.
Fridge failure? Luckily, it’s winter. You can just put your stash of frozen chicken outside.
Car broke down? Phone a friend because a tow truck is far too expensive.
A wheezing cough that just won’t go away? Steam bath it, baby, cause there’s no way you’re paying for a doctor unless you’re coughing your lungs out of your mouth.
Oh, but wait. Maybe you can pay with a credit card. Or, perhaps the bank will give you a loan.
You can pay all these debts back next month.
When you live paycheck to paycheck, little things like these cause anxiety, hopelessness and sleepless nights. Worse, they can also lead to more debt – making it more likely for you to remain in this vicious cycle.
Just work forever.
Living from paycheck to paycheck is hard. And it’s more challenging when you can’t see the light at the end of the tunnel.
It’s anxiety-inducing. And you’re probably thinking, “How could I retire when I’m not putting any money away?”
“I can’t even live the lifestyle I’m used to when I’m earning, what would I do when I stop?”
Do I just…work forever?”
Maybe just give up and own that plummeting credit score.
Again, living from paycheck to paycheck puts you at risk of getting yourself mired in more outstanding debt, with higher interest rates.
More debt means more debt payments that will eat up more of your income.
This means your credit score will tank.
When your credit isn’t good, you’ll likely be denied financing (should you need it). And even if you do get approval for anything, the interest rates are probably gonna be extortionate.
And so the circle goes.
The Benefits: Why you need to get out of living paycheck to paycheck
So, you’ve seen why living paycheck to paycheck is bad.
Now, you’re probably wondering about the benefits. Why do you need to get out of living paycheck to paycheck?
The benefits are many, but you can really distil all these benefits to one thing: peace of mind.
Escape the Apocalypse.
When you’re living from paycheck to paycheck, every penny counts. And any unexpected bill can throw your entire life into chaos. A malfunctioning oven could be apocalyptic.
But when you break free from the cycle, things are no longer so dire.
Even your house going up in flames won’t be such a disaster.
Of course, it would’ve been better if that hadn’t happened. And yes, there are some sentimental things that no amount of money could ever replace – but you’ll survive.
And you know that you’ll survive.
Find your passion.
When you have money in the bank, you’re no longer a slave to your job.
You don’t have to endure abuse because you don’t have a choice. Maybe it’s not convenient. Of course, you’d prefer to be productive. But if you lose your job, you’ll survive.
Now, you have time to actually find work that you’re genuinely passionate about.
Make your dreams come true.
Nothing feels as good as a dream come true.
Want to buy a house? You can now save up for that.
Dying to go on a cruise around the world? Yep, tick that off the list too!
Need a one-year break from the rat race? Go for it.
Your dreams aren’t just dreams anymore. They’re reality.
And that’s what a blissful life is all about.
Everyday stress is like water off a duck’s back.
Yeah, you’re the duck.
And maybe you do feel stressed some of the time. But for the most part, you’re no longer constantly worried that things are going to fall apart.
You can shrug quite a few worries off because you know that you can resolve them – you can afford to.
And sometimes, that’s all you really need.
Learning how to stop living from paycheck to paycheck can be quite a steep curve sometimes.
And it means actually making changes to the way you live your life, but the end goal is worth it, right?
You’ll finally have peace of mind. Security. Stability.
And the freedom to live your life the way you wish to.
Find the “promise”.
Jim Rohn said that price is easy if the promise is clear.
And it’s true.
Like everyone else, you’re a creature of habit. Even when you say that you want to change, a part of you will resist.
And why wouldn’t you? Change is hard work.
So, if you want to successfully stop living from paycheck to paycheck, you need an incentive – a strong reason to change your habits.
You need to find the promise that will make all the hard work worth it.
Allow yourself to dream about the future. What could you do with your money once you’re free from the paycheck-to-paycheck cycle?
Is it a new house? A new country? A new car?
Whatever your dream might be, it’s not gonna happen unless you change your life today.
Harness the power of your dreams. And finally, break free.
We’re not suggesting that you put a public status up on social media. “I’ve finally learned how to stop living from paycheck to paycheck, and I’m now gonna do it.“
But don’t keep it a secret either, just because you’re afraid of the pressure.
Embrace that pressure and use it to propel your success.
When you tell someone you trust that you’re going to make some real changes to your life, you’re more likely to make it happen.
Just make sure that you choose someone who’ll motivate you (instead of putting you down) to increase your chances of success.
Set financial goals.
If you want to successfully break away from paycheck to paycheck living, it’s essential to set financial goals.
Most people set either a savings goal or a debt goal. Very few do both even though they’re two sides of the same coin.
For example, your debt goal could be: “I’m going to pay off all my credit card debt in one year or less.”
Your savings goal could go like this: “I will save 10% of my salary every month starting July. And I will put the money in a bank account that I won’t touch for the next 10 years.”
Top Tip on how to stop living from paycheck to paycheck: you need to consistently earn more than you spend.
It doesn’t matter how much you’re earning. You could be making £100,000 per month, but if you’re spending £100,002, you’re still living paycheck to paycheck.
You need to bring home more money than you spend. Every. Single. Month.
That’s the only way you can escape.
Side Note: Of course, there are months when disaster strikes and everything goes up in the air. But this shouldn’t be happening too often. And remember, you should have enough saved up to cover these little emergencies (keep reading to find out how you can do that).
The Key: How to stop living from paycheck to paycheck
Someone once said that if you fail to prepare, you prepare to fail.
In personal finance, that means budgeting or creating (and then following) a spending plan.
If you’re like most people, you’re probably resistant to the idea of budgeting.
And why wouldn’t you? Who wants to spend so much time poring over spreadsheets and numbers?
Worse, budgeting kinda feels like a noose around your neck. Who wants to live like an ascetic, denying themselves the things they love? YOLO and all that, right?
Good news: effective budgets (also called “spending plans”) can be flexible. They don’t have to be super restrictive. And they’re the best tool you can use if you really want to stop living paycheck to paycheck.
And if that doesn’t convince you, maybe this Charles Schwab Modern Wealth Survey will.
As you can see, people who had financial plans are well ahead of the game. So, if you want to break out of the paycheck-to-paycheck cycle, you need to commit to it.
How to stop living from paycheck to paycheck: Discover where it all goes.
It’s mid-month, and you’re afraid to look at your bank balance. But you know you have to.
You take a deep breath, shore up your courage and punch in the code that will show you what you still have to work with.
£12. That’s all you have left, and you still have two weeks to go before your next salary.
You’re screwed, and once again, you mutter to yourself, “I just don’t know where it all goes.”
Most of the time, paycheck-to-paycheck spending is caused by inattention. You want something, and because it seems cheap, you take out your card and swipe – without bothering to check your balance. Or even to think about whether you really need it or not.
£2 may not seem much, but if you buy it 5x a day, every single day, it adds up. And you end up spending a boatload of money. Which is fine if you can afford it, but many of us aren’t so lucky.
So, why not try tracking what you’re buying and how much you’re spending? You don’t need a fancy template for this exercise. A simple Excel sheet or even a blank notebook will do the job.
You really just need to be able to see where your money is going.
If you’ve never done this before, you might be surprised at how effective it is at curbing impulsive buying.
If you must choose, choose the Four Walls.
When you’re living from paycheck to paycheck, everything may seem like a priority. That’s not true.
If money is tight and finite, focus on the four things you need to survive, also called the Four Walls.
Because they’re essential, they should be at the top of your priority list. Pay for these things in this order:
- Mode of Transportation
When you’re tracking your expenses, mark these four things and set that amount aside.
Then you examine the rest of your expenses. And sort them in decreasing priority.
Free yourself from judgement.
You love coffee. But not just any old coffee.
It has to be Starbucks. Decaff. With oat milk instead of regular cow’s milk. And mocha. With peppermint syrup. Plus whipped cream. Lots and lots of whipped cream.
It’s your kryptonite.
You can’t stop buying it no matter how hard you try. Even though you know it would be cheaper to go home, boil some water and make coffee yourself.
You. Just. Can’t. Stop. And you hate yourself for it.
The problem, according to John Earl Shoaff, isn’t that the coffee is expensive. It’s that you can’t afford it.
Making a plan, committing to break free from paycheck-to-paycheck living doesn’t mean eschewing the fun stuff. Yo don’t have to give up your Starbucks decaff peppermint mocha with oat milk (instead of regular milk) and whipped cream, if you don’t want to. So, stop judging yourself. You’re entitled to enjoying life.
But what to do if you’re not earning enough to pay for your monthly needs, or if you’re saving up for big goals?
You really only have three choices: 1) Cut back on your expenses; 2) Increase your income; 3) Do both 1 and 2.
Once that’s done, you need to examine where your money has been going. And then you can choose: Are you going to keep buying it? Maybe buy a cheaper alternative? Or how about just stop buying altogether?
This is where setting clear goals will come in handy.
After all, cutting back on expenses is a form of sacrifice. Sometimes it’s easy, but often, it’s hard.
And your goals can make the sacrifice worth it (and, therefore, easier).
Budgeting is a skill.
Cutting back on your expenses, which I discussed in the previous section, requires a budget. You can’t cut what you don’t know.
You also can’t make sure that your income can support your lifestyle if you don’t know how much you have in the bank.
Result? Paycheck-to-paycheck living, if not outright debt.
To find out how much money you have to spare, how much money you can use and how much more you need to earn, you need to create a budget, no two ways about it.
Luckily, budgeting is a skill you learn.
And it’s relatively simple to do once you’ve learned it.
Remember: A budget is basically a plan that will help you give each penny you earn a job to do for the month.
Everything must be accounted for. You need to know where everything is going.
Your budget needs to show this:
Monthly income – Monthly expenses = 0 (left to budget)
And this is where people get intimidated the most.
How are you supposed to create a flexible, adaptable budget if you have to allocate all of your money?
Step 1: Take a note of your monthly income (salary, rental income, benefits, freelance earnings, dividends etc.).
Step 2: List all monthly expenses. If you did the tracking activity I recommended in a previous section, this step will be relatively easy because you’ll already have all the figures.
Top Tip: Expenses can change each month so you’d be better off creating a monthly budget instead of a yearly one.
Step 3: Deduct all planned expenses from your income. You should end up with zero. Just to clarify, that’s zero left to budget, not zero left in your bank account.
Make sure you have a buffer for those “just in case” things that always seem to happen. And which always seem to tip you over to overdraft (and paycheck-to-paycheck living).
Council Tax: £150
The trick to making the buffer work for you is to forget that it’s there, so you don’t get tempted to use it.
You know the feeling, right?
You’re bored so you “just browse” your favourite online shops. Maybe you see nice-looking Nordic socks. You don’t really need it (you’ve already got six pairs!) but you want to buy it.
A quick check reveals that you still have £90 in your account. The socks are only £29. Totally affordable, right?
Wrong! That’s the fastest way to finding yourself back in the trap that is living paycheck to paycheck.
Leave the buffer there until your next pay kicks in.
How to stop living from paycheck to paycheck: Expect the unexpected.
In Wear Sunscreen, Mary Schmich wrote, “Don’t worry about the future…The real troubles in your life are apt to be things that never crossed your worried mind, the kind that blindsides you at 4 pm on some idle Tuesday.”
So, the only thing you can really count on is that life will throw unexpected things your way.
Most of the time, money will help you survive whatever that is.
It won’t automatically make things better. But it will undoubtedly make it a lot easier.
That’s why you need a buffer, a budget and a way out of paycheck-to-paycheck living.
So that when life’s “unexpected” rears its ugly head, you’re ready. You can roll with the punches and win.
You don’t even need a lot in there. If you leave £50 in your account as a buffer this month and then leave another £50 next month, you already have £100.
If you keep doing that, you’ll soon find yourself with enough money to cover six months even if you were to lose your job.
And when that happens, you’ll know peace of mind like nothing else.
Pay yourself first.
First lesson when learning how to stop living from paycheck to paycheck: “save whatever’s left from your income once all the expenses have been taken care of”.
It’s a common enough scenario.
You get paid your salary, with taxes and pension contributions taken out before you even see them.
As soon as you get your money, you start spending it. If you’re lucky, you won’t spend too much that you’re now stuck with bills to pay. But sometimes, you’re not that lucky, and you end up having to borrow money because you’ve used it.
You realise you have nothing left, and you shrug your shoulders as if to say, “I’ll start saving next month instead.”
You need to look after number one (yes, I’m talking about you). And the best way to do that is to pay yourself first and then move the money away to make sure that you don’t spend it.
So, not only do you have a buffer for when things go wrong. You also have enough money for items or experiences to spoil yourself with.
For example, if you want to go to the luxury spa in the city centre, you can – because you can afford it now.
Don’t worry. You don’t need to pay yourself through the nose (unless you want to).
Even 10% of your net income for the month will go a long way to building up the safety net you need to finally free yourself from the paycheck-to-paycheck cycle.
Aim for 6 months’ worth of your salary. Once you have that, you can breathe easy.
Remember, the best way to stop living from paycheck to paycheck is to have money in the bank.
Why do manually what you can do automatically?
If you’re serious about learning how to stop living from paycheck to paycheck and paying yourself first, you need to take a leaf out of the government’s book.
Take the 10% you’re going to pay yourself and automatically deduct it from your monthly income. Ideally, you’ll want the money to leave your account a day or so after receiving your payment in your bank.
That way, there’s definitely no risk of accidentally spending it.
That’s what the government does with the money you owe it. It takes it seriously.
You should do the same.
Become your own worst nightmare.
You’re trying to buy something online, and you realise that you left your wallet in the car.
It’s raining. You’re inside the house, sitting cosily in front of the fire and holding a cup of hot chocolate in your hands.
A) Go out to the car to retrieve said wallet?
B) Cosy up even more and decide to get it later?
C) Cancel the transaction because it’s just too much bother?
D) B and C.
Unless it’s an emergency or something essential, you’ll probably go with D.
Do the same with your savings.
Transfer it to a different account that you can’t immediately get to. Make impulsive buying difficult for you. Become your own worst nightmare – at least, as a buyer.
You really want a new pair of shoes. They’re barefoot snow boots, and they’re to die for. Supposedly, they’re warm and waterproof. Stylish, too.
You absolutely have to have them.
Problem: They cost £200. And you only have your £90 buffer left in your account.
Oh, but you do have a credit card…
And they let you pay via Klarna. Awesome!
You hit the buy button and happily await the arrival of your new purchase.
Congratulations! You have the boots of your dreams.
But you also have new debt you now have to repay.
Was it worth it?
Well, only you can answer that. Just remember that the more debt you accrue, the longer it’ll take you to escape the paycheck-to-paycheck cycle you’re trapped in.
If you really want to get out of it, you need to boycott debt. Ignore all these buy now, pay later deals you see online. Cut up any credit card you may have. Or at the very least, hide it somewhere you can’t easily find.
While you’re at it, avoid taking out car loans or housing loans.
It’s challenging to get completely clean if you keep adding mud while you’re in the shower.
In other words…
Stop living beyond your means.
Only make a purchase when your monthly income can cover it.
Again, it doesn’t matter how much money you make. If you keep spending it all, you’ll still end up with nothing in the bank.
You want to avoid lifestyle inflation (AKA lifestyle creep). It’s when you get more money but also end up spending more than you usually do.
That’s why it’s essential you learn how to live within your means.
Because if you don’t watch it, you’ll be in even worse financial shape than before.
I already have debt…:-(
Aside from not adding more debt, what else can you do?
See if you can do credit card balance transfers to reduce interest rates. Sometimes, you can transfer debt from one credit card to another without incurring any interest. Go for that one.
Treat debt consolidation with kid gloves.
You don’t want to be worse off than you were before.
Also, make sure you don’t needlessly put your possessions as collateral if not necessary.
For example, if you’re paying credit card debts, don’t take out a mortgage to pay it off.
How to stop living from paycheck to paycheck: Ask, “Do I really need this?”
When you’re creating your budget, you need to ask, “Do I really need this?”
When you’re examining the results of your tracking exercise, you’ll come across a few surprises.
“I can’t believe I actually bought a pneumatic drill just because it was on sale!”
“I’m paying over £100 on a gym membership I hardly even use?!”
“My mobile costs £55 per month?!”
But don’t just focus on those hefty one-off charges.
Check the necessities too.
This will be hard because you’ll have to examine your lifestyle choices and possibly alter them.
Ask the following questions while going over your expenses:
- Do you really need to be living in your neighbourhood? Could you move to a less expensive house or even area? Should you start advertising for a housemate?
- Do you really need all of your subscriptions? Could you cancel or pause your Netflix, Amazon, Hulu, Gusto, etc.?Should you streamline your subscriptions and choose just one?
- Do you really need to buy so much takeaway food? Could you cook from scratch using cheap ingredients? Should you learn how to cook?
- Do you really need to pay so much for your mobile, internet and the like? Could you look for cheaper alternatives or negotiate with your current provider for a better rate? Should you leave one company in favour of another?
- Do you really need to buy so many books? Could you perhaps borrow from the library for now?
- Do you really need to buy branded household supplies, designer clothes or even expensive (branded prescriptions)? Could you make do with a cheaper alternative while you’re clearing off your debt and sorting out your finances? Should you ask if there generic items that match the quality you’re looking for?
- Do you really need your cigarettes, coffee, etc.? Could (or would) you give them up for the sake of greater financial stability?
Challenge yourself to spend £25 less a week on each category. Then use what you’ve saved to pay off your debts.
The aim is to decrease your monthly spending so that eventually, you can pull free of the shackles of paycheck-to-paycheck living.
No shame in needing – and asking – for help.
If you’re on very low income (or have just lost your job), then ask for help.
Scotland, for example, has food banks you can go to. Children get free meals in school. Sometimes, community groups and church groups have other programmes that might be useful for your unique circumstances.
And, of course, you’ll likely be entitled to a few benefits.
Go to your local jobcentre (or phone them) or Citizens Advice Bureau and ask for advice.
There’s no shame in this.
Increase your worth in the marketplace.
The fastest way to get more money each month is to increase your worth in the marketplace.
The more valuable you are, the more you’re paid.
This is important because sometimes you just can’t lower your expenses any more. You’ve hit rock bottom, and you’re already barely surviving.
You need more money, in other words.
Ask for a raise. Give your boss the figure you need and ask her what you need to do to deserve, such as a salary.
Then do what you need to do to get it.
Once you do get a raise, squirrel it away somewhere safe so you always have something you can use “just in case”.
Part of learning how to stop living from paycheck to paycheck is discovering how to bring in more money!
And the fastest way to do that is to sell what you already have.
If you have designer handbags, sell them.
Outgrown baby clothes, sell them.
A car you hardly use, sell that too.
Be ruthless. If you’re not using something and you haven’t used in the past two years, chances are, you’re not gonna use it in the future either.
If you can get money off it, sell it.
Hustle, baby, hustle.
If you’re caught in the vicious cycle that is paycheck-to-paycheck living, you need to earn more money. And whatever you get from selling your stuff likely won’t be enough.
You could go for promotions (and the corresponding salary increase) if you’re a full-time employee – but that probably won’t happen as quickly as you need.
If you want quick results, you need a side hustle.
You could do seasonal work (like Christmas temp jobs at Tesco). Maybe you could wait tables at your local pub or be a barista. You could even advertise your services in online places like TaskRabbit.
Pay is not high, but it’s usually consistent (except perhaps for TaskRabbit, which is a bit more like freelancing).
You could also offer to do some odd jobs for your neighbours: cut the grass, babysit, pet sit, or wash their car.
To make it worth your while, try to take up a side hustle that requires the use of skills others may not have. For example, if your main job is plumbing, perhaps you could offer plumbing services as part of your side hustle.
Half + half = 1.
What if you’re only on part-time hours?
Maybe you should get another part-time job, so you essentially get full-time pay at the end of every month.
Imagine how much extra money you’ll be bringing in if you had two part-time jobs!
Stop counting the chickens before they hatch.
It’s tempting to buy something now because you know you can afford it when your next pay comes. But the problem is you’ll be borrowing money you don’t have yet.
What if something happens that changes how much money you get paid next month?
You’re expecting £1640, but you got furloughed. Or you got sick, and now you only get statutory sick pay (trust me, it’s a lot less than what you usually get). Or worse, you got fired.
Better to wait until you actually have your salary in the bank than counting the chickens before they hatch.
One of the many reasons why the minimalism movement took off the way it did was that it promised to save money and reduce stress.
Follow what famous minimalist Marie Kondo recommends and just keep only what you really need in your life (whatever sparks joy).
At the very least, you’ll get the following benefits:
- Curb impulsive buying.
- Have more money in the bank.
- Enjoy the kind of peace of mind that can only come with security and stability.
How to stop living from paycheck to paycheck: Cushioning helps.
You freed up money because you cut your expenses and paid off your debt.
On top of that, you got a better paying job and sold off quite a few things.
What do you do with the money you now have at your disposal?
Use it as a cushion.
In other words, instead of using the money you’ll be earning next month to pay for your expenses this month, you’ll be using the money you earned from last month to pay for what you need this month.
This extra breathing room creates even more space in your budget that will allow you to:
- Better respond to life’s little crises.
- Pay your bills on time.
- Saving up for those extraordinary things in life.
- Funding a future you used to only dream of.
Learning how to stop living from paycheck to paycheck isn’t just about learning a new skill. It’s about learning how to think differently so that eventually, you adopt a different mindset altogether.
So, chances are, it will take time. You’ll trip up every now and again.
There will be frustration and maybe even tears.
Be gentle with yourself as you go through this process of change.
Shower yourself with love because self-love will be crucial to your success.
And remember that you can do this so long as you don’t give up on it – and yourself.