How to Break the Paycheck to Paycheck Cycle (and Start Building Wealth Too)

Recent studies show that as many as 76% of families live paycheck to paycheck, meaning there is absolutely no money leftover at the end of the month.

Having lived this way for several decades, I can attest to the fact that it’s no fun being in a money situation where you regularly have more month than money.

Four years ago, my husband and I finally got “sick and tired of being sick and tired” of the paycheck-to-paycheck lifestyle. We had no idea how we were going to change things, but we KNEW that we were done living the stressful life of having no money and loads of debt.

Here are the steps we took to break the paycheck-to-paycheck cycle and start getting out of debt once and for all. 

You CAN Break the Paycheck to Paycheck Cycle

Before you learn the necessary steps to stop living paycheck to paycheck, it’s important to understand that you do have the ability to change your financial life.

One of the reasons Rick and I spent so many years struggling for money was that we were convinced that we were “destined” to be broke.

Friends, I’m here to tell you that’s just not true – for us or for you. When we first started working to change our financial situation (yep, it’s gonna take some serious work), we started by working the numbers – and then found out there was a major step that needed to be taken first:

We needed to figure out why we were spending beyond our means. 

In other words, what were the psychological triggers that caused us to be so compelled to spend money we didn’t have? This took some serious self analysis, and it wasn’t always fun or easy to go through that process.

Both Rick and I found that we were harboring some seriously deep hurts from childhood traumas. Those traumas had caused us to hurt each other throughout the course of our marriage as well.

Through counseling and self education, we had to learn to work through those hurts and heal from them before we could get a serious leg up on our financial situation.

The other lesson we had to learn before we could make serious progress on our financial situation was that we had to believe that our money situation was in our control.

We had to stop blaming the economy, the political climate, our circumstances and our family history. We had to take ownership of the fact that we had created our financial mess – and that we could fix it as well.

While it was tough to face the fact that we had made our own money mess by making nearly twenty years of money mistakes, it was also freeing.

It was freeing because knowing that we created our mess meant we had the power to create a vastly different financial future. 

If you can work through these two steps:

  • determining the psychological reasons you spend money
  • accepting the fact that you can change your money situation

You now have THE two most powerful tools needed to begin breaking the paycheck-to-paycheck cycle. The rest is all gravy.

Here is what you need to do after you’ve begun the process of working through the first two steps.

1. Start Tracking Your Spending

In my humble opinion, this step should come even before you make your budget. One of the reasons most people live paycheck to paycheck is that they spend so mindlessly. Five bucks here, twenty bucks there.

When we got into tens of thousands of dollars in consumer debt, we did it largely with small, everyday purchases. There were no fancy vacations, name brand wardrobes or fancy cars. It was just years and years of mindless spending.

Once you start tracking your spending you’ll be able to have a crystal clear picture of where your money goes each month.

We use a simple Excel spreadsheet with specified categories to track our spending. You can use an online budgeting or spend tracking system, or create one yourself.

Just make it detailed enough so that when you go back and look at it six months from now you’ll be able to know what you were spending on.

Now, it’s important to have a “no guilt” perspective as you begin tracking your spending. The purpose of spend tracking is only to learn where your money is going. You can fix the mistakes later.

After tracking your spending for a full 30 days, you will have a pretty good idea of where money waste is. For us it was restaurant spending and random big box store trips.

We also didn’t have a plan for our grocery spending so we were spending more than we needed to in that area.

2. Create Your Budget

After you have a good idea of how you’re spending you can go ahead and make your budget. Start by listing your income on one side, and your expenses on the other.

List your “must” expenses first: housing costs, transportation costs, insurance, groceries, savings (yes, you should be treating your savings as a bill) etc

List your “want” expenses next: cable TV, salon expenses, gym memberships, etc.

After you’ve created your budget you need to ask yourself two questions:

  1. Do I have more money coming in than I do going out?
  2. If I have more money coming in, is it enough extra or do I want/need more?

You see, the goal is to have a surplus amount of cash at the end of each month with which to finance your goals and dreams, and with which to pay cash for upcoming bigger purchases.

If you don’t have a large enough monthly surplus, you need to do one of two things – or preferably both of these things:

  • Decrease your expenses
  • Increase your income

3. Decrease Your Expenses

I know – most people who are stuck in the paycheck-to-paycheck cycle balk at this step, but it’s very, very important, and I promise that once you start getting used to having more money you’ll be glad to be living without your usual expenditures.

Some of the expenses we cut that were tough at first to give up included:

  • Restaurant expenses
  • Salon trips (I DIY most beauty stuff now)
  • Gym membership
  • Cable TV

Now that we are largely living without these things, we couldn’t be happier. We go out to eat a few times a year now, which makes it much more enjoyable because it’s a special treat instead of a normal expense. Bonus: we’re healthier.

I’ve only been to a beauty salon once in the past four-and-a-half years. I do my own manis/pedis, trim and pluck my own eyebrows, dye my hair with a box store dye and cut my own hair.

Honestly, I’m looking forward to having our debt completely gone, which is when I’ll feel comfortable going to a salon again, but until them I”m totally hooked on this “having enough money to not worry anymore” stuff. It’s AWESOME!

Truth: you may have to find less expensive housing if your house payment or rent is too high for your income. Facing facts like these are tough, but you’ll be glad you did when you have no more debt and your savings account is rocking the five digit sector.

4. Increase Your Income

If you’re finding that decreasing your expenses isn’t going to get you enough extra cash, you need to make more money. 

That might mean getting a better full time job than the one you have now, or picking up a second job or getting a side hustle.

Recommended Reading: 50 Great Side Hustle Ideas

If you manage your money right, you can make the extra income thing a temporary thing, but be warned that you might be hooked on having money and want to keep it up. 🙂

5. Stay Focused with S.M.A.R.T. Goals

One of the problems that might come up as you work through these steps and start having more money is that you might be tempted to fall into a “keep up with the Joneses” lifestyle and undo all of your hard work.

One way to avoid that is to stay on track by creating some doable goals. A smart goal is

  • Specific
  • Measurable
  • Achievable
  • Results Focused
  • Time Bound

For instance, one smart goal might be “I want to pay off my consumer debt within twelve months.” That’s a great goal, but it has to be backed up with achievable action steps.

As in: “I will pay off my $12,000 in consumer debt in the next twelve months by increasing my income by $500 a month with a part time job and decreasing my expenses by $500 a month by eliminating eating out, cancelling my gym membership and not buying any new clothes.”

If you have specific action steps in place to achieve each goal, and have your plan written down, you have a much higher chance of achieving those goals.

Make your goals important to you, and put a goal-achieving system in place that will help you stay motivated. Reward yourself with little wins (such as a reasonably priced dinner out for every $1,000 in consumer debt you pay off) and work to imagine regularly what life will be like when you’re debt free.

Don’t listen to the naysayers who tell you it’s a stupid goal or that you can’t do it.

If you are surrounded by naysayers you can’t get away from, don’t tell them about your goals. Just quietly work at achieving them and creating a wonderfully sound financial picture for yourself.

Recommended Reading: 10 Things Millionaires Know About Money that You Don’t

My friend, you’ve been living a subpar financial life for far too long. You. Deserve. Better.

Break the cycle today and start living a life of financial security. You can do this!

 

 

 

 

12 comments

  1. Yeeeees!! We used to live paycheck to paycheck as well and it was so stressful. We had no money to save at the end of the month and lived hand to mouth. This is an EXCELLENT roadmap to stop having to rely on your paycheck for survival.

    • Laurie says:

      Thanks, Mrs. Picky Pincher!! Yes, it is so stressful living that way – I think many people don’t realize that until they’ve broken the cycle!

  2. Great Tips! I continue to be amazed how many people are afraid of taking these basic steps. As if understanding their spending somehow makes it worse? I guess the reality of it has some sort of emotional or mental “pain”? The truth is that taking these steps will EASE the pain and provide financial relief!

  3. Mrs. Groovy says:

    Right on! I totally agree with you, especially on tracking expenses.

    Believing you can control your financial situation and that you’re not the victim of a crappy job, bad real estate climate, your relationship with family members, etc. is so important. But even before that, you have to ask yourself an important question and be brutally honest with the answer: “Do I want a better life and am I willing to work at it? ” For some, the answers are no and no.

    • Laurie says:

      “Do I want a better life and am I willing to work at it?” AWESOME question, Mrs. Groovy!! You’re right – some people don’t. It makes no sense to those of us who have broken through the barriers and turned things around, but it’s true!

  4. So much wisdom here, Laurie. It was exactly the same for us. Accepting that we had created our mess was very liberating – and yet it had been so easy for years to blame, blame, blame. And getting clarity of the psychology of our spending was crucial. It made us very aware that this debt-reduction thing was going to be about us – not so much our money. And while budgeting is worthwhile, tracking is way more so. The in-your-face nature of it takes away the denial and head-burying options that I always used to resort to. Great advice all-round : )

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