How to Stop Living Paycheck to Paycheck

A worried man using a laptop to pay bills online

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Some 63% of U.S. adults say they're living paycheck to paycheck since COVID-19, according to a survey by information technology company Highland Solutions. That's a full 10% more than the 53% of Americans who reported lacking an emergency fund in a survey fielded by an Omaha bank before the pandemic. Lacking an emergency fund, it takes just one missed payment or unexpected expense to collapse your finances. Struggling to stay afloat, you might turn to credit cards or even more predatory forms of lending such as payday loans or cash advances to make ends meet.

Because your future financial success hinges on your current habits, correcting a paycheck to paycheck habit is crucial. Starting at the root of your problem—whether it's poor money management, lack of income, or high expenses—can put you on the path to creating more flexibility in your monthly spending.

How Much Should You Keep in an Emergency Fund?

For a single earner household or a dual earner household with a significant gap in pay between the two earners, 6 months of expenses should be saved. A two-earner household with a significant gap in earning will be impacted similarly to a single earner household if the higher earner loses employment or has a disruption in their business. For a single income earner the aim should be to have at least 3 months of expenses saved.

Emergency funds should be located in an account segregated from the normal household operating savings and checking accounts.

Here are the steps you should take to getting there.

Start By Creating a Budget

A budget doesn't mean you have to penny pinch. Instead, it helps you implement a plan for making the most of your income. Creating a budget lets you know ahead of time whether you'll have enough money to cover your expenses for the upcoming month. If your income is high enough to pay all your bills and have some money leftover, yet you're still living paycheck to paycheck, it's a sign that your spending is the culprint.

Track Your Spending

Creating a budget is only the first step. Following your plan is essential for staying on track. To uncover leaks in your budget, track your spending to figure out where your money is going.

Save your receipts for a few weeks. Separate them into categories like gas and food, then add up receipts for each category. This will let you see where you’re spending the most money.

If you have online checking and primarily use checks and your debit card, you may be able to download your transactions into Excel or personal finance app like for a faster way to analyze your spending.

Cut Unnecessary Expenses.

Once you discover where the leaks are in your monthly budget, you can start plugging the cracks. This process might require some lifestyle changes depending on the areas where you spend the most. For example, if you typically purchase a $5 speciality coffee drink every morning before work ($100 a month), you can start making coffee at home ($20-$25 a month), or going without coffee completely. You might have to get rid of the expensive cable package and switch to streaming services. Or, if you're already subscribed to multiple streaming services, reducing them to just one or two can eliminate extra spending.

Increase Your Income

Increasing your income at your current job isn’t always a possibility, but there are options to bring in more money without getting a raise. If you typically get a tax refund, you may be able to change your tax withholding and get more money in your paycheck each month.

Adjusting your tax withholding could affect your tax refund for the upcoming year. That's if you get one at all. The tradeoff is having more money to use during the year.

You might also consider working part-time, picking up a side hustle, or making money on the side with a hobby. Keep in mind that money management plays a role in how much your paycheck covers. Making more money won't eliminate a paycheck to paycheck problem if you simultaneously increase your spending.

Change Your Attitude About Money

Money mindset dictates many of our everyday spending decisions. For instance, overestimating how far your paycheck and go can lead to increased spending. Or, if you have a laid back attitude about money, you may not pay close attention to how you're spending, fees you're paying, or price increases on subscriptions. Setting a budget and being more intentional about your spending can help you get back on track.