How to Escape the Paycheck to Paycheck Trap -
Living in Financial Freedom

man at desk finances paycheck

Living paycheck to paycheck seems to be normal for most people, but it doesn’t have to be. 

It can be depressing to look at your bank account and realize you are in the same position as your were last paycheck, or last month, or even last year. 

Do you scramble to make ends meet or run out of money before the end of the month? Do you anxiously await your next paycheck so you can afford to pay your upcoming bills (or ones you’re already late on)? Are you afraid an unforeseen emergency could ruin you? Does it seem impossible to get ahead financially? 

You’re not alone.

A study performed by CareerBuilder states that 78% of U.S. workers live paycheck to paycheck to make ends meet. Nearly 3 in 4 workers say they are in debt today, and more than half think they will always be in debt. This is not exclusive to low income earners, either. The same study shows that 59% of workers making $100,000 or more are also in debt.

The question then is, what causes it? For the most part, paycheck to paycheck living can be attributed to two reasons:

  1. You’re not making enough money; or
  2. You’re making enough money, but not managing your money well
As seen in the study above, the majority of workers fall into the category of poor money management. 

Breaking free from the cycle, and escaping paycheck to paycheck living is easier said than done. It requires motivation, a plan, hard work and time. 

But it is something we can all achieve if we put our mind to it. 

Let’s dive deeper and learn steps you can take towards living your life free from financial debt and stress.

Make a Budget and Stick to It

The importance of knowing your budget cannot be stressed enough. 

Effective budgeting is the key to getting out of the paycheck to paycheck cycle. Your money comes in and goes out, and you need to know where it’s going. 

A proper budget sheet will include all your net monthly income, all your recurring monthly essential expenses, your non-essential or “luxury” expenses, and non-recurring expenses (such as car registrations, oil changes, or property taxes). 

Seeing your budget on paper before you start spending it allows you to have complete control over your money and finances. 

Anyone can write the numbers down, but in order for budgeting to work, you need to analyze your spending. 

Identify bad or unnecessary habits. Track your spending, and stop spending when you run out of money. 

For information on setting up a successful budget for you, see our article Budgeting 101: First Steps to Building a Budget that Works for You.

Prioritize Paying Down Your Debt

Debt is the number one reason people are living paycheck to paycheck. 

Being in debt just means that you are wasting money every month that could have been put towards your savings. Your debt eats up your paycheck and stops you from doing the things you really want to do. 

Getting rid of those credit card bills, personal loans, car payments and other obligations can change your life! 

You will have so many more options on where your money goes, lower stress from not worrying about your debts, and peace of mind because they’re not ruling your life. 

Here is a simple fact: You can’t pay down your debt if you continue to use it. 

You need to stop using your credit cards until you are completely out of debt.

Do not take out any additional loans, as this will only add on to what you have to pay off later, continuing the cycle. 

If you’ve created your budget, you’ll know exactly how much money you can afford to put towards your debt. Make it your first goal to eliminate debt for good, freeing up your path to financial prosperity.

Read our article titled Guide to Get Out of Credit Card Debt Fast, which can be applied towards any debt, for surefire strategies to debt free living.

Live Within Your Means

This one might hurt a little. 

We live in a society that teaches us that debt is a part of life, and being told we should buy things that we cannot afford. We often judge each other based on our possessions: what type of house you live in, what car you drive, what name brand clothing you wear, or how flashy your jewelry is. 

The truth is, you will live a much happier and quality life by living within your means and saving up your money now to improve your future outlook. Besides, people who are most confident and secure in themselves don’t need to flaunt it.

The two largest expenses in life are almost always housing and transportation. 

It can be a daunting task, but if your discretionary spending is already low, it may be time to change your living situation. 

Downsizing to a cheaper house or apartment is not a failure, but an opportunity to achieve your financial goals. If you live in an area with a high cost of living, then it may make sense to relocate just outside of the city where a comparable house or apartment can be bought for much less. If your job allows you to work remotely or from home, finding an affordable neighborhood could do wonders for your finances.

The same principle can be applied towards your car. 

Yes, if you own a car, it needs to be reliable. But does it need to be a gas guzzler? Does it need to be a newer model or this years model? Do you really need to spend thousands extra on the “premium” options? 

I used to dream about the day I no longer had a car payment, what that would feel like, and how much extra money I would have each month. 

Trading in that expensive car for something else, or at least one with better gas mileage can give you that freeing feeling now

You may not even need to own a car. It could make better financial sense to go without, if you live in a city where most things are in walking or biking distance, or take advantage of readily available public transportation.

Cut Back on Costs and Expenses

Evaluate your spending habits. If you are really serious about having extra funds in your budget for saving money, then it has to come from somewhere. 

Making small changes in your spending habits each day or month can lead to significant savings in the long term. 

You don’t need to cut out everything and be miserable, but you do need to consider which things you regularly spend money on are worth taking up that extra budget space.

Look at each category in your budget (food, shopping, entertainment, gas, utilities, phone) and challenge yourself to spend less than you did the previous month. You may even want to set a savings goal like spending $10 less each week on groceries. 

Try reducing your spending in each category and the savings will add up fast.

  • Cut your cable tv service and limit yourself to just one streaming service like Netflix, Hulu or Amazon Prime Video. (I saved about $100 a month)
  • Opt for a cheaper phone plan (I saved $40 a month by switching to Google Fi)
  • Look for cheaper car insurance or bundle your insurance plans with the same company (I saved $500 a year doing this)
  • Use coupons and buy generic brands for food instead of name brands
  • Do your grocery shopping once a week (this also saves gas money by not traveling as often)
  • Dine out less often. If you want to eat out, go during lunch hours so you don’t pay the dinner price (often $5 – 10 cheaper)
  • Make your home energy efficient to reduce your utility bill
  • Have an alternative heat source for winter (I saved $100 a month switching from oil to natural gas)
  • Cancel any subscriptions or memberships you don’t need or rarely use (magazines, gym, etc)
  • Drive your car less often, or carpool to work. (I had the option to flex my work schedule and work from home, saving travel costs)

Are any of these eating up the money in your budget? 

You’ll probably be able to identify more ways you can cut back on your costs when reviewing your monthly expenses. 

For more tips on saving money, see our article 10 Easy Ways to Save Money Today.

Find Ways to Make More Income on the Side

We all want to make more money at our regular job, but realistically, the chances of that happening immediately are pretty slim. There’s no guarantee of a raise, and if we do get one, it usually only happens once a year. 

Feeling like we are always stuck at work, working non-stop with no free time is not a fun way of living. 

What are your skills, talents, hobbies or passions? Use them to improve your financial situation. You can do this as easily as word of mouth, tell your family and friends what services you can offer, or post on Facebook for all to see.

  • Do you sing or play an instrument? Offer availability to teach students wanting to learn, either in an individual or class setting
  • Do you have mechanical or woodwork skills, or good at fixing things? Offer your services at comparable rates, or discounted to friends
  • Host a yoga class, or another type of class if you are passionate about health and fitness
  • If you love pets, consider dog walking or house-sitting
  • If you love children, you can babysit for extra cash
  • Do you create home made items (candles, lotions, knick-knacks, crochet)? Display and sell them on Etsy or similar sites.
  • Are you good at writing, making videos, computer coding? Freelance your services on sites like Fiverr.

Think about what you enjoy and use it to create additional ways of bringing in income.

Think about your current living situation. 

Is there unused space or do you have a spare bedroom in your house? While you may give up a little in privacy, having a roommate can be a great way to earn passive income. Charge a monthly rental fee, or split the cost of utilities and you could have hundreds of extra dollars each month without taking up any more of your time.

You can even make your downtime profitable by signing up with InboxDollars. Be rewarded and earn cash for your everyday online activities like watching videos, reading emails, taking short surveys, playing games, online shopping or using coupons. They even provide step-by-step guides, showing you how you can make an extra $60 a month with their app. Make money while you are just watching tv or a movie, standing in line, waiting on a friend, or whenever you have free time. You also get an instant $5 in your account when you join. Sign up to InboxDollars and start earning today!

Sell Things You No Longer Need, Want or Use

We accumulate things over time. You probably have items in your closet, basement or attic that you don’t even remember. 

It’s time to go through your house and discover things collecting dust, or things you just don’t use, and turn them into money

While selling your possessions may not generate a continued flow of income, it can jump start you quickly towards paying off a chunk of debt or adding to your savings account. 

  • Have a yard sale or garage sale. Announce it on Facebook or other social media, and put up a few signs around your neighborhood to drive traffic to your sale. Group your items in a logical sense by category so it’s easier to shop and your customers can find what they’re looking for. You might even offer a box of freebies, or free water or lemonade, keeping your customers longer and increasing your chance of making sales.
  • Sell your items online. Electronics, games, music and clothing can be quick sellers on Ebay. If you have larger items that would be difficult to ship, consider advertising on Facebook Marketplace, or other local swap and sell guides.
If you don’t like to go through the process of sales, another option for you would be donating. Clothing you don’t wear, furniture or appliances can be donated to non-profit organizations such as Goodwill. While you won’t make any money from donating, you are able to claim it as a deduction on your taxes, lowering your tax bill and get you a larger tax refund!
 

Ask for Help

We all struggle at times, and situations happen, often unexpectedly, where we might find ourselves unable to cover all our bills. 

You want to avoid being late on your bills, accruing more fees, and making it less likely you’ll be able to pay them off. 

There’s nothing wrong with putting aside your pride and asking a family member or friend if they can help you out financially this month. If they have the means, they are most likely happy or willing to help, provided this isn’t a regular occurrence. After all, you would do the same for them, wouldn’t you? 

You won’t know unless you ask, and it could be just the thing to get you out of a financial bind and on the path to prosperity. 

This may come as a surprise to you, but many times your creditors are also willing to work with you. 

They would much rather have you pay your bills, or know the payment is coming, than send your account to a collections agency. If you don’t think you can pay your bill on time, give them a call

Explain your circumstances to them, and let them know when you will have the money to pay your bill. Often they will waive the late fee, saving you money, or at least push back the due date on the bill. You just need to let them know ahead of time, before your account gets flagged and it becomes a problem.

Depending on your financial situation, you may also be eligible for additional social or government assistance programs

See what’s available, ask your local state or government authority, and check if you qualify for unemployment, food stamps or EBT cards, housing assistance, cell phone plans, etc. 

There may even be free or low cost courses, classes or programs to increase your skills and set you up for more and better career opportunities in the future.

Pay Yourself First

You finally reached the pinnacle and climbed your way free of the mountain of debt that was weighing you down. Yet somehow your bank account doesn’t look any better. Has this happened to you?

Most people pay their bills, then spend on things they want, then try to save whatever is left. Unfortunately, by the time you finish paying bills and spending, there usually isn’t much left over to save.

Rearrange the order in which you use your money, and make saving a higher priority than spending when you receive your paycheck.

Determine an amount you want to save, and have that automatically deposited into your savings account when you get paid.

You can do this with the same bank, or open a savings account at a different bank that you know you won’t touch. Your human resources department might even split your check for you, depositing your stated amount into savings so you don’t even have to think about it.

Enroll in other benefits from your employer, such as an employee stock purchase program.

If your company is publicly traded on the stock market, many offer a discounted price to their employees. Tell them the amount you want to invest each paycheck, and they will do the rest for you.

If they offer a 10% discounted price, then you’ve automatically gained that 10% on your investment without doing anything. It gets even better if they offer quarterly dividends on stock owned.

Set a time frame or goal amount to invest, let it sit there, then cash it out and enjoy the savings.

You also need to think long term. Yes, we need to be able to pay our bills now, but even more so for the future.

Invest in a 401k or IRA plan. Many companies offer a contribution match, generally up to 5%. That is free money.

Let’s say you make $50,000 a year and invest 5% into your 401k. That is $2,500 a year. Your employer then matches your contribution, adding $2,500 a year. Your savings have now doubled to $5,000 a year, plus compound interest.

There’s no easier way to save for your future.


Conclusion

Escaping the paycheck to paycheck trap and cycle is easier said than done. 

Achieving your financial goals and reaching financial freedom and security is done one step at a time. It doesn’t happen overnight. 

It may feel overwhelming at first, but it’s not impossible. 

While everyone’s situation and experience is different, we’ve listed ways people have used successfully to help them get out of the paycheck cycle. 

Assess your situation, make a plan and goal, stick with it, take the right steps, and you too can improve your situation, living beyond the paycheck to paycheck cycle.

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