I’m a Financial Advisor: How You Can Stop Living Paycheck-to-Paycheck

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According to a 2023 Payroll.org survey published by Forbes, roughly 78% of Americans’ budget is paycheck to paycheck. When Forbes Advisor dug into its own research, it found that “nearly 70% of respondents either identified as living paycheck to paycheck (40%) or–even more concerning–reported that their income doesn’t even cover their standard expenses (29%).”

While these numbers are concerning, they don’t fully articulate the fear of living inside that reality. Wondering if one accident or illness might lead you into financial catastrophe, or if you’ll never get out of the cycle of playing Tetris with your bank account to make sure you can afford everyday expenses.

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Getting out of the cycle of living paycheck to paycheck is crucial to your long-term financial quality of life. But starting the process may seem insurmountable for people who have been in it for most of their working lives. Fortunately, GOBankingRates has insights from financial experts who can help you break the cycle.

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Understand Where Your Money’s Going 

When you feel the pressure of keeping the lights on and the bills paid, you might not even know where all your money goes every month. You just know it’s going out of your account.

However, sitting down with your bills to determine how much you’re spending, and on which services, every month, can give you the knowledge you need to save more effectively.

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“You can’t manage what you can’t measure, so the first thing you need to do is figure out exactly where your money is going,” said Taylor Kovar, CFP, the founder and CEO of 11 Financial and CEO of The Money Couple. “Once you have an idea of what money you have coming in each month and where it is going out to, then you can start chipping away at various expenses.”

Kovar shared that even small actions, like calling your phone provider to see if they have available discounts, cutting out unnecessary subscriptions and investigating cheaper gas and electric providers make a big impact. He said people need to find any way possible to create a margin in their budget.

By adding an extra $5, $10, or $100 a week to your budget, you can eventually save enough to keep the equivalent of a full paycheck in savings.

Create a Budget 

It’s easy to be overwhelmed by the pressures of keeping afloat when you feel like your financial life raft has sprung a leak. But to reach calmer waters in your money matters, take the time – and a deep breath – and create a budget.

According to Tyler Meyer, CFP and founder of RetireToAbundance.com, the budget doesn’t have to be mind-bendingly complex. You can start by tracking expenses and determining a realistic approach to spending.

“Differentiate between needs and wants, and allocate funds accordingly,” he said. “This helps prioritize essential expenses while identifying areas where spending can be reduced or eliminated.”

Reduce Your Debt

When you’re trying to keep a roof over your head, the thought of paying down debt might seem, well, laughable. But Meyer said that reducing debt is a key part of enjoying financial freedom – and you don’t have to tackle everything all at once.

“Develop a strategy to tackle existing debt systematically. Start by paying off high-interest debt first while making minimum payments on other accounts,” he said. “Consider consolidating debt or negotiating with creditors for lower interest rates or repayment plans.”

Create an Emergency Fund

One of the most important things you can do to evolve beyond living paycheck to paycheck is to build up your emergency fund.

“Aim to save at least three to six months’ worth of living expenses in a readily accessible account,” said Meyer. “This fund provides a financial safety net for unexpected expenses or emergencies, reducing reliance on credit cards or loans.”

Live Below Your Means

Frugality is the name of the game when it comes to living beyond one’s paycheck.

“Adopting a frugal lifestyle and living below your means is key to breaking the paycheck-to-paycheck cycle,” said Meyer. “Cut unnecessary expenses, seek out affordable alternatives, and resist the temptation to overspend. Redirect savings toward debt repayment, emergency savings, and long-term financial goals.”

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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: How You Can Stop Living Paycheck-to-Paycheck