11 Steps to Break Free from Paycheck-to-Paycheck 

For many Americans and Canadians alike, payday is a relief. 

A staggering 7 out of 10 Americans are living paycheck to paycheck. (Half of them weren’t until the pandemic hit.) That’s right, a whopping 70%! If you’re nodding your head thinking, “Yep, that’s me,” and you want your “out” then I’m glad you’re here.

Because if you’re here reading this, you’re also part of the proactive group that refuses to remain stuck.

A good 30% of Americans have admitted they have no plans to (ever) be rid of their debt. You are not one of them. 

You have bigger dreams than this.

Why So Many Are Stuck in This Cycle

Living “paycheck to paycheck” describes those who would struggle to meet their financial obligations if they suddenly lost their job.

This means that their entire salary goes towards essential living expenses, leaving little to no savings. This also means, that if something happens, they are more likely to end up further in debt or in the poor house if they cannot make ends meet. 

That’s a frustrating anxiety to live with. 

I know because I remember feeling how draining that wheel is. When progress was so small it felt like I was going nowhere. It doesn’t have to be this way forever. There’s always a way out.

Interestingly, this isn’t just a problem for low-wage earners. 

Even those earning between $50,000 and $100,000 annually find themselves in this situation. Heck, over half of American households making twice the median income (which is $67,000, by the way) are still living paycheck to paycheck. Why? This means even as people’s income increases, so do their expenses. I think Robert Kiyosaki said that it was a habit of the middle class.

It’s never about how much you make, it’s knowing how to keep it and make it grow. And you can.

Breaking Free from Paycheck to Paycheck – The only guide you’ll need

1. Believe it’s possible

And believe that it will happen to you. That you have the power to create the life you desire and achieve what you set your mind to. 

Despite the time and effort that it will require, the biggest resistance anyone has is the heavy weight of doubt. 

I understand everyone’s circumstances are different from others, and there’s certainly no one-size-fits-all-all. 

But the point I’m trying to make is to never accept the circumstances that you are dealt with. Don’t wait for that next pay raise, that lottery win, that inheritance, since they all might not come at all. 

Once you hold onto a new belief that it’s just a matter of time and a bit of effort, you’re halfway there. The rest is just figuring out “how’. And that’s where I’ve got you. 

“Without imagination there is no hope, no chance to envision a better future, no place to go, no goal to reach.”

Bessel A. van der Kolk

2. Do the Math and COMMIT 

Breaking free from the paycheck-to-paycheck cycle requires a clear plan. That means sitting down with a pen and paper and understanding your spending by finding out where your money is going. 

Every penny of it. 

You can think of it as financial detective work – because it is. From your midday snack to your monthly rent or mortgage. Track your daily, weekly, and monthly expenses. Categorize your income, expenses, and your non-negotiables. Utilize a budget for a clear overview – you can use mine! I wrote about a simple budget that everyone could use. 

First, calculate your take-home pay (the amount after taxes). 

Second, calculate and track your fixed monthly expenses. These are the life non-negotiables that go out every month. Sometimes it may fluctuate, but every month it goes out. Things like mortgage/rent, utilities, student loans, groceries, insurance, club activities for yourself and/or your kids. 

What remains is your discretionary income. This is the money you use as you wish, for the cinemas, going out to eat, vacations, jewellery, etc. This is also the amount you use to get ahead and out of the paycheck cycle. 

(Naturally, if your set monthly expenses (the non-negotiables) surpass your monthly earnings, adjustments to your basic living standards are necessary.)

Now that we know the numbers – we have clarity! 

Make a commitment to yourself to see that necessary change you want in your life. Even if it means making tough choices or sacrifices along the way.

If you have debt, be ready to do what you need to bring that down to zero. If you think you’re spending way too much eating out, commit to meal prepping and turning down invites. 

Remember, getting out of the paycheck cycle, rat race, or reaching any financial goal is a marathon and not a sprint. 

3. Embrace Minimalism…For Now

You now know the numbers to work with.

The next step is to cut out the fat and discern what is an affordable pleasure, and what is just excess. It’s not easy to admit that we’re probably spending a bit too much that’s keeping us in this cycle. We don’t want to admit that it feels like we are “regressing”. (But I agree with buying the occasional flowers or candles too.)

I was like this too – until I tried it. 

Did you know the average American spends $18,000k in nonessentials? That’s around $1,500 every month. As it turns out a lot of possessions and outings create a different sense of clutter and anxiety in the mind. I was so stressed I was chasing a dopamine kick by buying trinkets at a local novelty store. Sometimes you need those little trinkets to keep that hope alive and to keep you sane – I get it.  

After I made the intention to buy and go out less, bit by bit, I found that my life has improved in several ways. (I also spent less time cleaning and organizing!)

I didn’t stop going out with friends, I simply spent less time with people who pressured me to spend. When I wanted an impulse purchase, I waited a little longer to see if the desire was still there. 

When I spent less time and money, I found that I had more to give elsewhere. 

Purge your old life to make way for your desired life. There are benefits of owning and spending less. 

4. Utilize every hack available.

The rich have surprisingly frugal habits like cutting coupons too. Because who would want to pay full price if they can help it?

This isn’t always going to be a long-term strategy. But for the short term, it will provide enough margin and breathing room to build a buffer. And the more money you get to keep and leverage in your pocket, the closer you are to getting out of the cycle. 

When I was in-between jobs, or waiting for my next shift to start, I used a free app called Swagbucks that helped me earn free Paypal cash. 

I signed up for Swagbucks for free! Just by answering surveys, surfing the web, and watching videos, you can earn your way to lattes. They also have other gift card options from Starbucks, Walmart, Amazon, and Esso to redeem. Sometimes even Paypal Cash cards. I redeem my Starbucks card at $50 which lasts me 2 weeks on my morning coffee run. =)

If you sign up for Swagbucks now, you can get started with a FREE WELCOME BONUS.

Other things you can consider are to utilize saving hacks:

• Aside from gift cards, utilize credit cards that have cash-back or point benefits. Use sparingly, of course.
• Lots of stores you shop at have member rewards programs – sometimes loyalty does indeed pay.
• Instead of buying new clothes, consider thrift.
• Sell your old things on the marketplace. 

Remember, your grocery stores have discounted items and coupons. What really set me ahead was a proper meal plan.

In Canada, 60% of all food waste is avoidable. Basically, it means Canadian households buy a lot of food they don’t eat or forget about the expiry date. And if you’re the type that spends out for lunch, I have a recommendation that will cut your time and money with food and groceries.

Check out this cool $5 meal plan service. Imagine only buying enough and averaging $2-$5 per meal without doing all the research as well. For just $5 a month, they send over tasty meal plans that work out to less than $2 per meal. They offer a 14-day risk-free trial if you find it’s not suitable, no strings attached.

5. Save, Save, and Save some more

69% of Americans have less than $1000 in savings. After Covid, there is a growing percentage of people who have little or no savings. By the end of 2023, some financial institutions reported Americans will run out of savings and withdraw from their retirement accounts just to survive. 

With the savings you made, automate it. 

Most bank accounts have automatic transfers. When your paycheck arrives in your bank account, automate a set portion of that to your savings account. Don’t even touch it; make it easy and hands-off.

Set up a system to make it easy to save. 

Even better if you put your savings into a different bank altogether. Taking money out of a different bank that’s far away from your checking account will keep you away from temptation. Start with saving a small amount that’s realistic and liveable. (Financial experts recommend 2% of your pay check regardless of income.)

Let it grow and check on it occasionally. Start with a simple goal of saving one month’s worth of pay. Then 3-months worth. And finally 6 months worth. This will be your buffer out of the pay check cycle. 

6. Reduce your Debt. 

So long as you have a loan to cover every month, you’ll always have something weighing you down. If you’re reading this article, you’re already separate from those who chose to live with debt for the rest of their lives. 

And if you’re stuck on where to start, there are several ways to pay off debt here. 

Start by understanding the depth of your debt. List out all you owe and note the amount, interest rate, and minimum monthly payment for each. Don’t be intimidated, remember awareness is the first step. 

Then decide on your approach. I wrote two popular methods here. The snowball method tackles the smallest debt first and gives a great confidence boost. The avalanche method prioritizes the debt with the highest interest to minimize cost. Best to consider which method is most aligned with your goals and values. 

The key is persistence, no matter what amount you put down or how you decide to tackle your debt. Consistent effort moves you closer to breaking the paycheck-to-paycheck cycle. 

7. Embrace 1 no-spend month

Challenge yourself to delay instant gratification for 1-month. (Not including your non-negotiables, of course.) This means nothing of excess, indulgence, or things like new clothes – anything – outside of your living expenses. 

Why bother, you ask?

We are resetting your consumer and dopamine habits.

Breaking the paycheck cycle is a short-term goal. It takes a different set of skills to stay out of the paycheck cycle. 

When paycheck increases, oftentimes people increase their expenses as well. So it’s not a matter of how much you make or spend – but how much you keep. And that’s a life-long lifestyle change. If you can do something for the rest of your life, you can definitely start with one month. (If the average American spends roughly $1500 in nonessential expenses, you can definitely save that much.)

8. Increase your Income

It’s one thing to live beneath your means, but of course we don’t want to stay there forever. Once we get our house in order, it’s a matter of finding ways to increase our income to live the life we want.

While is days past, increasing your income means taking a second job. But why not gravitate towards a more online entrepreneurial venture?

For starters, unlike a second/part-time job, online side hustles offer unparalleled flexibility and autonomy. You’re not tied to specific hours or locations, and your boss can’t tell you there’s not enough money to pay you. 

Those are some of the best reasons why I started this blog – and how you can too! It was one of the better decisions – low startup costs, no inventory management, and the dream to scale into a real digital asset business. I can spend more time doing what I love and stop trading my hours for a fixed rate. You can check out how you can start with your own blog right here. =)

If you’ve been following, you’ll know I write a number of ways to make money online and help you reach new levels of financial security. Stick around! 

Even if you’re a teenager getting a head start for a more independent life. Or just a busy mom who can spare some time earning gift cards and free Starbucks. The path of side hustle and building a second income will teach you more than a second job. 

Take online surveys for free money and gift cards. No experience or degree is required and you can start right away with a free account.

One of my favourite paid opinion sites is SurveyJunkie.It’s one of the easiest and fastest ways to make a little extra cash online without experience. Companies like SurveyJunkie are willing to pay you for your opinion so it helps companies build better products and services. With over 10 million members, 8.7/10 on TrustPilot, and paying out $10,000 per day – SurveyJunkie is a good place to start. Click here for a free account to get started.

While taking surveys won’t transform you into a billionaire like Bill Gates, it can certainly ease your daily expenses.

9. Big changes are friends, not foes.

Many Americans believe that the cost of living is keeping them down. The cost of living varies in different parts of the country, and it varies from other countries. 

The cost of living is a legitimate obstacle when you’re trying to go up in the world, and the level of wages is often considered stagnant. If it’s getting harder to save, it might benefit to consider moving elsewhere. 

I know it’s not entirely possible for most – you have a lot of ties to your family, friends, and community. Your current job might not even allow remote work. 

But that doesn’t mean It’s not worth considering. Especially since switching jobs nowadays means higher pay. And the value of a dollar stretches further in other countries. 

Don’t shy away from considering all possible changes that will benefit you in the long run. Sometimes the greater change we want might require the most drastic action.

10. Prioritize Financial Literacy and tracking 

Keep learning skills that you can trade for a higher wage. Keep learning money management since financial literacy empowers you to make better choices. Because it turns out a lot of Americans don’t even have the basics of money management!

I recommend starting out with the book Rich Dad Poor Dad by Robert Kiyosaki.

So here’s a short TLDR (Too Long; Didn’t Read) statistics on what we’ve learnt in this article:

• The majority of Americans are living paycheck to paycheck and
• a lot of them were not living like this prior to COVID
• they do not have $1000 in savings and will rely on loans in case of an emergency
• Americans will withdraw from their retirement accounts to pay for a living by the end of 2023
• Some Americans admitted they do not have money management skills or a plan to get out of debt
• American credit card debt is at a record high, and spend around $1500 per month on nonessential items
• Americans believe the cost of living is also keeping them down (wages are not keeping up with inflation)

You will not be part of the above statistics. It will not be an overnight excess, and everyone had and will have their share of tough times. But while the journey might be hard in front of you, look at the statistic that awaits you if you do nothing.

Be Patient but consistent on your financial journey.

Daily efforts add up and each day you’re building a path to more money and freedom – and soon out of the rat race! Learn from each step, and know that with time and effort, you’re on your way to something great.

Along your journey, keep track of your progress. I know it’s going to get messy (and maybe a few setbacks) because that was me too – but do not give up and keep that vision of why you’re doing this closeby.

BONUS sTEP: Network and Make new friends

Building connections and making new friends is the secret weapon in breaking free from the paycheck-to-paycheck cycle.

You remember the old saying “birds of a feather”?

Your socio-economic status actually is a huge factor in determining your success. If you hang with drug addicts, you’ll be the next one. If you hang with business owners, guess what you’ll be?

Hang around with people that are good for you, and people that have they same interests. They might introduce you to better opportunities, share money tips, or simply inspire you with their own stories. Most of what I learned was when I started to reach out to people who knew more than me.

It was actually because of my friends and network that I was able to switch to a higher-paying job!

Because we have worked together before – they know I have a good work ethic and can work with other people. Instant vouch! Especially since switching jobs nowadays means higher pay, it was a no-brainer!

Plus, having friends who understand and support your goals can keep you motivated. Especially when your friends don’t want to spend like you do, and everyone spends creative ways to hang out.