Inside: Breaking out of the paycheck to paycheck cycle isn’t easy. But neither is staying there. Here are the exact steps I used to break the cycle!
“The best way to get ahead in life is by spending more than you earn.” – said no one ever.
In order to get out of the paycheck to paycheck cycle, you need to reduce your expenses below what you’re bringing home—sometimes, drastically. You know it. I know it. Everybody knows it.
But yet, half of Americans are still living paycheck to paycheck.
So, what’s the best way to break out of the cycle? I’ll show you exactly how I did it, step-by-step. It’ll require hard word, sacrifice, and yes—a little bit of luck.
Are you ready? Let’s put on our Grownup Pants and head out!
- 0.1 Step One: Set Up A Budget, Foo’!
- 0.2 Step Two: Figure Out What You Can Cut
- 0.3 Step Three: Find A Way To Earn More
- 0.4 Step Four: Don’t Be Afraid To Get Out Of Your Comfort Zone
- 0.5 Step Five: Save Up One Month’s Worth Of Expenses
- 0.6 Step Six: Save Up More Money In An Emergency Fund
- 1 You CAN Break Out Of The Paycheck To Paycheck Cycle
Step One: Set Up A Budget, Foo’!
“I pity the fool…who doesn’t have a budget.” – Mr. T.
Budgets are another four-letter word in the personal finance world. You also know you need one of these, but do you actually have one? Or, do you think you’re some kind of fancy and don’t need a budget?
Here’s the truth: unless you’ve got wads of cash coming in faster than a Columbian drug lord, you probably need a budget. And even if you are a drug lord, setting up a budget can help you reach your financial goals faster. Because who doesn’t need fifty helicopters and sushi dinners every night? Come on, guys. Priorities.
Setting up a budget doesn’t have to be a pain in the ass. There are even programs you can get that do the bulk of budgeting for you. All you have to do is set the limits, check it every once in a while, and stay within your spending limits. Booyah. No excuse.
If you need help, click here to see the first step of my Budget Like A Boss series.
Related: Budgeting for Budget Haters course
Step Two: Figure Out What You Can Cut
Hey, no one said this would be a piece of cake.
Go through each of your budget line items one-by-one. Every single item deserves a long, hard look to see if you can spend less. Can you get a cheaper cell phone plan? Can you find cheaper accommodations elsewhere? You get the picture.
Here’s a pro tip: It sounds tougher to reduce your expenses than it actually will be. We used to spend a ton of money on energy drinks, laundry, and craft beer. But when we found cheaper substitutes, we found that we didn’t miss a thing, and we saved hundreds of dollars per year.
Step Three: Find A Way To Earn More
Cutting your expenses is a powerful tool. Not only do you have more money left over this month, but you can put thousands of dollars back in your pocket going forward. But, there’s only a limit on how much you can cut your expenses before you actually are living in a van down by the river.
Enter the side hustle.
This powerful tool is what will really help shoot you forward like those old-timey circus dudes who get shot out of cannons. Only with more OSHA protections.
Zach’s side hustle of choice was actually taking on a second part-time job hosting pub trivia each Saturday night. He loves it. As for me, I started freelance writing, which eventually turned into my full-time career.
Here are some resources to help you get started:
- Make More Money: A Fear-Busting Game Plan To Start Side Hustling
- 99 Side Hustle Business Ideas You Can Start Today
- 9 Smart Side Hustle Ideas for Introverts
- 9 Smart Side Hustle Ideas for Extroverts
Step Four: Don’t Be Afraid To Get Out Of Your Comfort Zone
Do you know why more people are still trapped in the paycheck to paycheck cycle?
It’s because they’re afraid to get out of their comfort zone.
We’ve built up this layer of comfort around ourselves. It’s what we do as humans. No one wants to be uncomfortable. We like the soft sheets on our bed, our smartphones that unlock the power of the Google machine wherever we are, and going out for dinner every week (or, if you’re like we were, several times per week).
No one wants to go out and ask strangers for money while doing a side hustle. If you are, I salute you. You’ve got bigger balls than me (literally—I have none).
Here’s what I’ve learned though: the best things in life happen right after you’re scared shitless. Being scared is a sign you’re trying to better yourself. Being scared isn’t something to avoid; if anything, it’s something to run towards (within reason; please don’t run at bears. It’s very frightening for them.).
Failing isn’t a sign that you’re a cotton-headed-ninny-muggins. It’s a sign you tried, which is more than most people can say for themselves.
So, embrace the awkward as you go along your journey. You’re willing to do things to reach your goals that others are too afraid to do. And that’s why they’ll stay in the paycheck to paycheck cycle, and you won’t.
Step Five: Save Up One Month’s Worth Of Expenses
This is the step that will actually get you out of the paycheck to paycheck cycle. Finish this step, and break the cycle.
Go through each of the line items on your budget and tally up how much it costs to live one month of your life. Include everything, even savings goals, discretionary expenses, and cat money (because of course you need to set aside money for your cats).
This is your savings goal. Every extra bit of money you earn above what you need to spend this month goes towards this goal. You can set up a separate savings account at your bank to keep it separate, or you can just add it in as another line item in your budget like travel savings or emergency savings.
It’ll take some time to save up this amount. I think it took us fully a year before we’d managed to save our target—$5,500 per month (that’s including a lot of extra savings, because we’re paranoid weirdos who like to be prepared). Since then, we haven’t looked back!
Step Six: Save Up More Money In An Emergency Fund
If there’s anything I’ve learned in my life, it’s that shit will hit the fan. And when it does, it does so with a spectacular flourish the likes of which is only rivalled by an exploding star in a distant galaxy. Case in point: our house.
Even if you do reach this stage, I’m guaranteeing you right now that something will happen in the future that’ll knock you back down like a kick in the crotch (or perhaps boobs, if you’re a lady) from Chuck Norris.
So let’s prepare for it now. Let’s don our anti-Chuck-Norris-Crotch-Kick shields now in anticipation of such fuckery.
The best way to do this is by saving up an emergency fund that’ll protect you. Most experts recommend saving up between three and six months’ worth of expenses (or more) depending on your situation. Here are some guidelines on how much to save in your emergency fund.
You CAN Break Out Of The Paycheck To Paycheck Cycle
It might seem like an insurmountable goal right now, but trust me, you can do this.
Getting out of the paycheck to paycheck cycle will be hard. But, so is staying in the paycheck to paycheck cycle. Choose which hard you want to face. I know which one I’d choose.
Have you broken out of the paycheck to paycheck cycle? What tips do you have? Leave a comment below!