How to Break Out Of the Paycheck to Paycheck Cycle
You’ve come to the right place if you are ready to ditch the paycheck-to-paycheck cycle and take control of your money. Trust me, it’s not going to be easy, but I know you’re motivated because you’re here reading this! A little more tough love, this may be something you have to restart a few times before it sticks because it’s not easy, so you may want to save this link so you can come back to it. But here’s the good news: you can absolutely do it if you stay the course! HOW? Let’s get right to it! And PLEASE read all the way to the end because the first part you’ve probably heard before but when you partner it with the second part, that is where the magic happens! ✨
💰Step 1: Create a Realistic Budget (Remember, stick with me)
First things first, you need a budget that works for you. I know, I know, budgets can have you immediately connecting them to being restrictive, but I want you to push through that feeling. A budget will actually give you control over your money and the freedom to spend on what truly matters to you. If you want to go the spreadsheet route so you don’t have to do the math, you can grab my FREE Budget Planner HERE (yes, it will ask you to sign up for my email list, and I may be biased, but I think you’ll like it 😊).
Track Your Income: Start by adding all your sources of income, don’t forget any less frequent income. If your income varies because you are paid hourly, use a number that your pay is typically. If it varies A LOT you can use your average pay - if this is you consider setting up a savings account as an income buffer account so you can put money in when you have higher pays and take money out when you have lower pays. If leaving money in savings is challenging for you, stash it at a separate financial institution so it’s a little out of sight.
List Your Expenses: Think about all of your expenses. Forgetting some spending in your plan is the most common way that budgets don’t work. I try to help you think of everything with my free budget tool, but if you’re going with another method, a few that are often forgotten about are, vet bills/pet expenses, car maintenance, annual/quarterly payments or subscriptions, and gifting.
Categorize Your Spending: Break down your expenses into three different categories. Then check out THIS blog post for how to set yourself up for success with managing the different expense types. I know an article with thinks sending you other places is annoying, but so are long-ass articles.
Bills: For your regular expenses like rent, debt payments, and utilities, basically anything that has a regular due date and a fairly consistent payment amount. Include the due dates so they’re handy.
Day-to-Day Spending: For things that you spend money on regularly that don’t fall into the previous category. Things like groceries, gas, and restaurant spending. These are items that don’t have a consistent timing or amount. Items in this category can make or break your budget.
Holy Shit Expenses: These are the one that make you say holy shit when they hit. Some common ones are annual payment, vet bills, travel, and car maintenance. Expenses in this category usually tend to be unpredictable as far as timing and amount - but they can often be for larger amounts.
Do the Math: It’s time to crunch the numbers now. Minus your expenses from your income to see if your income covers your expenses. How do your numbers look?
Do you have a shortfall? If your expenses are more than your income, you’ve got some work to do. You’ve got three options: cut expenses, increase income, or a combo of both. Negotiating bills, couponing to cut grocery costs, trying to work more hours, selling things to pay down debts to cut your payments. There are lots of different options here to get creative. And probably this topic needs its own article or podcast, so stay tuned.
Do you have a surplus? More income than expenses is a great place to be, but this isn’t how I want you to leave your budget because that often leads to the surplus disappearing. So give it a job by assigning it to savings, extra debt payments, or your current financial goal.
Do you have a perfect match? Great! This is the goal, with every dollar having a job!
Step 2: Manage Your Cash Flow(This is where it gets good)
You’ve got your budget all planned out. Now what? This is where Cash flow management comes into play. This is all about timing your income and expenses to ensure you have money available when you need it. Here’s how to get started:
Figure Out Your Method: Again, I love a spreadsheet for this because it can do the math for you, but pen, paper, and a little math will work too. The nice thing about a spreadsheet here is that it is faster and easier to update when things change (because they will), but you do you!
Which account?: If you are going to set up different accounts for the different expense types (which I highly recommend), the best plan is to manage the cash flow in your bills account.
Start Where You Are: Start with the current balance in your bank account at the top of your spreadsheet or journal. You’ll need columns for the date, transaction info, amount, and your new expected balance.
Get Planning: List out any expenses that will hit before your next pay. Don’t forget about any day-to-day expenses like groceries or a transfer to a day-to-day account if that’s how you are setting things up. After each expense, subtract it from your current balance to see your anticipated balance.
Keep Going: Add in your next pay and the expenses that it will cover. If you’re using a spreadsheet it is easier to plan further out. Looking 2-3 months out is a great place to start to see where you will be. You can also play around with different numbers if you are working to increase income and decrease expenses to see the impact of the potential changes. Seeing the impact of the changes is motivating to work on the areas you’d like to improve.
Check-In: This will take more time when you are getting started. Take time every week, or AT LEAST each payday, to make any updates and check to see that the balance in your account matches your cash flow balance. If it doesn’t, have a look to see what you may have missed. Having a budget buddy to do this with can help you stay consistent. If you have a spouse/partner or friend that you can work on your money together with, this can be a huge help.
Monitor and Adjust: Keep an eye on your budget and cash flow. If there are discrepancies between what you thought things cost and what they actually cost, update your budget to reflect the changes.
Future Planning: The more comfortable you get with planning out your cash flow, the further into the future you can look. I like to have a plan at in January for the whole year, personally, and for my clients. 🤑
A quick word on financial goals
I mentioned financial goals earlier and know that you may not have a specific goal right now, so here are a few ideas:
Building and Emergency Fund: Having a little money stashed away can be a huge help when life throws you a financial curve ball. If you’re working to pay down debt, having money saved can also help you keep your debt trending down.
Paying Down Debt: Paying more than the minimum can help save you interest, but also lower your monthly payments, and of course kick your debt to the curb!
Building New Habits: Financial goals are not all about numbers. Building new habits (like updating your cash flow weekly) can help you make long-term changes.
My Last 2 Cents
Breaking free from the paycheck-to-paycheck cycle is tough. It’s all about taking control of your money and your future. ♥️ It might feel overwhelming at first, but remember, you don’t have to do it all at once. Start with small steps, like tracking your expenses and creating a simple budget. You can tweak your budget and cash flow management strategies as you get more comfortable.
Cheers to breaking out of the paycheck to paycheck cycle! You’ve got this!
