How to break free from living paycheck to paycheck

Nearly two-thirds of Americans live paycheck to paycheck. That’s according to a 2022 report from fintech news network PYMNTS.

And it’s not limited to just certain income levels. In fact, 45% of survey respondents making $100,000 or more per year reported living paycheck to paycheck. Learn more about what it means to live paycheck to paycheck and ways to handle financial stress.

Key takeaways

• When people live paycheck to paycheck, it usually means that after paying essential expenses and bills, they have little or no money left over for additional expenses or savings.
• Things like debt, cost of living and spending habits can impact someone’s ability to find financial freedom.
• Managing debt, reducing expenses and finding new sources of income are ways to create more financial flexibility.

According to the PYMNTS report, 60% of U.S. consumers live paycheck to paycheck.

There are a few ways you might be able to improve your monthly finances and find relief from living paycheck to paycheck.

Finding effective ways out of debt can help people stop living paycheck to paycheck. The Consumer Financial Protection Bureau (CFPB) recommends two debt reduction strategies:

• Debt avalanche method: The CFPB calls it the high-interest rate method. It involves putting money toward debts with the highest interest rates first to help reduce the amount paid in interest over time, ultimately eliminating the costliest debt first.
• Debt snowball method: This strategy prioritizes paying off debt with the lowest balance first while making the minimum payment on any remaining debt. It may show faster progress, but ultimately it could be more expensive than the avalanche method.

Credit card balance transfers or consolidation loans could offer the ability to lower interest rates and simplify payments. If you find that’s the case, it might be worth considering them as part of a debt reduction plan. But be sure to consider any additional fees and how they fit into your greater budget.

Building a budget is a tried-and-true method for managing income. When looking over monthly expenses, it might help to think about them in terms of fixed and variable expenses.

Fixed expenses typically stay the same every month. They could include student loan payments, rent or mortgage payments and subscription services.

Variable expenses can change from month to month and could include groceries, utilities, credit card bills, clothing and entertainment. 

Here are a few areas where you might focus your effort to cut expenses:

• Avoid penalties and fees: Striving to build consistent habits and making monthly payments on time can help you avoid penalties and additional fees.
• Household expenses: It may be possible to lower your utility costs by unplugging appliances or electronics when they’re not in use.
• Recurring costs: You may be able to lower your monthly expenses slightly by managing subscriptions to find more affordable options or canceling services you no longer use.
• Food and dining: There are plenty of ways to cut eating expenses, including avoiding name brands when grocery shopping, meal planning and sticking to a shopping list.
• Smart shopping: There are many ways to shift your shopping habits to cut costs, including shopping for clothes at a thrift store and checking your local library for free or discounted activities or museum passes.

Expenses aren’t the only things to look at. It’s also worth considering ways to increase your income by:

• Talking with your manager about getting a raise at work.
• Searching for a new job.
• Starting a side hustle that could bring in extra money.

A long-term goal might include improving your professional skills. While paying for college is a big decision, it could help you earn more income over time. You could also look into alternatives to college.

If you’re living paycheck to paycheck or having trouble paying your bills at the end of the month, finding ways to reduce debt, cut costs and earn more income might help you break free of the paycheck-to-paycheck cycle.

For additional information on improving your finances, check out these money management tips.