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Tips to Break the Paycheck-to-Paycheck Cycle

By: American Heritage07.27.23

Between the rising cost of groceries, gas, and general life expenses, it can be hard to stay on top of all your bills, let alone get ahead. If you’re struggling to make your money last until your next payday, you’re not alone. This survey found that more Americans than ever are living paycheck to paycheck – including a third of people who make six figures a year.

Maybe your finances are stretched thin because you’re living beyond your means, like if you bought a fancy new car with a budget-breaking payment. Or maybe you were getting by just fine – until an unexpected medical issue or urgent car repair popped up. Whatever the reason, if you’re having a hard time making ends meet, these tips can help you break the paycheck-to-paycheck cycle and start making progress toward your financial goals.


Create a Budget

The first step in taking control of your finances involves creating a budget. If “budget” sounds like a scary word to you, reframe your thinking and call it a “spending plan” instead. A spending plan allows you to tell your money where to go, instead of wondering where your money went.

A popular, easy-to-use plan is the 50/30/20 rule, which recommends that 50% of your take-home pay be used for needs (such as housing and utilities), 30% for wants (like eating out or entertainment expenses), and 20% for savings (or debt repayment). American Heritage members can use our digital financial management tool, My Money Manager, to create a personalized budget in minutes.


Track Your Spending

Now that you know how much you should be spending in each category, track your spending to see how your actual expenses compare to the budget you’ve set up. Take a look at your last few months of account and credit card statements to see how close you are to meeting the 50/30/20 guidelines.

If your monthly take-home pay is $3,000, then your total fixed monthly expenses for needs should be 50% of $3,000, or $1,500 (or less). If you’re currently paying $2,000 a month in rent, that could help explain why your finances feel so tight. Using the same monthly income of $3,000, the 50/30/20 rule says that you should spend no more than 30%, or $900 total, on your wants each month.


Reduce Your Expenses

When it comes to cutting back, decreasing your large, fixed expenses will give you the biggest bang for your buck. Getting a roommate can help slash your monthly housing costs in half, and selling your car can help you save on car payments, insurance, and gas. But depending on your lifestyle, like whether you have young children or don’t have access to public transportation, those might not be realistic options for you at the moment.

Instead, make a plan to systematically reduce all the smaller, recurring monthly costs in your budget. This can have a big impact on your overall financial situation. Canceling your streaming subscriptions, delivery services, or unused gym membership can help you to free up some funds.

In addition, modifying your food budget is another effective way that you can reduce your spending. If you spend $10 buying lunch every day during the work week, that’s $50 a week, $200 a month, and $2,400 a year. Making meals at home, buying generic instead of name-brand products, going meatless for one or more days each week, and planning meals around what you already have in your pantry or freezer can help you save big on your monthly food costs.


Build an Emergency Fund

Reducing the amount you spend on nonessential purchases each month will help give your budget some wiggle room. That puts you in a great position to start building your emergency fund. Experts recommend saving the equivalent of at least three to six months’ worth of expenses. If that seems like an impossible task, break it down into smaller chunks and start by setting a savings goal of $100. Once you achieve that, work to increase your savings to $500, then $1,000, and so on until you reach your goal. With online and mobile banking, you can easily set up automatic transfers from your checking account to your savings account each payday. Consistently saving small amounts over time can add up faster than you’d think.

Having a financial safety net will not only help you boost your peace of mind, but it can also keep you from relying on credit cards to cover unexpected or emergency expenses. If your car breaks down or your fridge stops working, you can pay for the repairs out of your emergency fund and then pay yourself back over time, which will help you save on interest costs that can accumulate when using credit.  


Pay Down Debt

Speaking of interest, another way to get out of the paycheck-to-paycheck cycle is to focus on paying off your high-interest debt. If you have a credit card with a 12% interest rate and a $10,000 balance, that means you’re paying $100 in  interest every month. By using the debt snowball method or debt avalanche method to pay off your debts, or getting a low-interest personal loan to consolidate multiple high-rate debts into one lower monthly payment, you’ll reduce the total amount of interest paid over time. And remember, once you pay off your credit cards, be sure not to charge more than you can afford to pay off every month.   


Manage Financial Stress

Dealing with financial stress can be, well, stressful. Money worries can affect your physical and emotional health, causing symptoms such as anxiety, depression, headaches, insomnia, stress eating, and more. Find low-cost ways to help you de-stress during your financial journey, like yoga, meditation, or spending quality time reconnecting with your family, friends, and pets.

Remember, sticking to a budget, changing your spending habits, increasing your savings, and getting out of debt won’t happen overnight. Track your progress to help yourself stay motivated, so you can see how far you’ve come – and how close you are to reaching your goals.


Supporting Your Financial Well-Being

At American Heritage, our members’ financial wellness is our priority. We’re proud to offer a variety of free online resources in our Learning Center to help you master your financial future. We’ve also partnered with Zogo, a financial literacy app that lets you earn rewards for boosting your money smarts. American Heritage members can create a free Zogo account with this access code: AMCU.

Not a member? Join online today!



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