Updated on 09.17.14

Chipping Away at the Paycheck to Paycheck Routine

Trent Hamm

Yesterday, a reader that I’ll call Susie contacted me with a long story about her family’s financial situation. Here’s an excerpt from near the end that really sums up the problems that she’s having.

The real problem is that even if I buckle down and cut back on some stuff, we always find ways to spend what’s in our account and we find ourselves waiting for the next paycheck. It feels like a constant losing battle.

Susie has a lot of things right with her financial situation. She has two credit cards, but both have a zero balance on them, so they’re not facing credit card issues. Her family makes a good income as well, so they’re not really pinched by that, either. The problem is that it’s far too easy for them to spend, spend, spend.

Tips to Escape the Paycheck to Paycheck Routine

1. Set up a savings account in a separate place that isn’t easy to access.

I find that online banks like ING Direct are a great place to do this, as the money in this account can be accessed if you take the time to log on and execute the transfer, but you can’t easily just write a check or use a card to drain it of money, plus you can set up sub accounts for each of your savings goals.

2. Go through all of your spending and trim away some of the “routine” fat.

Find things that you routinely spend money on and reduce them. Good places to look include any monthly bills strictly related to social activities (like country club membership or your cell phone bill) or entertainment (like Netflix or the cable bill). Look for things you don’t use – maybe you don’t watch the premium movie channels you’re paying for, or maybe you’re not utilizing Netflix as well as you thought you would, or perhaps you’re buying way too many text messages each month and aren’t using them. If you’re unsure about whether to cut something, cut it. You can always bring it back if you find that it was more useful than you thought. Here’s a big list of ways to cut regular expenses and one hundred ways to trim a little bit of spending.

3. Keep a running total as you cut things down.

Keep track of how much you’re saving per month. If you cut out Netflix, you might be saving $20 a month. If you remove the text messages, that might be another $10. Installing a whole bunch of CFLs instead of incandescent bulbs might save another $10, as might a programmable thermostat. The gym membership that you don’t use might save another $30. Instituting a “family night” where you cook something at home and play board games instead of eating out might save another $30 a month. These trimmings can really add up to a lot, so keep jotting them down as you do them.

4. Add up how much fat you trimmed. That’s how much you can immediately start socking away into that savings account.

The first time I did this, I came up with almost $200 in savings each month. That seemed like a lot of money, especially from someone who had been almost drowning in his own spending.

5. Set up an automatic transfer from your checking account to your bank account each week for a quarter of that monthly total.

So, if you figured up that you can save $200 a month, set up an automatic transfer for $50 each week into your savings account. Since you’ve already trimmed that fat, you won’t miss it, and you’ll end up saving about $2,600 a year.

6. Don’t touch that money until you truly need it.

In other words, never touch it to buy something new. Never touch it for presents. Only touch it when you’re in a financial bind, and then hit it hard. Another option is to use that savings for a specific goal – for example, use it to save for your next car so that when you go to buy, you have an extremely large down payment already in hand, reducing the loan you’ll have to take out. Another approach is to save it up until you can singlehandedly wipe out a major debt with it, like a student loan debt or a car debt or even your mortgage, thus adding a lot of breathing room to your monthly finances.

Remember, this is just a way of getting started. I found that when I started to get ahead a little bit, I wanted to get more ahead, so I used it as a motivator to trim more and more spending. Right now, I’m able to buy everything I need and want and have plenty of breathing room at the end of the month – a goal well worth striving for.

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  1. Bella says:

    Other Idea: set up SEVERAL accounts and built up the money before you need it: this account for our next travel, this account for his next HDTV, this account for her next shopping spree, this account for “surprises” in life… and send there amounts automatically. I use ING. It gets very exciting to see the money grow instead of the credit adding up (of course, a part should go bringing the cards down)

  2. Trent, don’t forget that the ultimate goal should be about balance so it’s OK to spend some money to have fun and enjoy life. I’ve seen too many people swing from over-spending to over-saving.

    Find a balance that allows you to save and enjoy life and you’ll be able to keep that up for a long, long time.

  3. !wanda says:

    Why do you consistently call cellphones “extras”? I live in an apartment with 3 roommates; no one else is willing to shell out for a house phone, and more importantly, if we did have one, I doubt that relevant messages would ever get to the correct party. (You’d understand if you met them.) I still need a phone, though, so I have a cell phone but no land line.

  4. jake says:


    I agree that cell phones aren’t really called “extras” in todays age. I myself do not have a land line, so to get a hold of me instantly you need to call my cell (of course you can email but i dont check that often).

    But I also think that Trent is hinting at the “extras” in the sense of extra services like internet on your phone, or unlimited texting, etc. Those can add up significantly. If you have to have a phone but want to save money, get the cheapest plan that has enough minutes that you know you can live with. Dont fall for the “I might use it” trap.

  5. Stephen says:

    I agree with you, !wanda. A cellphone isn’t really an “extra” any more, but a lot of features on cell phone plans are extra (like text messaging, etc.) If you can cut those features out that you don’t use, you can save $10-$25 a month alone.

    I also think that a gym membership isn’t an “extra” if you do actually use it regularly. I am able to utilize mine 6 days a week, and take my showers there too! Less water consumption, less laundry (towels), and almost no cost for personal toiletries. I figure this saves me $25 a month, bringing my $60 gym membership to $35 a month or less than $2 per workout! That’s extremely cheap for me.

  6. Looby says:

    @ !wanda technically you could use a VOIP that has voice mail and a call in number, that should be considerably less than a cell phone and no less convenient than a landline.
    But I think Jake is making a good point that there are a lot of things that could be cut out of a cellphone bill.

  7. Heidi says:

    I agree with Bella. Setting up multiple savings accounts that are automatically funded every pay period had been a lifesaver for me.

    I was on the paycheck to paycheck merry-go-round until last fall when I opened my accounts with ING. With direct deposit and banking my income tax refund, I have saved $7000 since November.

  8. Susan says:

    I have a high-yield savings account that literally takes days to access if I needed it. Then I have a ‘regular’ savings attached to my checking for overdraft and to save for day to day emergencies.


  9. Johanna says:

    @!wanda: If your roommates don’t want the house phone, you could keep it in your own room. (This may take some creative wire-laying.) Even if you’re footing the whole bill yourself, it’s quite likely to be cheaper than a cell phone contract.

    If you want the convenience of the cell phone and you can afford it, then by all means have a cell phone. But for people who are struggling to get by, that’s one thing they can cut. It’s not actually a necessity, even though it might seem like one to you.

  10. Brent says:

    @ !wanda

    Humanity survived for mellienia with out cell phones. So they are not really a “need.” They are nice. Society has conviced us that a lot of ‘nice’ things are needs.
    That being said, I have a cell phone that I hardly use. It is nice, but hardly a need. Most of the convience of it comes from the fact that I do not always plan out things as well as I should.

    Good rule of thumb, if your parents did not have one, you probably do not need one. Your grandparents survived with even less ‘needs’ than your parents.

  11. MegB says:

    When I was single, I ditched my land line altogether and just used my cell phone. I had the most basic package, and still never went over on my minutes each month. I loved the convenience, and it was a great way to reduce expenses. Now I wish my husband and I could get rid of our landline, but it’s just not practical. So we have a landline, but no caller id, voicemail, call waiting, etc., which helps keep the cost at a minimum.

  12. For most people it is not an income problem, but an outgo problem. I work with some people with a 6-digit salary that live paycheck to paycheck. You will never earn more than you can spend. You have to start spending less than you earn.

    Best Wishes,

  13. Pete says:

    My grandparents didn’t have an indoor plumbing..still I’m not prepared to do without.

  14. !wanda says:

    @Brent: You’re strictly right. You could extend that reasoning further in time, too: after all, the ancient Chinese built a Great Wall without the aid of running water, electricity, or modern health care. Well, just because my grandmother had to use oil lamps when she was young doesn’t mean my landlord can disconnect our power lines! Times change, and some sort of phone is a necessity for employment in today’s world, and for a variety of reasons (including the fact that I am only at home to sleep and shower) a land line makes very little sense for me now.

  15. Directly transferring money out of your paycheck into a sperate account is a great idea. Some employers will actually take money out of your paycheck directly and apply it to a savings account of your choice as well! It’s worth checking out if your tempted to spend your entire paycheck!

    Ben @ Trees Full of Money

  16. Sarah says:

    I also think that they should evaluate the psychological reasons why they feel the need to empty out their bank account after every paycheck. Do they feel more successful if they are surrounded by material things? Do they feel like they need to “keep up” with friends/neighbors/family members? Direct deposit and automatic transfers will definitely help, but if they don’t tackle the root of the problem, they could start to resent saving.

  17. I would add that sticking to an automatic plan is also key. Sometimes establishing it and getting started is the easy part, but sticking to the plan and not tapping the ING account when an unexpected purchase happens is huge. In other words, dealing with the unexpected.

  18. SmBizMan says:

    Once you get a little cash saved at ING (i am also a big fan of ING) open a CD. There is no minimum. Start with $100/month into a CD… the penalties you will pay by having to get that money early will make it harder to spend.

    Every time that CD matures, you can add a little, even if it is only another $100.

    My goal at the moment is to have 12 CD’s, each maturing in a different month worth about $1000 each… that will be my emergency fund :-)

    This very spend the savings problem is exactly why mortgages can be good. They are forced savings…

  19. InvestEveryMonth.com says:

    Automatic tranfers into a separate savings account is the answer for this person.

    She should set it up so money is transferred shortly after the paycheck arrives. She sems to spend what is in her checking account so removing some of the money is key to solving her problem. She can still access the money, but it will be an extra step that will remind her not to spend what she is saving.

  20. The difficulty is that we will always live to our means and no matter how much money we have we will always find new ways to spend. I think some of the suggestions you have provided make good sense.

  21. Canadian says:

    I consider a cellphone an “extra”. I don’t have one, never have. (Unusual for my age group!) Perhaps for some few people it is a necessity, but not most.

  22. I would disagree about one thing. That would be the gym membership. People should not throw away that kind of thing just to save $30. In my opinion going to gym and working out can only help you. You feel better about yourself, you’re stronger and more refreshed than ever. That can really motivate work more or harder, which results in more cash earned in job or extra activities. Better health + More cash. That sure sounds a win-win situation for me.. ;-)


  23. KMunoz says:

    Joining in on the cell phone debate, I use one as my main phone line. But you really need to look closely at your bill. Two times I have found strange charges on my bill for services I never signed up for. They were promptly removed when I called and asked, but you might be blindly paying for services sometimes… especially if you have expenses automatically withdrawn.

    Also, for services you HAVE added on, make sure they are worth it. My boyfriend was getting charged $17 a month to have his night hours start at 7 p.m. instead of 9 p.m. Once he figured out that’s what he was paying for monthly, he canceled that quickly.

    and about the gym expense, I think Trent means if you don’t use it regularly. If you’re paying $30/month (and a lot more than that in major cities) and you go to the gym twice a week, that’s not really worth your money. Buy a pair of sneakers instead with that and run outside for free or something. If you do go often, the price per visit ends up being very inexpensive.

  24. Yes, a dashboard of running total is great, but one must hide away current cash in saving / money market account before that.

    By the way, paying a few bills can help one to build credit history as I recently covered today, so one must be careul with internet cable, telephones etc.

    Best things in life are free. Being free is best

  25. DrBdan says:

    From the way that the paragraph mentioning cell phones is worded (Trent mentions it as being strictly related to social activities) I believe it is in reference to a cell phone on top of a home landline. In my opinion a cell phone in that situation is strictly a convenience and a luxury.

    Now, if you don’t have a landline then a cellphone is probably a good idea and depending on your plan might not be any more expensive than a landline.

  26. sally says:

    I have a cell phone and no land line, and this is common among my friends. Cell phones are more convenient for one main reason: I’m 22, and when I move (sometimes 4-5 times a year), my phone number comes with me automatically, no hassle. And I pay less than $16 a month (I have a pay-as-you-go phone), so it’s not a big expense. When I “settle down” in a house, I might switch to a landline, but for now, a cell phone is what works best for me. And isn’t that the important thing? Personal finance is *personal.*

  27. Mike says:

    I’d be really careful about using internet banks, I was reading some things that suggest the government is expecting allot of bank failures, even Ben Bernanke (the fed chairman) SAID, there will probably be some bank failures. (Of course I can’t find the link now). That said, the advice itself is reasonably solid (stashing the money someplace it isn’t easily accessible), but I would still suggest a brick and mortar building someplace FDIC insured you can drive to in a pinch. I keep my emergency money in a local credit union, but I don’t have billy pay through that account or a debit card for it. Works great. Frankly, because I stay out of that money as much as I do the bank’s caution-flagged it a couple times, they’re afraid somebody’s gonna steal it. I’ve had to answer security questions when I’ve checked on it a couple times. I don’t mind. Heck, they can DNA test me if they like!

  28. Ryan says:

    I do the VOIP land line supplemented by a prepaid cell for myself and my wife. My wife spends about $100 per year on her prepaid cell, I spend $10 per year on mine. The voice over IP is $15.99 per month. Of course, you have to pay for high speed internet first though, but we are internet junkies, so that works out.

  29. Robin S says:

    @Personal Finance Management (#22)

    Trent wrote, “The gym membership that you don’t use might save another $30.” (emphasis mine) I don’t see him suggesting that one should stop going to the gym, but that paying for a gym membership and not using it is a waste of money.

  30. Jen says:

    I only make calls on my cell phone, but I keep a landline because it’s cheaper to pay for that plus my phone-line-based internet service than it would be to drop the landline and switch to broadband. :-)

  31. Michael says:

    Mike, ING’s American accounts are FDIC insured. ING is one of the biggest companies in the world. It is true that there will be bank failures, but your credit union is more likely to become insolvent since its margins are tighter, it is smaller, and CUs don’t have much government pull. (But I keep my money in a credit union, too.)

  32. Evan says:

    I think the list should include – selling unneeded or unwanted items.

  33. daydreamr says:

    some folks are being a bit hard on !wanda. We certainly take a lot of luxuries for granted, things we could do with out (like cellphones). There are a lot of benefits to having one though and it depends on your circumstances. They are great when living w/roomates. It’s just one less bill to split, one less risk to take as the roomie could run up the bill and move out…a cellphone is great for emergencies and I feel safer having one when I travel and you can take it virtually anywhere (that can be a bad thing too!). When I move, I don’t have to pay $40 to set up new service either. I recently got a better cell plan, got a landline and swiched to DSL and now I’m paying $30 less between the 3. I know a lot of ppl who only use cell’s.

    As far as Susie goes, I would add that tracking your expenditures and planning a budget would be helpful. It doesn’t need to be rigid and you could give yourself some ‘wiggle room’ and make it realistic. Work personal care products, food, the occasional/daily coffee, clothing, commuting costs…See where you can cut corners in many of your regular expenditures. If buying in bulk is realistic (or worth it), even a few $ a mo. add up. Whenever possible, stock up on things you use when they go on sale and/or you have a worthwhile coupon. Make less trips to the store (less spent on gas and less temptation to buy).

    Along the lines of Trent’s emergency fund, stashing a bit of cash in a spot where you won’t be tempted to spend it is also helpful. Even if you tuck $20 under the carpet, behind a drawer, etc. and resist the urge…you will forget about it sooner or later. I often use this strategy as a rescue fund, I hide a few $ in my glovebox. There have been times when I needed gas but forgot my wallet or didn’t have the funds. It’s best to learn to be responsible and spend less than you earn but this process doesn’t happen overnight, we all have bad months, unexpected expenses, etc.

  34. d says:

    As far as “needs” go, I believe that access to a phone high on the list. When I had my own financial meltdown, I went w/o electric before I had my cell shut off. I just charged my phone on my way to/from work. Now electric is one of the luxuries I can afford to splurge on. Besides, it’s not socially acceptable and oddly enough, my neighbors seemed to be bothered by it. What I think is even worse is people knocking on my door on a daily basis to use my phone to call work, order pizza, call the girlfriend. TV is a big so-called need and most people would be lost without it. I think it’s ironic how people will talk about wasting money and falling into societies trap, etc. I wholehartedly agree! The problem is that these are often the same ppl who have cable or satelite, go out to the movies, maybe even rent or have a netflix acct. They can often justify that it entertains the kids, they have to pay for cable to have CNN the weather channel or some other way of validating the most disaterous invention known to man.

  35. kentuckyliz says:

    The discipline of automated savings is good, however, discipline without a goal is masochism.

    So, what is she saving FOR? When there’s a real goal there, something she (and spouse and family) is excited about, then the pleasure of saving far outweighs the temporary fleeting pleasure of frittering away one’s money on crap.

    To build the budget from the ground up, start with the survival essentials. A person needs food to stay nourished to continue working: budget basic groceries. Heat and light help, so there’s utilities. Shelter is good; budget mortgage or rent (and consider if you have too much house or apartment to get any traction). Getting to and from work is the next necessity–what transportation can meet your need? The bus or train? Bike? Walk? Basic car? Budget that. Necessary clothing (not recreational designer shopping at the mall). Then add the next layer of basics…keep building from there. It forces the fluff to become apparent and a person can make better decisions about what are truly spending priorities.

  36. thehungrydollar.com says:

    Just a thought… when you’re looking to save money, try not to get target locked on your discretionary spending. Re-evaluate your monthly fixed costs and maybe you’ll find that some of these expenses are not so mandatory.

  37. Paul says:

    Hey guys – tell me if my line of thinking here makes sense to you.

    I currently do two separate $100 transfers each month into my ING savings account for a total of $$200 each month.

    As I understand it, they compound interest daily, and deposit it monthly. I believe that you start making interest on your money within 1-2 days of it being deposited.

    In that case, is it true that I would make (a little) more money if I deposited $50 each week ($200/month)?

    The idea is that the $50 would start compounding immediately, and increase by $50 each week of the month as opposed to putting $100 in twice a month.

    If they compounded monthly, then there would be no difference. But it seems to me that, by compounding daily, I should make more.

    Does that make any sense? (me != math whiz)

    Does that make any sense at all?

  38. Margaret says:

    Paul (comment 37) — if you put the first $50 in a week before you would have put in the first $100, then yes, you make slightly more interest, although the difference is very small – something on the lines of a a few pennies per $100 deposited. If you are charged a bank fee on the transaction (ING doesn’t, but your chequing account might), then you are better off making fewer deposits (e.g. $100 twice a month).

  39. Credit Expert says:

    Great tips:

    I’ve found some interesting ways to trim the fat from my spending, but never thought to immediately plug that into a savings account.

  40. Doug C. says:

    Trent, thank you for this article. I’ve been living this routine for far too long and I need go start doing something about it.

    I had a cell phone for a while and I would have to agree they are “extras”, whether you like it or not. It was also a big fat hassle – plans, extra costs, hidden costs, and the horrible support. Bleh. I was glad to go back to a land line.

    I now have cable for both my internet and my phone and it’s less than what I was paying for just the cell phone.

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