Right off the bat, I want to say that I understand that this article won’t appeal to all of my readers. Many of you have escaped this cycle and are rolling along toward financial independence. However, I’m willing to bet that many of you have friends or family that are stuck in this cycle and some of them may be really struggling to escape it. They may have asked you for help or commented publicly about it.
If you know anyone who is reaching out for help in breaking out of their paycheck-to-paycheck cycle, send them this article. If you want to just send them a link, send them to this link:
Many, many people choose “fixing their finances” as a big New Year’s resolution. This article sums up every important thing I know about escaping the cycle – and I should know about it because I was trapped in that cycle for years. I managed to dig myself out. Here’s how I did it.
Whenever you spend your money on non-essential things to the point that you struggle to make it to your next paycheck, you are falling into a trap, one that is baited with “goodies.”
It’s a trap that holds you in place, making it so that you can’t lose your job or make a career switch or take a career risk.
It’s a trap that ensures you’ll have to keep working until you are literally unable to do so.
It’s a trap that gives your boss incredible power over you, dictating your hours and your tasks and your wages, regardless of what works well for you.
In the end, what you get for all of that misery are all of the least useful and most quickly forgotten things that you spend your money on. You’re not in that situation because of your electric bill (for the most part – we’ll get back to that because it probably can be tightened up a little bit). You’re not even in that situation because of your more thoughtful splurges, like a meal with an old friend or a new thing you’ve been thinking about for a long while.
You’re in that situation because of the bottle of soda you buy at the gas station each time you fill up. You’re in that situation because of the clothes you buy and end up not wearing because you don’t like them. You’re in that situation because of the Netflix subscription that you rarely watch but don’t cancel. You’re in that situation because of your smartphone and enormous data plan which you barely scratch the surface of. You’re in that situation because of the lottery tickets you buy. You’re in that situation because of the true junk food you throw into your cart at the grocery store.
Those things are not the “perks” that make “life worth living.” They’re things that you forget about almost as soon as they’re purchased or consumed. They’re expenses that quietly ding your credit card each month when you haven’t even been using that service.
Those are the things that bait the trap, and the trap itself is made up of debt collectors and endless bills and constant stress and oppressive bosses and a job that leaves you feeling constantly drained.
Trust me – I was once there. I spent my money on the dumbest things. I drank a lot of expensive drinks. I dropped money on green fees at expensive courses and on balls and golf clubs. I ate out so often at expensive restaurants that it became “normal” rather than fun. I bought more books than I could ever read. I’d go home and just waste time on “escapism” because I was mentally exhausted and stressed out by my job and the endless bills and an overarching sense that I was somehow going nowhere.
The thing is I had everything I needed to fix the situation. I just chose not to see it. Why? Because change is hard.
Changing Your Habits Is Incredibly Hard
Human beings are creatures of habit. Even the most spontaneous among us falls into routines of going to the same places, buying the same types of things, engaging in the same types of daily patterns.
We do this for a very good biological reason: good habits and routines is what kept us alive in the early days of humanity. Having patterns that we just naturally go through in the course of a normal day means that we don’t have to spend our brainpower on those things. Our ancestors could think instead about other things, like survival and effective hunting and gathering.
Today, we still rely on habits and routines, but things have changed a lot. The options available to us in fulfilling our needs and our deepest wants are now mindbending. Our ancestors didn’t have easy food available on practically every street. They didn’t have tens of thousands of items available at a grocery store that’s probably a short walk from their home. They didn’t have cars or gas stations or cell phones or Netflix or five hundred cable channels. They didn’t have big and complicated social networks and the ability to communicate with the world in their pocket.
In order to navigate those options, we start relying on routines. We start figuring out easy patterns for the food we eat and the clothes we wear and the things we buy at the grocery store. Again, we do this for a good reason – it frees our mind from having to think too much about repetitive tasks so we can do more important things.
The problem is that we often don’t launch these routines perfectly. We start many of our shopping habits during a time when we’re not under a big money crunch and we get used to that method of shopping. We fall into a routine of getting coffee before work and picking up a snack after work, again, when we’re not worried about money or health. These and many other routines throughout our life are ones that we establish during times in our lives where our concerns aren’t the same as they are right now.
So, why don’t we just change everything? How many people do you know that can change all of their habits and routines? You might know a person or two who changed a handful of their habits and it caused pretty significant change in their life, like someone who shifted their diet and lost a ton of weight. Those kinds of changes really stand out because they involve someone choosing, on their own, to shift a lot of habits, and that’s really, really hard.
Our lives run on habits. We are made, from top to bottom, to rely on habits and routines and trust them. That’s why it’s so hard to change.
The Changes You Need to Make
Of course, if you’re living paycheck to paycheck, you do need to change. But where do you even start?
When I first hit my financial bottom, I went to the library and checked out a bunch of personal finance books. I’ll be honest – I was utterly overwhelmed by the sheer amount of advice. It wasn’t that it was difficult to understand (for the most part), but it was hard to imagine all of these changes in my life.
I had this sense that my life was far, far away from the financially sensible life described in these books and articles. It was just a different life, one that I wouldn’t ever really reach. I wanted to know exactly how to escape this trap and move away from a paycheck-to-paycheck life, nothing more, nothing less. I didn’t care about investment advice or insurance advice or any of that other stuff.
What I ended up doing was actually pretty simple. I took several of the books and started looking strictly for the things that all of the books had in common. I figured that each writer would have their own specific set of advice, but that the real key pieces would be in common among all of the books.
The result of that was a surprisingly short list of tactics, which I’ve boiled down to six key tactics and one more step that ties them all together.
#1 – Start With a Bang
Right off the bat, you should devote a few days to taking a bunch of big steps toward balancing your financial life. Set aside a full weekend (and probably a follow-up weekend in two weeks) to step back, breathe, and take a few big steps in the right direction. Right now, block off a weekend on your calendar, ideally one that will enable you to block off a subsequent weekend a few weeks later.
So, how are you going to spend that weekend? You’re going to spend all of that time purging unnecessary things out of your life.
Start with your closets. Go through your closets and look for things that you aren’t using and don’t really need any more. Don’t hang onto things because you can imagine uses for them someday – that’s wishful thinking and isn’t helpful. Have you used this item in the last year? If the answer is no, get rid of it. Do the same thing with the boxes in your attic and in the rafters of your garage and anywhere else you stow away stuff. If you have a storage unit just for your excess stuff, it’s likely that all of that stuff can go.
Have a big sale on eBay and Craigslist. Take all of that stuff you cleared out and decided to get rid of and sell it for bargain-basement prices on Craigslist and eBay. Sure, you want to get a return on it, but you also don’t want to invest a lot of time hunting around trying to earn an extra buck on your item. It’s not worth it. Purge it quickly and get cash for it – only invest extra time if you have an item that may have a particularly high value to someone.
Go through your last bank statement and credit card statement. Look mostly for recurring transactions – things that you pay each month or are automatically billed to your credit card or bank account each month. Check PayPal, too, and any other services you use regularly for financial purposes. Ask yourself if you really use this service and cancel that service if you don’t. Again, avoid the “maybe I’ll start using it…” style of wishful thinking, because if you’re not using it now, you won’t use it regularly down the road.
Take that wad of cash and use it to start an emergency fund. That’s right – stick it in the bank (or in a similarly safe place) and forget about it. At some point down the road, you’re going to have an emergency of some kind that you can’t deal with using your current pay. That’s when you tap it.
Why wouldn’t you use that cash to pay down a pressing debt? The truth is that your credit card is not an emergency fund. Many people treat it that way, but it’s a very risky proposition. It completely falls apart in the case of identity theft, in the case of a stolen wallet, in the case of a bank canceling your card, and so on. Cash is king.
Even more important than that, having some cash in the bank for emergencies means that you don’t need your credit card any more. You can put it aside for a while and roll through real life problems without it.
#2 – Seriously Consider a Big, Sweeping Change
I’m not going to tell you that you need to do one of these things, but I can say that if you do, it will help you achieve lasting financial change more than you think. These options have financial benefits on their own, but more importantly, they create a huge ripple effect in your life routines. You are forced to establish new routines because of these changes and this gives you an opportunity to establish better ones.
Apply for a similar job in another area. Not only does this enable you to find a higher-paying job or a similar job in a lower cost-of-living area, it forces you to reboot your social circle and all of your daily routines. You can choose a new circle of friends that has less focus on spending money as well as establish some routines from scratch that involve less spending.
Move to a less-expensive housing option. If you have an expensive apartment, seek a less expensive option at the end of your lease. Even saving $100 a month can make a huge difference for many people in terms of making ends meet. If you do find another lease, don’t hesitate to negotiate with your current landlord for a lower rate before signing the new lease.
Sell your car and don’t replace it. If you live in a larger city, it is very possible to go completely car-less and rely on public transportation and bicycles and the occasional Uber or Lyft for your commuting and other needs. This frees you from the costs of car ownership, including fuel, maintenance, registration, insurance, and parking fees. It also pushes you into a different set of habits.
Dive headfirst into different social circles. Rather than hanging out with the same group all the time – particularly if they encourage an expensive lifestyle – dive into some new social groups. Fill your calendar with other community groups that touch on other interests that you have and slowly ease away from social groups that drain your wallet. This doesn’t mean you have to abandon close friends, but you can choose to be friends with those people in a different (and less expensive) situation, such as through dinner parties at your home.
Yes, these techniques are major life shifts and yes, they can seem scary. Each one forces you to reboot a major part of your life, but sometimes that kind of major change can lead to a lot of healthy minor ones along the way.
#3 – Cut Some – Not All – of Your Frivolous Spending
This is the part of “fixing your finances” that many people associate with misery. They have this idea that any cutting back at all is going to make their life miserable and that any choice not to spend is absolutely painful.
It’s just not true at all.
The purpose of cutting back on your frivolous spending is to figure out which expenses really don’t matter to your quality of life. Almost always, some of your expenses are simply irrelevant to your life enjoyment and you just do them out of routine. By making a conscious effort to weed out a bunch of your irrelevant expenses and then only continue with the ones that actually matter, you simply trim out a bunch of expenses that don’t matter in your life.
For me, the most effective method of doing this was to have a “money free week.” I simply avoided spending money on anything that wasn’t an absolute necessity. My grocery trips were absolutely bare-bones. I drove back and forth to work and made no extra stops. I ate all of my meals at home and ate simple meals. I just did everything as minimally as possible for just one week.
At the end of that week, I asked myself which things I missed the most. I picked out just a few of the most urgent things that I missed and added them back into my life. I then repeated that week, only allowing myself those things that I urgently missed. At the end of that week, I repeated it again.
What I found was that after about three weeks, I really didn’t have any urge at all to add back in my other frivolous expenses. They were relatively unimportant in my life, so by the time three weeks passed, my desire for those things simply faded into nothingness. I didn’t miss them at all. This included things like stopping a couple times a week to buy a bottle of Gatorade at a convenience store on my way home, my stop at the bookstore on the day of new releases each week, my morning stop at the coffee shop, and my weekly stops (usually on Monday evenings) at the driving range to practice my golf swing. I just realized over those few weeks that I wasn’t getting a whole lot of value out of those things.
Try it yourself. Have a “money free week,” then evaluate things at the end of that week. What three things did you miss the most? Return those to normal, then have another week where those are your only three perks. Evaluate again and add three more perks. At the end of one or two more weeks, you’ll find that you can barely recall the other things you used to waste money on. You’ll move forward with a lot less regular frivolous spending and you don’t have to drop anything that you truly value.
Another strategy I used then – and still use often – is to keep a picture of my goal wrapped around my credit card. If you’re making a big financial change in your life, there must be a reason for that change. Whatever that motivation is, print off an image of that motivation and make a sleeve for your credit card out of it. That way, whenever you consider using the plastic, you have to look at your big goal (or motivation) before you use it.
#4 – Work on Your Food
Again, this is a category where people immediately assume that they’re going to be forced to abandon all semblance of pleasure and eat nothing but lentils for the rest of their life if they have to cut back in the slightest. I had nightmares about eating like a medieval peasant if I cut back on my food spending.
The thing is, you can actually cut a ton out of your monthly food bill if you just adopt a few simple principles.
First, have a grocery shopping routine. I am a big believer in my routine of downloading my grocery store’s flyer, planning meals based around the on-sale ingredients, making a grocery list of what I need for those meals, and then sticking to that grocery list while shopping. The time saved by having an accurate grocery list in hand in the store makes up for the time invested in meal planning and having a grocery list cuts down drastically on impulse buys.
Second, eat at home more often. This means learning how to cook more things. Get a cheap slow cooker and learn how to make slow cooker recipes. Make some things in the morning before you leave so you can toss them in the oven when you get home. Learn really simple things that you can make really quickly, like spaghetti with marinara sauce.
Finally, use your leftovers. Take them to work with you the next day (or the day after that) and eat the leftovers for lunch instead of ordering food or going out for an expensive meal. It’s far cheaper than those options – it’s basically free, in fact, if the other option is throwing out those leftovers. If you make meals you like and meals that reheat well (like stews and chili), it’s easy to enjoy leftovers.
Our food expenses literally dropped in half after implementing these three things – and we still go out to eat as a family on a pretty regular basis, too. We just shifted our emphasis to preparing meals at home, particularly using the slow cooker. It’s our magic weapon for inexpensive and low-effort home-cooked meals.
#5 – Tighten Up Your Bills
We all have bills – lots of them. If you can find ways to cut those bills back even just a little bit, you give yourself a surprising amount of breathing room. Here are three pain-free tactics for doing just that.
Inspect your bills for fees you don’t understand, then ask about them. Look over your bills and mark anything that doesn’t make sense to you, then call up that business and ask what those fees are. Then ask to have those fees waived or those “services” cancelled. You’ll be surprised how often nonsensical fees are applied to your bills and how easy they are to eliminate.
If you’re at the end of your contract, negotiate! Whenever your cell phone contract ends, don’t just sign back up. Negotiate for a good deal and shop around with other providers in the area. The same is true for cable or satellite contracts. Don’t be afraid to flat-out say you’re going to jump ship and ask what they’ll do to retain your business.
Improve your home energy efficiency. The next time you replace light bulbs, for example, replace them with LED bulbs. Drop your thermostat by another degree or two (in the winter) or raise it by a degree or two (in the summer). Put a blanket along the bottom of any drafty door. You don’t have to make radical changes, but even little shifts like these can have a notable and lasting impact on your home’s energy efficiency, which means a lower energy bill.
#6 – Make Some Smart Spending Substitutions That You Won’t Really Notice
A final trick is to just swap some of your common spending habits for other things that provide the same quality at a cheaper price or are simply smart to cut out entirely. Here are three ideas for that kind of change.
Try generics. For many of the food and household items you buy, give the generic or store brand version of that item a try. If it works just fine for you, stick with it. If you find problems with it, buy the regular version next time and chalk it up as a lesson learned. If you end up switching even half your purchases to generics, you’ll be saving some real cash every month.
Substitute out addictive things. If you have a soda addiction or cigarette addiction or alcohol addiction, try to cut those out of your life. Not only will your wallet thank you, your health will thank you even more.
Use the library. If you buy movies or books, try hitting your nearest public library and see what they have that you can borrow for free. If they don’t have what you want, talk to the librarian about their inter-library loan program. For a book addict like myself, it’s an enormous money saver.
Pour That Savings Into Something Productive Before You Ever Have a Chance to Spend It
As you can see, a lot of these tactics allow you to keep most (if not all) of the pleasures you enjoy in your life. They just allow you to have them at a lower price. The end result is that you’ll have money left over at the end of the month – and that’s your ticket out if you’re smart about it.
Here’s how to be smart about it.
Along the way, keep track of how much you’re saving. How much are you saving each month on the bills you eliminate? How much is your average grocery bill dropping? How much less are you spending at restaurants and at other “splurge-y” places? Keep track of that as best you can.
Apply those savings directly to something useful so you’re not tempted to use that money elsewhere. If you’re spending $200 a month less, add $200 a month extra each month to your credit card payment, or start contributing $200 a month to your 401(k), or stick $200 each month automatically into your savings account to bolster your emergency fund. Don’t leave it sitting around in your checking account, which will just tempt you to spend it.
Don’t find new ways to spend once your financial health improves. Just because your debts are melting away doesn’t mean it’s time to start spending on useless things again. If there are some bigger items that you want, that’s great, but save for them (using the money you’re saving each month) instead of just going out and buying them using credit. You can have those things, sure, but if you just wait a month or two or three, you can have many of those things without the pain that comes with sinking further into debt. Even better, you’ll often find that by waiting for a few months, you talk yourself right out of that purchase that seemed so essential before.
This is the blueprint for how I escaped a paycheck-to-paycheck lifestyle. Over the course of about seven years, my wife and I paid off a pile of student loans well into the five figures, two car loans, a pile of credit card debts well into the five figures, as well as replacing both vehicles and moving to a new house which itself is now fully paid off. We have no debts and I was able to engineer a career move into freelance writing which gives me more flexibility to spend time with my kids, something I have dreamed of since the day my wife became pregnant with our first one.
You can do this. The biggest thing to remember is that it’s really one step at a time. You can’t expect to spend three days being “perfect” and suddenly have the new life you dream of. Instead, you have to make some simpler changes that will last and do smart things with the proceeds from those changes. That’s the key to escaping the paycheck-to-paycheck treadmill.
Trust me, it’s so worth it.