5 Cash-Flow Rules That Fix Paycheck-to-Paycheck Living
Anyone who has ever found themselves living paycheck-to-paycheck — that is, depleting each and every paycheck just to cover basic expenses with nothing left over — knows how stressful and exhausting a cycle that can be. It can also be a cycle that’s difficult to escape — when all of your time is spent making just enough to break even, it can feel impossible to find a way to break out.
That’s why MoneyLion recently sought the advice of financial experts in order to get advice for ending the paycheck-to-paycheck cycle.
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1. Know How Much Is Coming In
“Before you can manage your cash flow, you have to know your real number,” said Markia Brown, financial counselor and founder of The Money Plug.
You need to calculate your exact take-home pay after taxes, benefits or any other deductions (rather than your pre-taxed salary), so that you know just how much you have to work with. “A lot of people are budgeting off a number that doesn’t exist. Start there,” said Brown.
2. Then Pay Yourself First, Not Last
Brown also suggested that money for savings has to come out of your check before any discretionary spending. “When saving is the last thing on the list, it becomes optional,” she said. “When it’s the first thing, it becomes a habit.”
Personal finance expert Hillary Seiler agreed. “If you’re saving ‘whatever’s left at the end of the month,’ you’re not saving,” she said. “Set up an automatic transfer the day your paycheck hits. First money out goes straight to savings.”
The idea is to begin building a healthy savings account to get you out of the paycheck-to-paycheck trap, and if you wait until the end of your pay cycle, you’ll have nothing left to save.
Echo Wang, founder of EpicBooks, added that “this is the best way to create an emergency fund.”
3. Your Checking Account Is Not Your Budget
“Stop treating your checking account balance as your budget,” said Brennan Kolar, Atlas CPA Index founder. “A lot of people look at what’s in their checking and think that’s what they can spend, but that number includes money earmarked for bills that haven’t been posted yet.”
To help break free of the paycheck-to-paycheck cycle, you have to shift from spending based on the entirety of what is in your checking account and instead spend based on what is owed. You have to begin leaving a little extra in your checking account with each check, rather than treating your balance like your full budget.
4. Budget for the Bills You Forget About
Brown offered a great reminder that “monthly budgets fail because they only account for monthly expenses. Car registration, back-to-school shopping, holiday travel, annual subscriptions — these expenses are predictable, they just aren’t monthly.”
By planning and budgeting ahead for these irregularly-timed expenses, they won’t catch you by surprise – and they won’t create a surprise drain on your next paycheck.
5. Give Every Dollar a Direction
Money without a purpose is easier to spend impulsively.
“At the beginning of each month, assign every dollar of your expected income to a category before it arrives,” Brown said. “Bills, savings, groceries — and yes, fun. When your money has a job, it stops disappearing.”
Seiler added that extra income should also be assigned a purpose: “Your bonus. Your tax refund. Your side hustle income. That money already has a job — build your buffer, pay down debt or get ahead.”
The Bottom Line
Breaking out of the paycheck-to-paycheck life may not be easy or immediate, but it can be done. It simply requires awareness, dedication and discipline. Follow the five rules above, and you’ll find yourself not only out of the check-to-check rut, but with a savings account and discretionary spending income as well.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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