How to Stop Living Paycheck to Paycheck in 5 Easy Steps

Living paycheck to paycheck can be really stressful -- but there's a way to escape the cycle. Just follow these five easy steps. Image source: Getty Images.

Do you find yourself waiting for your next paycheck to come in to pay your bills and having nothing left in the bank by the time payday comes around? If so, you're definitely not alone. You're among millions of Americans stuck living paycheck to paycheck.

While living paycheck to paycheck may be common, that doesn't mean it's not stressful. After all, emergencies inevitably happen and you won't have the money to handle them if you're surviving from one check to another with no cash in the bank. There may come a day when you're sick or lose your job and that next paycheck doesn't come on time -- and that could lead to disaster.

For some people, escaping the paycheck-to-paycheck lifestyle may be truly impossible because your income is simply not enough to pay for basic life necessities. However, for most people, you can make some simple changes to help you put a little cash in the bank and break the paycheck-to-paycheck cycle. If you're not sure how to start, just follow these five easy steps.

1. Make a budget that prioritizes savings

The only way you're going to stop living paycheck to paycheck is if you take control over where your money is going and you make it a point to set some of it aside so you have a buffer. The only way you can do that is to make a budget.

When you're living paycheck to paycheck, a detailed budget that accounts for every dollar is often the best budgeting approach. Figure out how much you will spend on fixed and variable expenses, including rent, groceries, transportation, and everything else you need during the month. Then budget in a line for saving at least some money -- even if you have to start small with just $10 or $20 a month.

The total amount you budget for all your needs, wants, and savings should add up to the amount of your income. If it adds up to more, you'll need to tweak your budget until you can make the numbers match up. Don't eliminate saving though -- make cuts in other areas.

2. Reduce your spending

When you're living paycheck to paycheck, you're spending each dollar that comes in. Making a budget alone isn't going to be enough to escape the cycle since you'll just be documenting where your money is going.

Instead, you're going to need to reduce your spending on other things so you have some money left to allocate to saving. This is easier said than done, but if you track where your money is going for 30 days, you can hopefully identify areas where you're spending more than necessary and can make some tweaks.

The easiest way to free up money to save is to make big lifestyle changes. Moving to a cheaper place or getting a less expensive car with a lower monthly payment is going to make a bigger difference than eating out a little less or giving up your morning coffee. So look for big things you can change first.

If you can't make any big tweaks to the way you're living, then you'll need to start getting into the small details. You should look for all possible line items in your budget you could cut. For example, you may be able to drop your grocery bills by clipping coupons and reduce entertainment expenses by looking for free activities in your area.

The more you can reduce your spending, the faster you'll be on track to achieve a life where living paycheck to paycheck is a distant memory.

3. Prioritize building an emergency fund

Once you've freed up money to save, it's time to build an emergency fund. It's this emergency fund that will stop you from living paycheck to paycheck and will ensure you have a financial cushion in case something goes wrong.

Your emergency fund should ideally have around three to six months of living expenses. It can take a really long time to save this much money, though. If you have high interest debts or other pressing financial needs that must be addressed, you can start small by saving just around $1,000.

Put as much extra money as you possibly can towards saving this emergency fund -- even pausing in making extra payments on your debt to do so. Otherwise, any emergency could send you right back into debt and it will be impossible to ever stop living paycheck to paycheck.

4. Automate your savings

Once you've budgeted an amount you can save each month, set up an automatic transfer of that amount to the savings account where you'll have your emergency fund. By doing this, you avoid spending the money on other things and you don't have to make the responsible choice each month.

If money is automatically transferred to a separate savings account every payday, you'll eventually get used to living on less -- and your money will slowly grow to build the nest egg you need to have some financial leeway.

5. Get out of debt -- and stay debt free

Getting out of debt is also essential to avoid living paycheck to paycheck. If you have high interest credit card debt or other consumer debt, chances are good a big portion of your monthly money goes towards paying interest. To get that cash back so you can use it for other financial goals, you'll need to get that debt paid down ASAP.

To become debt free ASAP, try to put some extra cash towards paying off your debt -- after building at least a small emergency fund. You can use the debt snowball method and pay off your lowest debt balances first, or the debt avalanche method which prioritizes paying down your higher interest debt to save the you most on unnecessary interest charges. You could also consolidate debt with a personal loan to lower the interest on current debt and have just one loan to work on paying back.

Once you've paid down your debt, make a commitment not to take on more so you don't find yourself right back in the same position with wasted funds on interest.

It's possible to break the paycheck-to-paycheck cycle

As you can see, there are definitely steps you can take -- starting today -- to stop living paycheck to paycheck. While it may take you a little bit of time and a lot of effort, you'll have much more peace of mind when you have money in the bank and aren't desperately awaiting your next paycheck to come.