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Living Paycheck to Paycheck

(Make it Work and Make it Stop)

Living paycheck to paycheck might seem unavoidable at the start of your career, but there are proactive steps you can take to make it work — and make it stop. The paycheck to paycheck cycle begins when your income and expenses are out of balance.


In its simplest definition, living paycheck to paycheck means having nothing left over in between pay periods. There are many reasons why this might happen:

  • Your fixed expenses are too high for your income. If your rent, insurance, car payments, utilities, phone and other bills are too high, then you’ll live paycheck to paycheck because your income is gone before you have the chance to save it.

    Add up all your income and expenses and see how they compare. If you’re deciding whether to take a job with a low starting salary, create a mock budget. Would you be able to live comfortably on this income? (Don’t forget to adjust for common payroll deductions, including taxes).
  • Your other spending is too high for your income. Maybe your fixed expenses are within your means, but you overspend on other things such as entertainment, clothes, home goods, experiences, and other “wants.” If you spend excess money right away then you won’t be able to build up any kind of safety net to sustain you in between paychecks.

The best way to stop this cycle of overspending is to pay attention to it. Do an experiment where you track all your spending for a week. Don’t beat yourself up over it — just observe. The next time you’re about to buy something you don’t really need, ask yourself if you’d rather save that money instead. Every extra dollar you hold onto helps stop the paycheck-to-paycheck cycle because you’ll have more left over in between checks.

  • Your income is too low for your lifestyle. Another paycheck-to-paycheck trap is trying to keep up with the spending of others. Maybe your co-worker can afford to go out for lunch every day, but it’s eating up your leftover income. You might want to go on vacations with your friends, live in an upscale neighborhood and wear designer clothes, but if you’re living paycheck to paycheck then your lifestyle is out of balance with your income. You either need to make more money or consider scaling back.
  • Your tax withholding is too high. If you’re used to getting a big tax refund each year, you could change your withholding on your W-4 at your job so that you get less of a refund, but keep more of your take-home pay in your checks. You can change your W-4 at any time with your employer. But the only way this helps you break the paycheck-to-paycheck cycle is if you save that extra money. If you start getting bigger checks, set up automatic transfer the difference in pay to a savings account.
  • You’re contributing too much to retirement plans. Many financial advisors will tell you that there’s no such thing as putting away too much for retirement — and that’s true in theory. The more you invest in your 401(k) or similar retirement fund at the start of your career, the faster and bigger it will grow. But these funds typically are not available for withdrawal without fees and penalties until you’re at least 59 ½. Investing in retirement funds is better in the long run because you lose less buying power to inflation than if you kept that money in cash, but if you’re struggling to pay your basic living expenses, then you might choose to keep more in your paycheck until you get a raise.

Young woman adjusts her budget so she can break the paycheck to paycheck cycle.

  • You have the wrong health insurance. Again, no one would argue that you should skimp on health insurance. But it pays to investigate the options offered by your employer (or in the Affordable Care Act marketplace). High-deductible plans with health savings accounts (HSAs) are one way to pay lower monthly premiums and maximize the benefit of pretax contributions into an account that can be used for many kinds of health-related expenses. Just be sure the account rolls over from year to year. Many flexible spending accounts do not.


The only way to break the cycle is to start putting away savings — either by cutting down expenses and managing your spending or by earning more. Either way, saving is the best protection against living paycheck to paycheck. Making these changes is challenging, but the habits you form now will help build more financial well-being in the future.

As always, we’ve got your back. — The On Your Own Team End of article insignia

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by On Your Own, the National Endowment for Financial Education or any of its affiliate programs.]