ESCAPE PLAN: How to Stop Living The Paycheck To Paycheck

ESCAPE PLAN: How to Stop Living The Paycheck To Paycheck

Is it possible to break the living paycheck to paycheck cycle? 🤔

The short answer is, yes, but it requires believing that it's not your destiny to struggle financially, shifting your mindset and taking the right practical steps.

Managing our finances can often feel overwhelming, especially when things are tight.

The assumption that only low-income individuals face these hurdles is misleading.

Even those earning decent salaries are feeling the pinch.

When we're in financial distress, it can feel like we’re stuck in a never-ending cycle.

However, it’s crucial to understand that our current situation is temporary and can improve.

Our approach is holistic, blending practical and spiritual.

We believe that addressing both dimensions is key to overcoming financial struggles.

In this post, we’ll cover eight essential steps to get back on track.

How to Stop Living Paycheck to Paycheck

Here are the practical steps we'd take to break this cycle:

✨ Step 1: Start with gratitude

Starting our financial journey with gratitude can be transformative.

It allows us to shift our mindset from scarcity to abundance, even in tough times.

When we focus on what we are grateful for, we begin to see the positives in our lives.

This practice can help us navigate financial challenges more effectively.

Examples could include:

• The sunny weather
• Waking up alive today
• Good health
• Supportive family
• Having food to eat

Writing down our gratitude creates a powerful foundation for managing finances.

It helps us remember the good and stay motivated while we work through challenges.

Since 2018 we've been doing the same. Read our mini-series 100 things that made my year.

Action Step: Let's take a moment to reflect. What are two or three things we are grateful for today? 📝

 

🙏🏾 Step 2: Pray and commit things to God

This is not something you'll find on other Personal Finance blogs, but as believers, we see it as an essential part of the money journey.

As we navigate our financial journey, it's essential to incorporate prayer and faith.

We can find peace and clarity in challenging times by committing our circumstances to God.

Having faith can provide immense comfort.

Recognising God as our ultimate provider allows us to release our worries and trust in a higher plan.

• Pray regularly
• Seek guidance
• Trust in God's timing
• Let go of ultimate control

While we take practical steps in our finances, we must also remember to invite God into the process.

This blend of action and faith can lead to transformative results.

We call it a Faith Walk.

Psalm 23 is an encouraging reminder about God's goodness and love.

Here it is (Psalms 23:1-6 NIV):
“[1] The Lord is my shepherd, I lack nothing.

[2] He makes me lie down in green pastures, he leads me beside quiet waters, [3] he refreshes my soul.

He guides me along the right paths for his name’s sake.

[4] Even though I walk through the darkest valley, I will fear no evil, for you are with me; your rod and your staff, they comfort me.

[5] You prepare a table before me in the presence of my enemies. You anoint my head with oil; my cup overflows.

[6] Surely your goodness and love will follow me all the days of my life, and I will dwell in the house of the Lord forever.”

 

📊 Step 3: Track income, expenses, assets and liabilities

To gain control over your finances, you need to understand your current situation.

Tracking your income and expenses is the first step towards achieving financial clarity.

This will take some work to look through online banking transactions over the last 30 to 60 days to help you create a budget.

In addition, you should start creating a clear picture of your assets and liabilities i.e. your financial net worth.

This holistic view allows you to see where you currently stand financially and identify areas for improvement.

• List all sources of income
• Document monthly expenses
• Identify assets like savings
• Assess liabilities such as debts

Many of us focus solely on paying bills, but there’s more to consider.

A comprehensive financial overview helps you understand how your assets (if you have any) can help in managing liabilities and expenses.

For instance, you might have investments that are performing well.

By checking on these, you could potentially sell some assets to temporarily alleviate financial pressure.

Relying solely on a salary may limit your financial growth.

By tracking your finances, you can identify opportunities to increase your income over time.

This could be through side hustles or investments 📈.

This is easier said than done as a lot of people have a fear of seeing the true reality of their circumstances in black and white.

Ultimately, understanding where you are financially empowers you to make informed decisions.

When you know your net worth and have a grasp on your income and expenses, you can take actionable steps towards financial stability.

Recommended: Debt Solutions: How to Become Debt Free

 

 

💬 Step 4: Communicate well and often

Effective communication is vital when managing finances, especially during tough times.

Whether you have a partner or are single, it's essential to talk openly about your financial situation.

If you're comfortable, discuss financial challenges with a family member.

This creates a support system that can help you navigate difficult situations.

• Share updates with a partner
• Inform family about financial goals
• Discuss changes in income
• Seek advice from trusted friends

Reaching out to service providers can open doors for negotiation.

You might find better deals or payment terms that ease your financial burden.

In summary, let’s view communication as a tool for empowerment.

By keeping lines open, we can better manage our finances and reduce stress.

 

🛠️ Step 5: Question your lifestyle and make small changes

It's time for us to take a closer look at our lifestyle choices.

It is hard for us to admit but the lifestyle choices we make account for 80% or more of the reasons why most of us live paycheck to paycheck.

By questioning our lifestyles and habits, we can identify small and big changes that can lead to significant financial improvements.

Action Step: Start by scanning through your bank statements.

This will help you spot patterns and identify areas where you might be overspending.

• Look for frequent takeaway orders
• Identify unnecessary direct debits
• Assess spending in specific categories
• Evaluate subscriptions no longer aligned with your values

Next, you need to determine your key essential expenses.

What areas are you spending too much on and why?

Is it housing, food, transport etc?

Or perhaps it's private school fees, a nice car or leisure travel?

Understanding where your money goes is crucial in making necessary changes.

If you have a partner, reviewing your finances together can be beneficial.

This exercise can reveal shared habits and encourage teamwork in making necessary changes.

Ultimately, even small adjustments can create a big difference in your financial journey.

 

💵 Step 6: Use cash as much as possible

Using cash for your daily expenses can be a game changer.

By relying on cash, you can better control your spending and make more intentional choices.

When we pay with cash, we limit ourselves to what we have on hand.

This prevents impulse purchases and helps us stick to our budget.

• Withdraw cash for weekly shopping
• Set a spending limit
• Follow a shopping list
• Plan meals ahead of time

Here is a practical example:

We recently withdrew £75 cash for grocery shopping for the week.

This approach encourages us to shop mindfully and avoid buying more than we need.

By using cash, we create a stronger connection with our spending habits.

This simple shift can lead to better financial control and awareness.

💡 Step 7: Create a cashflow plan

A lot of the anxiety and worry we have about our finances comes from not anticipating what's coming.

Creating a cash flow plan is essential for understanding our financial landscape.

This step helps us anticipate our cash inflows and outflows over a specific period, usually four weeks, allowing us to make informed decisions about our spending.

A Cashflow plan differs from budgeting in that it focuses solely on actual cash transactions.

While a budget may include projected income and expenses that don't always translate to immediate cash, a cash flow plan gives us a clearer picture of our financial situation.

• Cashflow = actual inflow and outflow
• Budget may include estimates
• Cashflow shows real-time financial health

Creating Our Cashflow Plan

Let’s create a simple cashflow plan.

Start by noting your current bank balance.

From there, you’ll list expected income and expenses (that involve cash) for the coming weeks.

This exercise can be done on paper or using a spreadsheet.

• Current balance
• Expected income
• Fixed expenses (e.g., rent, mortgage)
• Variable expenses (e.g., groceries)

You should look ahead to the next four weeks and predict your cashflow week by week.

By calculating the expected balance at the end of each week, we can see if we will have money left over or if we might be in the red.

This foresight helps us manage our finances better.

Example of a Cashflow Plan

Let’s assume our starting balance is £500.

In week one, we might receive £2,000 from our salary but have £900 in rent and £75 for groceries.

By calculating these figures, we can anticipate our remaining balance for the week.

• Week 1: Start with £500
• Add salary: £2,000
• Subtract rent: £900
• Subtract groceries: £75
• Remaining: £1,525 for start of week 2.

At the end of week one, we carry over the remaining balance into week two.

This method continues for the next three weeks, allowing us to see our cash flow trends over time.

By the end of the month, we can evaluate whether we have effectively managed our cash flow and make adjustments for the following month.

Benefits of a Cashflow Plan

Creating a cash flow plan gives you a sense of control over your finances.

It helps you anticipate expenses, prepare for unexpected costs, and ultimately reduce financial anxiety.

You don’t need to be a financial expert to create a cash flow plan.

By simply using a pen and paper, you can gain clarity on your financial situation and make informed choices.

Alternatively, you can use our budget for life tool and only add actual cash inflows and outflows that you know will happen.

 

💰 Step 8: Create a plan to make more money

Creating a plan to increase our income is essential for financial growth.

Many of us find ourselves in situations where cutting expenses is no longer sufficient, and we need to earn more to move forward.

First, you need to determine your income goals.

It's crucial to ask yourself how much more we realistically want to earn.

This could be an additional 10%, 20%, or even 50% of your current income.

• Define your target amount e.g. £1,000 per month.
• Consider your skills and availability to put time in.
• Set a timeframe for achieving your goal

Eliminating Distractions

One major hurdle in increasing our income is distraction.

We challenge ourselves to create phone-free spaces in our daily lives.

By setting aside time to think and plan, we can focus on how to leverage our skills better.

• Put your phone away
• Dedicate 1-2 hours daily for deep work
• Reflect on your skills and knowledge

Exploring Income Opportunities

You can increase your income in three broad areas: 

• Offer a service based on your skills
• Create or sell a product
• Generate content for online platforms

Each of these paths requires consistency and effort.

Lastly, remember that increasing your income takes time.

You must remain consistent in applying your skills, learning new ones, and experimenting with different approaches.

Nothing happens overnight, so patience is key.

 

🎁 Bonus point – Stop Worrying

In our financial journey, it's crucial to remember not to worry.

Studies indicate that about 97% of our worries never materialise, yet anxiety can still overwhelm us.

Worrying often stems from fear of the unknown.

By recognising this, we can take practical steps to alleviate anxiety and focus on what truly matters.

• Pray 
• Focus on the present
• Limit exposure to negativity

It’s essential to remember that our current financial status is not permanent.

With focus and discipline, we can gradually improve our situation.

By integrating faith into your financial actions, you create a powerful combination that can lead to financial joy.

Recommended Book: Financial Joy: Banish Debt, Grow Your Money and Unlock Financial Freedom

Conclusion

To break the living paycheck to paycheck cycle permanently, you need to make financial abundance your new standard of living.

I'm not talking here about lavish living but instead, accepting a life filled with security and provision as a standard.

Everything we've covered above will help you adopt new habits and behaviours that will improve your relationship with money.

However, taking things to the next level of making abundance a permanent shift requires accepting it as a part of your new identity.

 

❓FAQ

Here, we will address some common queries to help you navigate your path.

What if I can't make ends meet?

It's important to remember that many face this challenge.

You can explore community resources and financial assistance programs that may provide support during tough times.

Use a benefits calculator to see what you might be entitled to. 

There is no shame in this at all! 

You may also want to speak with friends and family to see if you can get some temporary support.

How can I start saving money?

Begin by tracking your expenses and identifying areas where we can cut back.

Even small savings can accumulate over time, building a financial cushion.

If you're on a low income, the Help To Save Scheme is something to consider.

It is backed by the government and allows people on lo incomes to get a bonus of 50p for every £1 they save over 4 years.

Is it better to pay off debt or save?

This depends on your situation.

If you have high-interest debt, prioritising its repayment can save you money in the long run.

However, it's also vital to save for emergencies.

We recommend building up 3 to 6 months of essential expenses but aim for £1,000 or $1,000 first.

How do I create a budget?

We can start by listing our income and fixed expenses.

Then, allocate funds for variable expenses and savings to create a balanced budget.

If you want a robust budget tool, get the Budget For Life.

What are side hustles?

Side hustles are additional income streams outside our primary job.

They can include freelance work, selling products, or offering services based on our skills.

Click here to check our 50 best side hustle ideas that can make you £1,000 or $1,000 or more per month.

How can I improve my credit score?

To enhance our credit score, we should pay bills on time, reduce debt, and avoid opening too many new accounts at once.

Regularly checking your credit report can also help you identify areas for improvement.

Get your free credit report here.

 

📚 Additional Resources

To support your journey towards financial stability, we recommend reading our Sunday Times Bestselling book, Financial Joy.

It's a 10-week step-by-step plan to help you Banish Debts, Grow Your Money and Unlock Financial Freedom.

If you're interested in a combination of coaching, courses and a community of likeminded individuals on the journey towards achieving financial freedom, then join Financial Joy Academy.

What is your biggest struggle with living paycheck to paycheck? comment below ⬇️

What to read next about how to stop living paycheck to paycheck:

• 15 Ways to Improve Your Credit Score to 999 
• 12 Best Purchases to Make In Your 20s and 30s For Wealth In Your 40s
• Unlocked: I Want To Start a Business But Have No Ideas

More to watch about how to stop living paycheck to paycheck: