Saving money while living paycheck to paycheck

Quick insights 

• To stop living paycheck to paycheck and begin saving, you may need to reduce your expenses, increase your income or both.
• Eligible individuals may want to consider applying for assistive programs to offset costs while working toward financial stability.
• Automating transfers and prioritizing an emergency fund can help encourage progress toward savings goals.

Have you found yourself living paycheck to paycheck, with every dollar spent at the end of the month, and nothing left to save? When you’re in this situation, it can be easy to feel overwhelmed and difficult to motivate yourself toward change. Empowering yourself with knowledge can help you build momentum, and with a firm commitment to managing your budget, it may be possible to begin saving. In this article, we’ll provide actionable steps you can take to start saving for your future.

How to save when living paycheck to paycheck

Understanding your income, expenses and debt will allow you to begin making strategic adjustments. Finding savings in your budget means creating space between your income and expenses—either by increasing your income, reducing your expenses or both.

Part 1: Addressing your income

Your monthly income provides the backbone of your budget; all expenses are paid from this total. For those who receive regular paychecks, finding the amount you’re earning each month is straightforward. If you don’t receive a paycheck on a regular basis, or the same amount each pay period, calculate a monthly average. You can do this by adding together your paychecks over a longer period (for example, three months) and then dividing the total by the number of months.

Ways to potentially increase your income

Aspects of your employment are important to consider when ending the cycle of living paycheck to paycheck. Could you take on more hours, switch jobs for better pay or find another part-time position? These types of changes may require significant effort and adjustment, with the potential for a major impact on your budget.

Part 2: Get meticulous about monthly expenses

Review your bank and credit card statements to see how your money is being spent. Be sure to label recurring expenses carefully, using averages if necessary. Then, categorize your expenses into needs and wants. What percentage of your income is being spent on essentials?

One potential budgeting rule is the 50-30-20 rule, which designates 50% of your income for needs, 30% for wants and 20% for savings. If reserving 20% of your income for savings feels like a big jump, see what reductions you can make to begin saving modestly, at 5% or 10%. When you’re just beginning to save, any amount is a win.

Strategies to cut costs

The first place to look for reductions in your budget could be in your discretionary spending, or “wants.” In short, it’s probably easier to limit spending on things like a fun night out than it is to reduce your rent. Once you’ve set limits on entertainment-focused spending, it’s time to see if your “needs” costs can be reduced:

• Groceries: Meal planning, storing food properly to reduce waste, keeping an eye on price per unit, switching grocery stores and buying generic-brand items can help you save money on food.
• Utilities: Small adjustments to how you use energy and gas at home could result in noticeable changes to your utility bills. For example, remembering to turn off lights and electronics when not in use or improving insulation in your space to retain heat.
• Rent: Maybe easier said than done, but downsizing your living space, moving neighborhoods or finding a roommate can help reduce how much of your budget is spent on housing.
• Debt payments: If your car loan, credit card payments or other debts are consuming your budget, it may be helpful to explore debt consolidation or refinance at a lower interest rate. In some cases, you may be able to communicate with your creditors to negotiate the terms of your debt or seek a hardship solution.

Income-based assistance when living paycheck to paycheck

Depending on where you live and your income level, you may qualify for certain income-based programs to help offset the cost of your basic needs:

• Nutrition assistance programs: The U.S. government provides assistance through the SNAP program, D-SNAP and WIC for women, infants and children. Your state may also provide assistance to supplement the federal program. Additionally, private food banks exist in many places to support those in need.
• Income-based utility discounts: Utilities companies may offer discounts for low-income customers. Check your local gas and energy company’s website for area-specific information and eligibility.
• Rental assistance: The U.S. Department of Housing and Urban Development (HUD) has several programs to support those who need help finding a home or paying for rent. HUD programs include a searchable database of apartments with reduced rents, the ability to apply for a spot in public housing and vouchers (Section 8) to help offset rent costs.

Step 3: Banking your savings

When the adjustments you make to your budget begin to leave money for savings, the next question to answer is where you’ll put it. Separating your savings from the account that holds your daily expenses can help you stay organized and protect your progress. Keep in mind that savings features vary by account, so you may want to compare a few before deciding where you’ll put your money.

Automating transfers to your savings account can make the process of saving easier and less stressful. In particular, it may be helpful to schedule a transfer to your savings account around the time you typically receive a paycheck. This can help sweep money into your savings before you're tempted to spend it on something else.

Setting up an emergency fund

Having an emergency fund can improve your financial stability while you work to end the cycle of living paycheck to paycheck. This is money that you set aside in a separate account for unexpected costs and refill after it’s been drawn down. Building up and maintaining this padding can help you face rainy days and leave your long-term savings alone. The amount to set aside for emergencies is up to you. Some people choose to save as much as three to six months’ worth of expenses, but it may be enough to start with a $1,000 goal.

Bottom line

Living paycheck to paycheck is not an ideal living situation for anyone. For some, the changes necessary to stop living paycheck to paycheck will be significant, with several major lifestyle adjustments on the table. But for many others, diligent budgeting and a willingness to live below one’s means may be enough to break the cycle and begin building savings for long-term goals.