How To Manage Your Finances When You're Living Paycheck to Paycheck

With inflation at a 40-year high and the price of goods, mortgages, and gas all increasing, Americans are having a hard time making ends meet.

Living paycheck to paycheck is one of the most common financial lifestyles in the U.S., a lifestyle that is affecting increasing numbers of high-income consumers.

"Simply put, living paycheck to paycheck means all your money comes in and goes right back out again by the end of the month," Rachel Cruze, a personal finance expert at Ramsey Solutions, tells Newsweek. "It's not uncommon to live paycheck to paycheck."

Around three in five Americans currently live paycheck to paycheck, according to a report by LendingClub, while an estimated 33.5 million U.S. consumers reportedly spent more than they had earned over the previous six months.

Around three-quarters of Americans earning under $50,000 had no excess income after paying for their essential living costs, with 60 percent of consumers earning between $50,000 and $100,000 reporting the same.

These financial struggles are not just impacting low earners. According to the report, around 52 percent of workers who earned between $100,000 and $150,000 were living paycheck to paycheck, with over a third of Americans earning over $200,000 struggling to find extra income after each paycheck.

"At first, living paycheck to paycheck might not sound like such a bad thing. You're covering your bills, after all," Cruze said. "But if that's all you're doing, it doesn't allow you to save for big future goals, like vacations and retirement."

Thankfully, there are ways to help boost your income without working an additional job, and to save for your future home or retirement without missing out on everyday essentials.

"Budget before each month and track your spending," Cruze recommended. "A lot of people say they are on a budget, but don't actually follow it. Sitting down and tracking every single expense will reveal your spending habits."

Considering how you are spending your income is essential for stretching your funds that little bit further. Start by highlighting the things you cannot afford to go without, such as household bills, insurances, and motor costs.

Then, you should consider what you are currently paying for that you may be able to cut out, or scale back. Try swapping your costs for cheaper alternatives, such as supermarket brand grocery items, or switching to an ad-based Netflix subscription to cut down on your everyday expenses.

Cruze also suggests the first thing you should aim to save for is an emergency fund, focusing on that first $1,000: "This is for those "life happens" moments when an unexpected medical bill arrives, or a home appliance goes out."

Next, Cruze suggests turning your attention to paying off any debts aside from your mortgage or home costs, using the Debt Snowball Method. This is where you pay off debt in order of smallest to largest, gaining momentum as you knock out each remaining balance.

Alternatively, if you find yourself paying a large amount of interest on any of your debt, it could be worth prioritizing paying this off first to ensure you don't pay more for the debt than you need to.

Once you have been able to reduce your debts down, Cruze recommends turning your attention back to your emergency fund, aiming to save three to six months of your expenses in case the worst should happen and you find yourself out of a job.

Finally, Cruze advises saving 15 percent of your household income towards your retirement, but only once you have worked your debts down and saved a reasonable emergency fund.

Most importantly, you should reach out for guidance and talk to your friends and family if you are concerned about your financial situation.

"Money can be a shameful topic, but it doesn't have to be," Cruze added. "It's never too late to get on a budget and make big life changes. Personal finance is 20 percent head knowledge and 80 percent behavior. No matter your situation, taking control of your money is possible."