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How to Break the Cycle of Living Paycheck to Paycheck

With every scroll through Instagram, we witness people living their best lives. And maybe you’re left wondering how you’ll ever be able to pay for the life you’re living right now—much less the worry-free, Instagram-approved, easygoing financial existence you dream of.

Believe it or not, the key to breaking the cycle of living paycheck to paycheck is simple: Keep a monthly budget.

Let’s talk about what we mean by a monthly budget:

  • Create your budget before the next month begins.
  • Include all income and all expenses.
  • Give every dollar a name.
  • Move things around until your income minus your expenses equals zero.
  • Track your spending as the month goes along.

That’s it!

When you budget this way, you have the opportunity to prioritize what’s most important. If you find yourself guessing on some of the numbers, that’s totally okay! The more you practice budgeting, the better you’ll get at estimating your income and expenses.

How to Create Your First Monthly Budget

With your spouse or accountability partner by your side, get to work and follow the steps below to create a budget that works.

1. Budget before the month begins. For example, you’ll work on your May budget the last week (or so) of April.

2. List all income for the month ahead. Include regular paychecks, bonuses, and money from side jobs or gifts.

3. List every expense for the month ahead. Include giving, saving and spending. Don’t forget bills, debt, memberships, food, clothing, gas, entertainment, and anything else you might spend money on.

4. Move money around until income minus expenses equals zero. Maybe you’ll reduce your entertainment spending in order to increase your savings, or perhaps you’ll reduce your restaurant spending in order to buy a new pair of sandals. Keep moving things around until you have a plan that works for you.

That’s it! You’re officially a budgeter.

Take your budget to the next level

Once you start budgeting, you’ll wonder why it took you so long to start. But, if you’ve never budgeted before, getting it just right can take a little while. In fact, most people need about 90 days to perfect the process. But if you stick with it, you’ll become an ace!

1. Get your budgeting percentages right. This tip is important because it could prevent you from overspending from month to month. Each time you budget, take a look at how your budget matches up to our recommended budget percentages. If you can, break your budget up like this:

Keep in mind that your budget percentages will change as you pay off debt or earn more income. Treat this list as a guideline, not a hard and fast rule.

2. Plan a monthly budget date night. Grab your calendar and circle one Sunday each month (or whatever day works for you). You and your honey (or your accountability partner) have big plans! In just one conversation a month, you can cover the basics and beyond. Talk about your financial goals, plus the details of your upcoming budget. Dream, discuss and make money decisions.

3. Stay motivated to budget. Budgeting is no get-rich-quick scheme. It’s a lifestyle. In the coming months and years, you’ll enjoy moments of big payoff along with seasons of the budgeting doldrums. Stay motivated toward reaching your big money goals by developing healthy budgeting habits and rewarding your milestones such as paying off debts or successful spending freezes.

4. Make adjustments to your budget. You’re a professional budgeter now, so you’re already tracking your spending. But what should you do when you totally blow your budget? Easy! Make an adjustment.

Let’s say you went out to dinner for a friend’s birthday. The whole table split the bill, and it’s a bit more than you planned to spend. In fact, it wipes out your restaurant category for the month and then some leaving you with a $25 deficit.

No worries! Pull up your budget and look around until you find a spare $25. You may need to pull from multiple categories or sacrifice spending on new clothes until next month. Make note of the change in your budget and proceed in peace.

5. Track your spending. A budget is a plan for your money. When you track your spending, you’re simply making sure the plan works. Keep your receipts and track spending by entering your transactions into your budget.  Our personal finance manager, Trends, allows you to create a budget within minutes, then automatically track spending for each category.

At the end of 90 days, you should be able to create a new monthly budget in just 10 minutes. Think about it: just minutes a month—and a commitment to sticking with your plan—could totally change the trajectory of your life!

Are you already following a budget or want to know more? Tell us your success stories or questions in the comments.

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