Dissecting the Paycheck to Paycheck Cycle
Updated: Nov 16, 2022
For the majority of my life after college I lived paycheck to paycheck. It always seemed that I just had enough money for rent and bills, or during the really bad months, I turned to my savings to cover those last few expenses. I felt like I was walking a money tightrope and could fall off at any moment. I was embarrassed, frustrated, and anxious.
The paycheck to paycheck cycle is when your entire paycheck goes to paying your living expenses with very little, if anything, left over. When you are in this cycle, some months your paycheck may not cover all of your monthly expenses, which leads to a heavy reliance on credit cards or savings. Ultimately leading to a bigger hole that you’re in. Living paycheck to paycheck can also mean that individuals have very minimal savings or are depleting their savings very rapidly to cover monthly expenses.
One of the main reasons why getting out of this cycle is so difficult is because there is very little “wiggle room”. If all of your income is going towards paying your bills, then it can be very difficult to see any opportunities to pay off debt or save money. For some individuals, they may find that there is nowhere in their budget to cut expenses. If your only monthly expenses are your living expenses, then it can be tough to try and cut back anywhere. There is no room to try something new with your money management because you’re doing a financial balancing act. When you’re living paycheck to paycheck, it can be incredibly unclear what the problem is that is causing this cycle, and how to solve it.
Factors That Can Contribute to the Cycle
Living paycheck and paycheck can seem never ending. For many people, I find that there are usually 3 factors that are contributing to this cycle.
1. Not knowing the numbers
Mental budgeting is a sure way to get caught in the paycheck to paycheck cycle. Mental budgeting is when you have a rough idea of how much you make in a month, and as expenses come in, you have a general idea of how much money is left over. The issue with mental budgeting is that it is highly inaccurate. How many times have you opened your bank account and been surprised by the low amount in it? That is due to mental budgeting. There is no way you can keep track of all your monthly expenses in your head.
It is crucial to know down to the penny what your monthly income and expenses are when you are living paycheck to paycheck. Often just writing down these numbers can give you a sense of control and power. 2. Inability to see the problem area
What is causing the paycheck to paycheck cycle? Often it comes down to either a spending issue or income issue. If you are mental budgeting, you may not realize how much you’re actually spending in a month. So, when you get to the end of the month you don’t know where your money went and once again it is a struggle to pay those last few bills.
Alternatively, you could know your numbers forward and backward, and because of that you know there is no place for you to cut back with your spending. This means the issue lies with your income. Perhaps the cost of living in your area is outpacing the income rate of your job. No amount of cutting expenses will help, the only solution is to increase your income. 3. Too much debt
There is a responsible amount of debt you can take on and an irresponsible amount of debt you can take on. If your debt payments are causing you to barely be able to afford your living expenses, you’ve taken on too much debt for the amount of money you make. When you take on debt, always be sure you are able to continue to save and set money aside for retirement at the same rate you were before you took on the debt
It’s important to note that these are not the only factors that contribute to the paycheck to paycheck cycle. Beyond these there are other external factors that cause individuals to live paycheck to paycheck. These include income disparities, the rising cost of living and stagnant minimum wage, and systemic socioeconomic oppression.
Preventing the Paycheck to Paycheck Cycle
The paycheck to paycheck cycle doesn’t have to be forever. If you are just entering the workforce or are just starting to get out of the paycheck to paycheck cycle, here are some ways to prevent falling (back) into this cycle:
Build up savings
Establishing your emergency fund is the best way to do this. This will give you a cushion in case your income varies unexpectedly or you lose your job. Pay off debt
Each time you pay off a debt, you get an immediate pay raise…because you’re no longer making payments towards that debt. As you pay off debts, you’ll notice the amount of money you have left over at the end of the month increases. Build good financial habits
Keep your monthly expenses below your monthly income, don’t take on more debt than you can handle, and as a musician, continue to grow your business.
Ask for help
There is no shame living paycheck to paycheck. If you feel like you are being crushed under a financial rock, it is time to ask for help. There are ways to get out of this cycle and sometimes you need support to do so.
If you are ready to stop living the paycheck to paycheck cycle but are unsure how to break it, then check out the Music, Money, Mastery Program!