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Tired of Living Paycheck to Paycheck? Break the Cycle With This Trick

It's cool to invest and pay off debt, but only if you can comfortably pay your bills first.

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As a money coach, I’m often asked what’s one change someone can make to stop living paycheck to paycheck. My answer is always the same -- have a clear budgeting routine.

But it’s not as easy as it sounds.

Approximately 62% of Americans are living paycheck to paycheck. If you fall into this category, it means you might struggle to pay for a surprise expense or have trouble covering your bills without your next paycheck. And that’s a problem. It’s a struggle I’ve been through, and I know it’s difficult to overcome. In fact, I’ve had many coaching clients who earn six figures and still live this way. 

But I have a money hack that anyone can start applying today to make it easy to get out of the endless paycheck to paycheck loop. And you don’t have to make six figures to start implementing it.

Why budgeting isn’t enough

I learned through coaching thousands of people that the vast majority can’t stick to a budget because they are living paycheck to paycheck, even if they make a lot of money. If you’re relying solely on your next paycheck to pay your current bills, you’ll never break out of this cycle.

Why? There are a few reasons. First, you’re reinforcing the mindset that you don’t have money. You’re also making it harder to tackle bigger financial goals because your money is already spent before it even hits your bank account. Sound familiar? That’s where the “cash-flow cushion,” a crucial component of any healthy budget, comes into play.

You need a cash-flow cushion. Here’s why

The cash-flow cushion is a buffer -- or cushion -- of money you keep in your checking account. The exact amount will vary based on what you feel comfortable with, but usually, it’s the equivalent of one month’s worth of expenses. This isn’t an emergency fund (though that’s important to build up, too). Instead, this cushion will keep your checking account padded to provide you peace of mind.

So, for example, if you typically spend $3,000 in expenses each month, you’ll want to be sure your checking account never goes below this number. Having that money stashed in your account can help you stop worrying about your next payday and finally free yourself from the paycheck-to-paycheck cycle.

How the cash-flow cushion helps reach your financial goals

If we were to lose our primary income sources tomorrow, 66% of US adults would be worried about not having enough emergency savings to cover a month’s living expenses, according to Bankrate’s 2024 annual emergency savings report.

One of the biggest advantages of keeping one month of expenses in your checking account is the reduction of financial stress. Knowing that you have a buffer readily available with no manual intervention to cover your expenses provides a sense of confidence, and it serves as a safeguard against expense fluctuations and income disruptions. 

The cash-flow cushion also helps you remove your mental and financial dependency on debt while you wait for your next paycheck to arrive. I’ve trained many financial coaching clients to build up that extra month’s worth of expenses readily available to pay bills and bridge the gap between paychecks without resorting to credit cards or loans.

How to start (and grow) your cash-flow cushion

Building a cash-flow cushion starts with a clear calculation of your monthly expenses. Add up the total amount you typically spend in a month, including necessities like: 

  • Housing, such as your rent or mortgage
  • Utilities
  • Food
  • Transportation
  • Essential health expenses 

Accounting for these non-negotiable expenses lays the foundation for determining the amount required for your cushion.

ExpenseMonthly cost
Utilities $500
Car payment$400
Car insurance$160
Essential health expenses$350
Total in cash-flow cushion$3,610

After you list all of your monthly expenses and amounts, start setting aside funds to cover them. This might involve reallocating some of your emergency savings or adjusting your budget to prioritize building your cash-flow cushion over the next few months. You may also set up automatic transfers from your paycheck, even if it’s a small amount. 

It may take you a few months to grow this cushion in your checking account, but it will be worth the effort.

💰 Tip

Track your expenses, at least quarterly, to make sure your cushion is sufficient to cover your monthly expenses. If you encounter unexpected expenses or experience a temporary drop in income, it’s best to be proactive about replenishing your cushion as soon as possible.

Once you’ve built a cash-flow cushion, it’s important to maintain it. And that requires commitment to make sure you’re not relying on your next paycheck to pay your current month’s bills. 

I recommend starting by automating transfers from your primary savings account to your checking account on a regular basis to make sure it’s consistently replenished without requiring manual intervention.

If you want to pay off debt or invest, you need this financial cushion

Despite its benefits, you may wonder if it’s worth building up this cushion rather than funneling more money into other goals, like investing or paying off debt. You may even wonder why putting your money into a no or low-interest checking account is better than earning interest. While you don’t have to abandon your goals entirely -- and yes, you still want to work on paying off your debt -- you should also consider creating your cash-flow cushion a high priority.

Many of my clients’ consumer debt could have been prevented with a proper cash-flow cushion, particularly in times when inflation, interest rates and layoffs are at all-time highs. Without this padding in your main bank account, you’ll forever be stuck in the feedback loop so you won’t have enough for your basic necessities, and it’ll be hard to focus on other money goals.

I like to tell people that debt represents your past and investing represents your future. The best way to conquer both your past and your future is to make sure you are making effective money choices today. 

The good news is that once you commit to the habit of having one month’s worth of cushion, everything else in your finances begins to flow with greater ease. Starting your cash-flow cushion can start with a few extra dollars in your checking account today.

So what are you waiting for?

Bernadette Joy is a nationally recognized money expert featured on Good Morning America and NBC News, and in Time and USA Today. She inspires her audience to explore the intersection between net worth and self-worth. While she has two degrees in business and a degree in psychology, her credibility comes from leading by example. As first-generation Filipino Americans, she and her husband AJ paid off a whopping $300,000 of debt in three years and grew their first $1 million of net worth in their thirties. Joy founded Crush Your Money Goals® for the many who are overlooked and underestimated by traditional financial services. Her goal is to help others gain confidence in managing money and provide a blueprint to achieve financial independence.
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