If you’re scraping by every month with no money left over from your last paycheck, you’re not alone. In fact, nearly 75% of Americans surveyed by the American Payroll Association said they would find it “somewhat or very difficult” to cover expenses if their paychecks were delayed for even one week.

Managing your finances can be a challenging task, especially if you’re struggling to make ends meet. There can be several reasons why you might find yourself broke, ranging from overspending to a lack of income. If you’re struggling with your finances, it’s important to take a step back and evaluate your situation. By understanding the common reasons why people struggle with their finances, you can take steps to avoid financial pitfalls and build a strong financial foundation.

Even if you’ve been living paycheck to paycheck for years, however, you can take steps to improve your financial picture so you can work towards achieving financial goals for a better future.

Table of Content

Why am I broke?

While this may seem obvious, being broke all the time is a sure sign your current budget isn’t working, either because you’re not budgeting realistically or you’re failing to stick to the budget

Don’t despair, though. You can adjust your budget, and it’s never too late to change your spending habits to stretch your money further each month.

There are usually numerous reasons why a person is constantly broke and living paycheck to paycheck.

  1. Your money is a mess
  2. You’re living beyond your means
  3. Your fixed expenses are too high
  4. You have no emergency savings
  5. You have poor credit

These can be simplified in the three B.I.G. reasons you are broke, no Budget, Ignoring debt, and Going out.

Signs you’re living beyond your means

Are you living paycheck to paycheck? If so, you’ve got plenty of struggling companies. Around 78% of American workers live paycheck to paycheck, according to a survey by CareerBuilder. And it’s not just low-income earners, either. Nearly 1 in 10 Americans who earn at least $100,000 told CareerBuilder they’re living from paycheck to paycheck.

So, how do you know if you’re living beyond your means, and what can you do about it?

You’re always broke

If most or all of your entire paycheck is spent immediately on bills, you need to make some adjustments. Look closely at your monthly expenses and especially at your daily spending habits and cut back where you can.

Maybe you could start with canceling subscriptions you can do without or shopping more carefully at the grocery store. You might even take a more aggressive approach such as selling your expensive car and buying an older model with lower payments, or no payments at all.

If you’re always broke, there’s another option, too: Make securing a higher-paying job your goal for 2021. Then take steps each week towards finding work that not only pays the bills but also allows you to live comfortably.

You have lots of credit card debt

A sure sign that you’re living beyond your means is when you carry high credit card debt. It’s not unusual to charge expenses such as groceries, gas, utilities, and other necessary purchases, but if you can’t pay off most of the balance each month, you’re living beyond your means.

Living off credit cards is an expensive way to get by. The average credit card annual percentage rate (APR) is around 16%. And the higher your unpaid balance, the more you’ll pay in interest.

For example, if you make only minimum monthly payments of $90 on a credit card balance of $3,000 and a 16% APR, it will take more than 12 years to pay the balance off. And you’ll pay an additional $2,165 in interest.

Too much of your income goes to housing

Most people would love to have a luxurious home where they can kick back and enjoy life. However, buying a home or renting an apartment or house that you can’t afford will cut into how much money you have left for other expenses.

Ideally, as a homeowner, you should spend no more than 36% of your income on mortgage payments, property taxes and insurance, according to Forbes Advisor. If housing costs are gobbling up your paycheck, consider downsizing to a more affordable home to free up money.

You pay for vacations with credit

According to a survey by CIT Bank, 77% of Americans spend money on vacations each year but 43% don’t save for a vacation. And 29% have taken “extreme measures” such as taking out a loan, wiping out savings or exceeding their credit card limit to recharge in another location.

If you return home from vacation relaxed but quickly become stressed over the $2,000 you charged on your credit card to pay for the getaway, you’re living beyond your means. The best way to pay for a vacation is to save for airfare, hotel and other expenses like dining out, renting a car and sightseeing costs in advance.

You have no emergency savings

Not everyone can achieve the recommended emergency savings amount of five to six months emergency savings. But if you can’t even spare enough to build an emergency fund of $1,000 so you don’t have to charge car repairs or other unexpected expenses on a credit card, you’re living beyond your means.

If you can, get started by scrounging up as little as $100 to open an emergency saving account. Then get ruthless with monthly expenses, making temporary sacrifices where you can while paying down debt to free up extra money so you can make monthly deposits to the emergency funds account.

You dread putting together a budget

Does facing the fact that you live beyond your means keep you from sitting down and creating a budget? Maybe you think that if you don’t have enough to pay the bills each month, there’s no point in trying to draw up a budget. Don’t get discouraged, though.

There’s help available to assist you with creating a budget – and a life – that you can afford. To get started, meet with a nonprofit credit counselor for no fee or a nominal fee. The counselor can help you create a budget and debt management plan so you can gain control over your finances again.

Budgeting mistakes to avoid

Are you unable to stick to a monthly budget but unsure of what’s holding you back? Or maybe you’re ready to get your finances on track but aren’t sure how to create a budget that works. Either way, your monthly budget this year could be just what you need to help pay off debt, make payments on time and save for emergencies or large purchases.

Not having a budget

One of the biggest budgeting mistakes you can make is not having a budget at all. If you’ve been winging it every month by keeping track of bills and due dates in your head and pulling out your credit card for most purchases, that’s a recipe for overspending.

How to fix it:

To get started on creating a budget review your expenses and income.

Guessing at monthly bills

You may have to go by rough estimates on a few budget items for the first month or two. However, once your budget gets rolling, you should have a good idea of how much to allocate for rent, mortgage, car payments, insurance and everyday expenses.

How to fix it:

Pay attention to how much you spend and then adjust accordingly.

Failing to track spending

Once you have a budget, track your spending to make sure you’re staying on track. Knowing how much you spend each month or week can help you see whether the budget you have is working or needs to be tweaked next month.

How to fix it:

Get a budgeting app, like Mint or You Need a Budget (YNAB), to make life easier.

Your monthly standard of living is lopsided

If you begin the month going out for steak dinners and spend the last week eating ramen noodles in front of the TV, you have a couple of issues going on. For starters, you’re probably not spreading out over 30 days the amount you budgeted for meals and groceries. Second, you may be underestimating food costs.

How to fix it:

Try to allot more in your budget toward food or other expenses that start out strongly funded early in the month and become hard to pay later. At the same time, examine your spending habits for groceries and dining out and focus on ways to save money such as using coupons, watching for sales at the grocery store and cooking more meals at home.

Being unrealistic

Few things are more discouraging than getting excited about sticking to your new budget and then realizing you often exceed allocated amounts in several categories. Budgeting on the low side for certain items may feel good when you put the budget together, but if it’s not realistic, you could get discouraged and end up ditching the whole budget.

How to fix it:

Instead of giving up, make adjustments, raising allocations where necessary and learning from those early budget attempts. Soon you’ll be back on track with a more realistic monthly budget.

Most of one paycheck goes toward one big expense

When you get paid twice a month, allotting most of the first paycheck every month to rent or the mortgage payment may seem the natural thing to do. However, if you have an unexpected expense like a car repair that must be paid with that paycheck, you could fall behind on the rent and struggle to catch up.

How to fix it:

It’s a better idea to set aside money from each paycheck toward the rent or mortgage payment. That way, you always have some extra money in the bank in case you are surprised with out-of-the-blue expenses for one month.

Leaving out annual expenses

No matter how well your monthly budget seems to be working, if you don’t allocate a portion each month towards annual recurring expenses, you could be in a financial pinch later.

How to fix it:

Don’t forget to allocate money for savings designated for annual expenses like property and income taxes and auto, homeowner’s and renter’s insurance, too.

You have no emergency savings

If your budget doesn’t allot a certain amount each month to savings, you could be headed for trouble. What if your home air conditioner breaks down or you have to travel unexpectedly for a family emergency? Without emergency savings, even having to spend $100 for a new car battery could throw your entire monthly budget off track.

Ideally, you should have emergency savings to pay for five or six months of living expenses, but don’t give up because you don’t know how you’ll ever be able to save that much. Instead, open a savings account with as little as $100 and then allot a certain amount each month toward emergency savings.

Initially, you might shoot for an attainable goal of $500 or $1,000. Once you meet your goal, adjust your savings target to higher amounts.

How to fix it:

Make saving automatic. Get money deducted directly from your paycheck into an emergency savings account. You can’t spend what you don’t have.

You never have money for special occasion gifts

Are you the family deadbeat who never has enough money to buy holiday or birthday gifts? If so, you need to budget even a small amount each month for expenses related to special occasions such as graduation gifts or birthday dinners.

If you don’t use the budgeted amount one month, don’t blow it on something else. Transfer the money to your emergency savings instead to use for the next special occasion.

How to fix it:

Check your calendar and plan ahead. set aside money each month for special occasions and holidays.

You incur additional credit card debt every month

If you’re racking up a few hundred dollars in credit card debt every month that you can’t pay off with each statement, it’s time to take a closer look at your budget and adjust accordingly. Take a look at where you can cut expenses so you don’t have to use your credit card?

Maybe you could pause three streaming subscriptions and get by with just one. Could you save money by dining out less and preparing more meals at home? Maybe you could save on utilities if you focused on keeping costs down.

How to fix it:

Try to adjust your spending habits and monthly expenses so you can avoid charging expenses on a credit card that you could pay with cash or a debit card if you budget accordingly.

Totally depriving yourself

Your budget may look good on paper, but if you deprive yourself of all pleasures when preparing the monthly plan, you could resent the budget that took away too many things that you love. For example, if you love to work out, budget for your gym membership and cut back by finding ways to save on groceries or other expenses.

How to fix it:

Leave room in your budget for small luxuries like dining out occasionally or a new clothing item here and there.

If you’re struggling with your finances, it’s important to take a hard look at your spending and identify areas where you can cut back. You may also want to consider seeking the advice of a financial professional who can help you develop a plan to get back on track.

How do I stop living paycheck to paycheck?

Question: I don’t have a lot of debt, but I also don’t have a lot of money. I think I got $5,000 I’m carrying on a couple of credit cards. I also got $12,000 in student loans to go. My car is paid for, and I live at home with my parents until I can figure out how to live on my own. My job is steady, and it has decent benefits, but it pays only $22,000 a year. How do I save money and stop living paycheck to paycheck?

— Anthony in Georgia

Howard Dvorkin answers…

First of all, allow me to reminisce for a moment. Back when I began my career as a financial counselor in the 1990s, $5,000 was considered a significant credit card balance, and $12,000 in student loan debt was still a rarity.

Times have certainly changed. The average credit card debt by household in this country is more than $16,000, Debt.com reports. The average student loan debt is more than $50,000.

So according to these statistics, you’re right, Anthony. You don’t have “a lot of debt.” However, as you’re learning, any debt is a drag — not only on your current financial situation, but you’re future one, too.

Even worse, when you earn very little, the interest rates on your debts chew up a bigger percentage of your income. So the first step is curtailing some of those interest rates.

To accomplish that, try these options and in this order…

How Do I Stop Living Paycheck to Paycheck

How do I stop living paycheck to paycheck? A reader has some debt but no savings. Thankfully he has several excellent options. If you feel like your financial life is a hamster wheel it’s time to stop running in circles.

The best way to stop living paycheck to paycheck is start living dollar to dollar. The best thing you can do is also the easiest. Debt.com can show you how to create a budget that will show you exactly where your money goes. The results will probably surprise you.

Yes, I know making a budget isn’t high on anyone’s list of having fun, but it’s also very important. It also doesn’t take too long, so do it now, Debt.com can show you how. Once you create a budget you can consult a professional. It’s called credit counseling and believe it or not it’s absolutely free.

A certified credit counselor will review your finances with you once completed. You’ll have a clearer idea of what you can do to stop living paycheck to paycheck.

It might include signing up for programs that can reduce your student loan payments or other programs that can manage your credit card debt but you won’t know about that until you know about yourself first.

So, make that budget!

Create a budget

Maybe you’re running out of money between paychecks because you don’t have a plan for covering recurring monthly expenses with your income amount. It’s easy to create a budget using budgeting apps you can quickly download and link to bank, credit card and other accounts.

Prefer a hard copy budget? You’ll find plenty of budgeting templates and advice online about how to get started. If you need help setting up a budget, consider meeting with a nonprofit credit counselor who can offer guidance and advice.

Eliminate certain expenses

If your entire paycheck is eaten up in a week, you probably have a few expenses you can cut to save money. For example, maybe you could save $70 a month by canceling four out of five streaming service subscriptions. Maybe you could save another $200 each month by cutting back on going out to eat or takeout.

Compare prices on insurance to find a better rate, run errands in batches to save on gas and stick to your prepared list when you hit the grocery store. Look for ways you can reduce or eliminate certain expenses so you can free up money to cover that paycheck-to-paycheck gap and maybe even sock away some funds in savings.

Live within your means

If you don’t earn a huge income but you’re charging dinners at fancy restaurants and driving a luxury car to keep up with your big-spender friends – or maybe just because you like nice things –  it’s time to rein yourself in if you want to stop living paycheck to paycheck. If you don’t want to be constantly broke, you must be realistic about how far your income can actually go.

Could you sell that expensive car and buy a used, practical vehicle that looks nice but isn’t brand new to save on car payments? Maybe you could cut back to dining out only once a week or move to a less expensive apartment or downsize to a smaller house to free up a few hundred dollars each month.

Start an emergency fund

When you live paycheck to paycheck, you probably don’t have enough money to cover unexpected medical bills, car or home repairs, or an emergency veterinary bill. Then you have to charge those costs to a credit card, increasing your monthly bills even more.

Even if you have only $100 to open an emergency savings account, go ahead and set that up, with an achievable goal of saving $1,000 for a basic emergency fund. Once you achieve that goal, increase the goal amount incrementally each time you achieve the savings goal until you have enough to cover emergencies or at least a few months expenses if you lose your job.

Get a better job

When you live paycheck to paycheck, the obvious solution is to get a higher-paying job. Searching for employment can be a full-time job in itself, but well worth your efforts if your search pays off with a bigger paycheck that stretches further than the income you currently earn. Not up to changing jobs? Take a second, part-time job or start a side hustle such as pet sitting or lawn care to add extra cash each month.

Pay off debt

Are you paying hundreds of dollars towards credit card debt or making little progress on paying off debt because you can afford only the minimum monthly payment amount? Focus on paying off at least one debt to free up money every month. Then take that money you were paying monthly and put it towards the next debt you want to pay off.

Once you get rid of these paycheck-draining debts, try to avoid racking up more debt. Instead, put those savings into your emergency fund so you can pay cash for emergencies and large purchases next time.

Get a professional assessment

If you’ve read Debt.com before, you know I’m a huge proponent of credit counseling — and why not? It’s free. A certified credit counselor calls you and conducts a financial assessment right on the phone. From there, you can make informed decisions about your finances. Learn more about free credit counseling services.

Now matter what kind of debt you have, Debt.com can help you solve it.

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Article last modified on March 27, 2023. Published by Debt.com, LLC


Howard Dvorkin, CPA

CPA - Debt.com Chairman & Personal Finance Expert