Living paycheck to paycheck is horrifyingly stressful. Learn exactly how to break the cycle by separating your income from your spending.

Living Paycheck to Paycheck Sucks

According to research from CareerBuilder, approximately 4 out of 5 Americans are living paycheck to paycheck. This is a terrifying statistic.

I don’t want anyone to have to live this way any more. So, I’m going to share my system to break the paycheck to paycheck cycle. It is surprisingly simple. You don’t even have to create a detailed budget.

To break the paycheck to paycheck cycle separate your income from your spending by putting all income from all sources into your savings account instead of checking.

Separate Your Income from Your Spending

Have you ever noticed how your spending expands whenever you have more in your checking account? My favorite example of this is tax return season. Every spring, millions of Americans get a tax return. Which, by the way, is just the government returning extra money that tax payers gave the government during the year. When people get their own money back from the government, they immediately run out and spend it.

What a coincidence that they happened to receive this money in the same month that they needed it!

Having easy access to too much of your own money leads to over-spending.

If you put all of your income into your checking account, then you are much more likely to spend all of your income. That’s why I don’t put my income into my checking account. Instead, I deposit all income from all sources into my savings account. Paychecks, birthday gifts, $5 bills I find on the street… everything goes into savings.

In order for that to work, you’ll have to do just a bit of organization in advance. It’s not much, and it’s not complicated, I promise.

The Undetailed Budget

Before you start using your savings account to collect all of your income, you need to get a rough idea of what it takes for you to live for a month. Savings accounts generally allow up to 6 withdrawals per month without penalty. So, you’ll need a bit of organization to make this work.

I love the Undetailed Budget for this. You only need to determine four numbers.

The Un-Detailed Budget:
Income – Recurring Expenses = Personal Expenses + Savings


If you don’t know your income, go back to your bank statements for the last 3 to 6 months. Figure out which month had the lowest income, and use that number. (If you’re on straight commission and have wild income swings, you may need to use the average.)

Recurring Expenses

Look through the last few months of your spending and find transactions that will happen regardless of whether you buy anything. This is your rent/mortgage, utilities, cell phone, subscription boxes, etc. For each expense, determine if it happens between the 1st and the 15th, or the 16th and the end of the month.

Personal Expenses + Savings

Subtract your Recurring Expenses from your Income, that is your Discretionary Income. This is money that you get to decide how much to spend and how much to save. Make a conservative estimate of how much you want to spend and how much you want to save. Try to be sure to give yourself enough for spending that you don’t have to dip into savings.

The goal is to be honest with yourself here. If you put too little toward personal expenses and need to dip into savings, you can feel like you’ve failed. And, that can lead to losing confidence and momentum. Let’s not do that.

2 Withdrawals per Month

Your bank allows up to 6 withdrawals from savings per month. We’re only going to use 2.

On the first of every month, transfer half of your monthly budget for personal spending plus all of the recurring expenses that will be due prior to the 15th.

Then, on the 16th of every month, transfer the other half of your monthly personal spending plus all of the recurring expenses that will be due the 16th through the end of the month.

Each time, as soon as the money hits your checking account, go in and pay all of your recurring expenses immediately. You don’t want it to look like you have a bunch of money available, when in fact, most of it is already spent.

Review the Balance Every 3 or 6 Months

After just a few months of this, something magical will happen. You will start having money.

The first month or two, you may find that your estimates for how much spending money you need were wrong. That’s okay. Fine tune it a little. But, once you get it dialed in, stick with it.

Get yourself into a rhythm of having about the same amount of personal expenses every single month.

Then, as time goes by and you find ways to increase your income or reduce your recurring expenses, all that extra money goes directly into savings.

I review my savings balance twice per year, but you can do it quarterly if you want.

I see how much extra has piled up because of this system and sweep it out of that account and into something else. You can use it to build an emergency fund, build a diversified portfolio, pay down debt, or pay cash for a large purchase or vacation!

If you do decide to spend it, be sure that your financial house is built on a good foundation. Check out the four pillars of personal finance for more.

Escaping the Paycheck to Paycheck Cycle is for Everyone

This system solves two of the biggest problems with most personal financial advice.

First, you don’t have to build a detailed budget. Detailed budgets suck. I don’t think I have ever met someone who successfully follows a detailed personal financial budget.

And, second, this system makes spending less than you earn absolutely automatic.

That’s why this system is for everyone.

  • If you are just starting out, it can help you maximize your limited resources.
  • If you have a high income, it can help you figure out where all your money goes.
  • And, if you have a high net worth, it can help you keep your finances simple and avoid costly mistakes.

Don’t believe me? Give it a try! Try it for 90 days and I would be willing to bet that you can break the paycheck to paycheck cycle.

Final Thoughts

Managing money is hard, but it doesn’t have to be complicated.

Often, there are small changes to the way we handle money that can have a massive impact on our lives.

By separating your income from your spending, you are eliminating the opportunity to passively let your hard-earned money slip through your fingers. This approach puts you in complete control of your money, but does not require countless hours poring over spreadsheets filled with detailed-budgets.

And, all you really have to do is change where your paycheck is deposited.

What to Read Next

For more information, check out these pages that offer more detail about the topics in this article. Enjoy!

I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

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