How To Break The Living Pay-To-Pay Cycle

How To Break The Living Pay-To-Pay Cycle

We talk a lot about personal finance here at Lifehacker. But if you’re living pay to pay, getting out of debt and creating a workable budget may seem impossible. The Simple Dollar’s Trent Hamm has been there. Here’s his advice on how to break the cycle and live a happier financial life.

Out of all of the blessings that have come into my life over the last two-and-a half years or so, the one that has truly helped me to sleep better at night is the move away from surviving pay to pay. Pay-to-pay living happens when you are regularly waiting for your next pay before you make basic financial moves, such as paying bills or buying food or doing something fun. It’s incredibly dangerous for a number of reasons.

If you lose your job, your life requires you to find a replacement job immediately. Thus, you’re completely dependent on your current job. You can’t survive even a few days without that regular pay coming in. Quite often, your boss knows this and takes advantage of it, because they know you can’t function without that job — this, in the end, makes your job completely miserable and makes it dominate your life.

You can’t plan ahead for disasters. Whenever something bad happens, like a car breaking down or a child needing emergency dental work, your only choice is to bust out the plastic and then sweat it over the next several months as you fight to pay off the balance. If you’re relying on each subsequent pay to even manage your day-to-day life, you can’t plan ahead for these unfortunate situations. Instead, the best you can hope for is the “luck” that they won’t occur too often.

You can’t plan ahead for bigger things, either. Dreaming of a big family holiday? How about a new car, or a new house? If you’re living pay to pay, these dreams are simply unreachable in the foreseeable future. You might really want these things for your family, but they’re unattainable with your current financial structure.

The solution is obviously to back slowly away from living pay to pay, but it’s not always easy.

Recognise That There’s a Problem — and That You’re Not Alone in Dealing With It

I was in these very shoes once upon a time, waiting for that next pay to come in so I could cover the required bills and then spend some more. I racked up five figures in credit card debt and it got so bad I spent a very long night holding my infant son and wondering how I would ever fix things.

Living pay to pay is a problem of your own creation. But you’re not alone in creating that problem, and if you put your nose to the grindstone, you can get out of it and start moving towards financial prosperity. Use the internet — or your own social network — to find out about the experiences of others who turned their ship around and share your thoughts and difficulties anonymously. You’ll find it much easier to work through this tough process.

Look for Regular Expenses You Can Trim Away

The first big step is to trim your monthly expenses. Reduce that mobile phone bill. Get rid of unused memberships, like gym memberships. Look for ways to tone down your home energy use. Start a carpool or start using public transportation. Start cooking at home more and eating out less. All of these things will ease the monthly pressure on your wallet, allowing you to stop feeling like you’re falling behind and instead start getting ahead a little.

Don’t Shop for Entertainment’s Sake

When you’re hanging out with friends, it can be tempting to go shopping for clothes or hit the electronics store. Don’t. Find anything else to do. Shopping for fun in a social environment is costly even if you don’t buy anything, because you’re surrounded by temptation and the mental imprintings of stuff that you want but don’t really need. It’s an excuse to talk to your friends about stuff you want and potentially talk yourself into purchases, either now or later. Just stay away.

Cap Your Non-Essential Spending Each Month

We all spend some money on things we don’t really need. Instead of just spending as opportunities arise, put a cap on that spending each month. Allow you and your spouse a cash allowance each month and agree that your discretionary spending comes from this cash and this cash alone. Make the amount lower than what you normally spend, but not enough lower that you’re tempted to cheat. Then, when you’re used to the amount, consider lowering it a bit more until you find a sweet spot of savings and fun.

Don’t Use Your ATM Receipt as “Permission” to Spend

If you’ve ever looked at an ATM receipt to find out if you can afford something, the answer is that you can’t. Don’t even bother to look. You can’t afford it. Looking at that receipt and then going ahead with the purchase is nothing more than an agreement that you want to continue living pay to pay. If you’re tempted to peek or to use your balance as justification that an unnecessary purchase is OK, you’re perpetuating living pay to pay. You’re choosing to be chained to your desk, at the mercy of your boss.

Move Towards Paying Bills Right When They Come In

One thing that many people living pay to pay waste money on is late fees. You’re a couple of days late on a bill because you were waiting around for your pay, so you’re dinged for an extra five bucks. It used to happen to me all the time — and it was a serious money leak. The best solution for handling this as you move towards financial stability is to start paying your bills as soon as they come in — that way, you avoid the late fees by a mile. Later on, as you get more comfortable, you can develop your own bill-paying routine — I pay mine monthly — but the best way to handle things just as you’re getting some cash built up in your account is to pay bills ASAP.

Don’t Carry More Than One Credit Card With You

Leave the rest at home. The only reason you should be carrying a credit card in your pocket is to cover emergencies or for specific purchases. Thus, carrying more than one credit card in your wallet is not only an identity theft concern, it’s also temptation to spend more than you should.

I personally have three credit cards. Two of them are for specific purchases only, so I leave them at home. The other is my general use card, and it’s the only one that resides actively in my wallet. Because I recognise that I need to keep a healthy free balance on it for emergencies, it makes the temptation of the plastic much lower.

Work Together with Your Your Family

Walking a new financial path isn’t easy. It’s like a diet — it’s a new set of routines and it can be difficult to get used to a new walk. The best way to make it easier is to ask for help, and the best place to ask is your spouse. Work cooperatively with your spouse to cut spending and get in a better financial routine.

If you’re single, try to find a “money buddy”, as suggested by the excellent bookMoney Drunk, Money Sober. Basically, this is a person that you can work in tandem with to overcome your financial challenges and spending issues. By opening up to this person (and allowing this person to open up to you), not only will you find an outlet to talk things over, you’ll also cement an already-strong friendship.


One major step you can take in getting away from pay-to-pay living is to downgrade. Do you really need that fuel-guzzling car when an efficient one would do? Do you really need that large a house? Consider moving to a smaller or more efficient version of these things. It will lower your monthly bills, eliminate some debt, and quite likely directly put some cash in your pocket.

This is a major step for many people and it’s often one that gets inside the comfort zone. “I’ll NEVER do that,” you’ll think to yourself. Instead of just automatically rejecting the idea, think about it more seriously for a little bit. Think of how much easier life would be without a car payment or with a smaller house payment. You might find you don’t need the things you think you need.

Good luck. Breaking free from the pay to pay cycle is one of the most mentally relieving things I’ve ever done. I hope you’ll do it, too.

The First Steps Away from Pay-to-Pay Living [The Simple Dollar]

Trent Hamm is a personal finance writer at After pulling himself out of his own financial crisis, he founded the site in late 2006 to help others through financially difficult situations; today the site has become a finance, insurance, and retirement resource. Contact Trent at trent AT the simple dollar DOT com; please send site inquiries to inquiries AT the simple dollar DOT com.


  • On paying bills straight away, I typically pay bills as late as possible (usually the day before they’re due) so I’m earning interest on the money in my account for as long as possible.

    • This is the nice thing about internet banking that allows scheduled transfers. As soon as I get a bill I schedule the transfer for a day or two before they’re due. Means I get the interest, but also never forget a bill.

  • I’m paid monthly and as such not living pay to pay is almost out of the question. However I pay all my bills/cards as soon as I’m paid so the money left is for living out the month. I do put a couple hundred away a month in a separate account that gains interest.

    • I’m paid monthly and as such not living pay to pay is almost out of the question.

      No it’s not. I was paid monthly for years and never ever was I in a situation where I was relying on my next pay to come in for essential living costs.

      • Coming into the end of the month when I get paid again, I do not have enough to pay bills and have just enough to put fuel in my car and food for a few days. It would make life extremely hard if I was to lose my income prior to a pay.
        It is all dependent on the salary amount and outgoings. As I said all my outgoings come out when I get paid aside from general living costs.
        I could be ultra frugal and save every penny. But then wheres the point in that, life would be mediocre and boring.
        Money is there to be spent, it makes the world go round 🙂

        • What happens when your pay comes in and fuel prices are at the top of the cycle, do you just fill up at the price?

  • I get paid fortnightly, but the majority of the bills I receive are monthly

    What have I done is setup regular transfers / bpay payments;
    – BPAY 1/2 of the bill on each payday
    – Transfer an amount into savings

    If you can afford it, transfer $5-10 more than the bill is so that you maintain a slight level of credit on your e.g phone account, gas account etc

    What you are left with is everyday money for fuel, shopping, eating out etc

  • While I am lucky to have (mostly) dug myself out a serious debt hole in the tens of thousands where I was living pay to pay, I used a few strategies to help:
    – a large container filled with all my coins from the end of each day & dumped onto credit card when it was filled (easily several hundred every few months)
    – avoided the so-called ’emergency fund’ by putting all ‘savings’ into paying down debt to reduce monthly interest (my theory: if I ever seriously needed emergency cash, I’d just use the credit card and cop the interest. Rarely did an emergency of significant magnitude occur that I couldn’t just use my card or the coin fund as above)
    -paid a set amount onto utilities, phone and internet bills every pay to avoid bill shock and to build a buffer if needed

  • Whilst it might take a while, you should always try to have 3 months of your income in savings. After that, make it a game – how much can you add to that balance per month? You’d be surprised at the results – I had close to nothing in my account for a while living pay-to-pay, then I got to the 3 month savings after scrimping a bit. After that I started a little game of how much I could shove into an online savings account each month (make it one of those accounts that are a real pain in the ass to withdraw from). I aggressively checked my balance, and kept ramping up the amount of dollars I could shove in there at the end of each month – if you don’t see in your everyday account, you don’t spend it. After a few years plus some bonuses along the way (again, shoved it in the online savings account as soon as I got it) I had enough for deposits on two properties.

    Also never have a credit card debt that you can’t pay off at the end of the month – my old ANZ card is still at the same $7,500 credit limit as when I got it 13 years ago, because I have no intention of spending that much money in a month, even as my salary has grown.

  • I’m honestly surprised that so many people I know, and in general, are swamped in crushing debt and never ending, expensive bills. It’s pretty simple.. if you can’t afford to buy it in cash then you can’t have it. Don’t buy crap you don’t need. Invest your money to get maximum returns. Ride a bike instead of driving a car like a clown. Don’t ignore your debt. Eat fresh, healthy food that you cook yourself. Don’t smoke, use drugs or drink alcohol. Find like minded friends which you can learn from and bounce ideas off. Life will be much easier.

    I’m 25, been working full time for 18 months since finishing uni, have $70,000 in cash earning a decent amount of interest, and zero debt. Life is good. No stress. No worries. Plan to buy or build a small energy efficient house in a well connected, livable area and pay at least 50% in cash up front and smash out the remainder asap – even if it means working extra hours and cutting any unnecessary costs.

  • Great. Now if you can only show us how to do the same, only from pension day to pension day.

  • Hi,

    Some really practical tips here Trent, we’ll share this article through our twitter network. It’s encouraging to see from the comments a lot of your followers already have savyy plans and attitudes towards debt, paying bills and saving.

    Interesting that you mention loss of a job, we’ve found from our research that a surprising number of Aussies only have sufficient savings to last 1 month if they were to lose their job. So we recently wrote an article on what to do if you lose your job:

    Thanks for sharing your tips.
    Gareth @ RaboDirect

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