Tired of living paycheck to paycheck? Break the cycle now with this trick

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

But it is not as easy as it seems.

Approximate 62% of Americans I live paycheck to paycheck. If you fall into this category, it means you may be struggling to pay 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 hard to overcome. In fact, I have had many coaching clients who earn six figures and still live like this.

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

Why budgeting is not enough

I have learned by training thousands of people that the vast majority you can’t stick to a budget because they live paycheck to paycheck even though they make a lot of money. If you rely 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, reinforce the mindset that you don’t have money. You also make it more difficult to tackle bigger financial goals because your money is already spent before it even reaches your bank account. Sound familiar? That’s where the “cash flow cushion” comes into play, a crucial component of any healthy budget.

You need a cash flow cushion. Here’s why

Cash flow cushion is a buffer — or cushion — of money that you keep in your checking account. The exact amount will vary depending on what you’re comfortable with, but it’s usually the equivalent of a month’s worth of expenses. This is not a emergency fund (although it’s important to build that too). Instead, this pillow will keep you current account padded to give you peace of mind.

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

How the cash flow cushion helps you reach your financial goals

If we were to lose our primary sources of income tomorrow, 66% of US adults would be concerned that they don’t have enough emergency savings to cover a month’s worth of living expenses, according to Bankrate’s 2024 Annual Report. emergency savings report.

One of the biggest benefits of keeping a month’s worth of expenses in your checking account is reducing financial stress. Knowing that you have a buffer available without manual intervention to cover your expenses gives you a sense of confidence and serves as a hedge against expense fluctuations and revenue disruptions.

The cash flow cushion also helps you get rid of your mental and financial dependence on debt while you wait for your next paycheck to arrive. I have coached many financial coaching clients to build up the extra spending money available to pay bills and close 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 usually spend in a month, including essentials such as:

Housing such as rent or mortgage
Utilities
Food
Transport
Essential health expenses

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

Budget example

Expense	Monthly cost
Housing	$1,800
Utilities	$500
Car payment	$400
Car insurance	$160
Food	$400
Essential health expenses	$350
Total in cash flow cushion	$3,610

Once you’ve listed all 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 can also set up automatic transfers from your salary, 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 spending, at least quarterly, to make sure your cushion is enough to cover your monthly expenses. If you encounter unexpected expenses or experience a temporary drop in income, it’s best to be proactive about topping up your cushion as soon as possible.

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

I recommend starting with automating transfers from your main savings account to your checking account on a regular basis to ensure it is consistently topped up without 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 this cushion instead of channeling more money into other goals, such as investing or payment of debts. You might even wonder why putting your money in a no-interest 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 make building your cash flow cushion a high priority.

Many of my clients’ consumer debt could have been prevented with an adequate cash flow cushion, especially during times when inflationinterest rates and layoffs are at all-time highs. Without this padding in your primary bank account, you’ll forever be stuck in a feedback loop, so you won’t have enough for your basic needs and it’ll be hard to focus on other financial goals.

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

The good news is that once you get into the habit of having a month’s worth of cushion, everything in your finances starts to flow more easily. Jumpstarting your cash flow cushion can start with a few extra dollars in your checking account today.

So what are you waiting for?