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6 Ways to End the Paycheck-to-Paycheck Cycle

Personal finance literature can be full of the kind of simple-yet-unhelpful advice that no one knows how to take—things like, you should have an emergency fund!

While it’s pretty darn obvious that having money set aside for an emergency is better than not having money set aside for an emergency, the suggestions for creating such a fund tend to be unreasonable. They either expect you to save up the piddling daily amount you save by brewing your own coffee, or they expect you to make overwhelming changes to your life by giving up a car or moving to the boonies where everything costs less.

Yes, I'd love to hear how I can save $1 million by giving up lattes.

However, it is entirely possible to build a financial cushion for yourself even if you are cash-strapped, broke, or living paycheck-to-paycheck.

Your initial emergency fund goal, if you’re starting from zero, should be a manageable $1,000. A cool grand will smooth over any number of emergency scenarios, making it a great place to start.

You can create a financial cushion even if you're living paycheck-to-paycheck

Here are some ways to fill up your emergency fund if you’re living paycheck-to-paycheck:

Adjust Your Withholding

Do you regularly receive a large tax refund every spring? If so, then you have an easy place to find some extra money every month (as much as $225 per month, if you receive the average refund of $2,725.) Instead of sending your money on a trip to the IRS and back, adjust your withholding allowances on your W-4 form with your employer and keep that money in your paycheck.

The IRS withholding calculator will help you figure out exactly how many allowances you can take. The withholding allowances you claim do not determine your tax bill. They only determine how much is withheld from your paycheck for taxes. This means you can be approximate on the withholding calculator.

Use IRS allowances to keep money in your paycheck

Once you’ve determined your withholding allowances, you can request a new W-4 from your employer’s HR department. You’ll see more money in your paycheck within about a month (or possibly sooner, depending on how quickly your HR department files paperwork). Also schedule an automatic transfer of the extra money into your emergency fund so you are not tempted to spend it.

If the idea of adjusting your withholding (or lowering your tax refund) makes you uncomfortable, you can also plan on using your annual refund to fill your emergency fund.


The automatic transfer is one of the most important tools in your financial playbook, because it makes money decisions effortless. You’ll start by setting up an automatic weekly transfer of a small amount of money to your savings account. This allows the money to move without your attention or focus on it. You only need to focus at the time you set up your transfer, which is far simpler than trying to force yourself to save money manually every week.

Auto transfer makes saving easier

How much should you transfer? As much as you can afford that you are unlikely to miss—like $20 per week. (Adjust that amount up or down depending on your financial circumstances.) Choosing a small dollar amount may seem counterproductive. After all, what will $20 per week do? However, choosing an amount of money that you know you will not miss helps you to gradually grow your emergency fund. In addition, the small amount will make it not worth your while to transfer it back, unless and until you need to access the money for an emergency.

You should also note that you will continue to automatically transfer money into your emergency fund even after you’ve reached your goal of $1,000 (or even three-to-six months’ worth of expenses). Continually refilling the fund allows you to always be prepared, even when you need to dip into the emergency fund.

Future Savings Step-Ups

Of course, saving $20 per week does not add up too much. At that rate, it will take you nearly a year to reach a $1,000 emergency fund. That’s why it’s smart to set up automatic increases of your savings at regular intervals.

It’s very easy to schedule an increase of your $20 per week transfer to $40 per week three months from now, since you are not focused on the issues you’ll be facing in the future. Taking the future decision out of your hands allows you to increase your savings rate gradually without the risk of it slipping your mind.

Sell Your Stuff

In the midst of an emergency, it becomes clear that your stuff may not be as important to you as you might otherwise think. If you never use that second set of dishes or the professional-grade espresso maker, then you’d feel perfectly comfortable selling them to get out of a financial jam.

Sell items you do not use or need.

Rather than wait for an emergency, start looking at your stuff now as if the emergency has already happened. You’ll better understand which items really matter to you, and which you can live without.

That said, selling your things to build an emergency fund can be a process rife with judgment and self-recrimination. You may be judging yourself for being in this situation, or you may be judging the amount of money you feel you should be able to get for your possessions. It is difficult to make the best financial decisions for your situation if you are burdened by these kinds of judgments.

Letting go of judgment and accepting the present reality will make it easier for you to release your items. You will have an easier time selling if you are not overwhelmed by guilt or shame for having to sell these items and if you accept the reality about what they are currently worth.

Another benefit of selling items when there’s no emergency is that you have the time to get the best prices for your items. Online marketplaces like eBay, Craigslist, and Facebook can help you sell your stuff, as can local consignment shops or even rummage sales. If you set yourself a goal of selling one item per week, you’ll soon have a less cluttered house and a fatter emergency fund.

Save $5 Bills

Put aside every $5 bill you find into a jar or envelope. This is a way of re-contextualizing your view of the bills. Instead of seeing them as cash to be spent, they become something to be saved. By saving $5 bills, you become more focused on what you plan to do with the bill (save it with others of its kind) rather than on what you could buy with the money.

Start a collection of $5 bills

This kind of re-contextualizing of $5 bills will make you automatically more mindful of any cash that comes through your hands since you will be focused on how your cash can help you increase your “collection” of $5 bills.

Stash Your Windfalls

Receiving a raise, a tax refund, or even birthday money can often feel like a great opportunity to enjoy some fun money. And you should—but not with all of your windfall. Set aside a portion to treat yourself with, and put the rest in your emergency fund.

Enjoy your treat and enjoy your savings

Not only will this help you grow your emergency fund, but you will also enjoy your treat money much more if you make a conscious choice to savor what you buy. For instance, you could take yourself out for an almond croissant that you eat slowly while enjoying the sights and sounds of the bakery, noticing the scent of coffee mixed with the aroma of warm sugar, and savoring the taste and sensation of each bite resting on your tongue. The enjoyment of a single warm almond croissant will likely be much more satisfying than a day of mindless shopping.

Treating yourself mindfully means you will actually enjoy your windfalls more even though you are only using a small amount for yourself.

End the Paycheck-to-Paycheck Cycle

The only way to stop living from hand to mouth is to have a financial cushion—which can feel impossible to build when you’re living hand to mouth. But there are always places to find money, as well as habits and behaviors you can adopt to free up cash for your emergency fund. Adopting some (or all) of these strategies will have you feeling more prepared in no time.

Once you have built some breathing room into your financial life, it will become much easier to weather any emergencies that come your way.

What are some unusual ways you have used to build up your emergency fund?


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