Living paycheck to paycheck can be stressful. It can stop you from getting ahead, saving for the future, paying down debt, and spending your money on things that are more important.
While breaking the paycheck to paycheck cycle isn’t easy, it may be possible for you, and it starts with working towards building a cushion in your budget. When you have one month’s worth of expenses sitting in your Unallocated, it’s a cushion that helps you pay this month’s bills and fill your Envelopes in Goodbudget with money you earned last month. That means you won’t have to use up your paycheck on groceries or rent as soon as you cash it. It also provides some stability and makes it possible to cover small emergency expenses when they come up.
Like we said, breaking the cycle isn’t easy, but it is possible. Here’s how to create that one month cushion:
Look at Past Spending
Ever get to the end of the month and wonder where all your money went? You’re not alone. Even if you use Goodbudget to track your spending, it’s easy to go on autopilot and spend without thinking. Knowing where your money is actually going can you help create a budget that you can stick with.
Use a report, like the Spending by Envelope or Spending by Month, to see where the money’s been going. You might be surprised to find that you’re spending more in some categories than you’ve been budgeting for. Knowing how you’re actually spending will help you make informed decisions about how to adjust your budget going forward so you can work towards creating your cushion.
If you’re not using Goodbudget yet, take a look at your bank statement to see how you’ve been spending. You can try separating out your spending into categories so you know much you’re generally spending on each one. Then you’ll know how to make adjustments.
Budget to Spend Less than You Earn
Building up a one month cushion—and breaking the paycheck to paycheck cycle—starts with spending less than you earn. By creating a budget that plans to spend less than you earn, you’ll have a little bit of cash leftover each month in your Unallocated Envelope that will eventually grow to become your one month cushion. And it’s easy to create a budget and track your spending in Goodbudget.
First, head to your online bank to tally up your income. Once you know that number, head to the Add/Edit Envelopes page and check your existing budget to make sure the amounts you’ve planned to spend each budgeting period total up to less than your actual income. If you’re missing things like Emergency Savings or Debt Paydown, challenge yourself to include those in your budget as well!
Plan How Much You’ll Add to Your Cushion
This is totally up to you! The bigger the gap between what you spend each budget period and what your income is, the faster you’ll create a cushion. If you can create a budget that spends only 90% of your paycheck, that’s great! That last 10% each pay period will add up to a one month cushion in less than a year. If you spend 80% and add the other 20% to your cushion, you’ll break the paycheck to paycheck cycle in about 5 months.
Add Income and Fill Your Envelopes
You’ve done the hard part! All that’s left to do is add your income and fill your Envelopes. The next time you get paid, add that money to Unallocated to start building up a pool of money there. Then, when it comes time to fill your Envelopes, fill them from Unallocated. The money left over in Unallocated is the start of your cushion that will continue to grow bigger and bigger and eventually enable you to fill your Envelopes all at once at the start of your budget period.
Helpful Tip: If you don’t have enough money to completely fill all of your Envelopes at the start of the month or budget period, that’s okay. Fill the Envelopes that you need to use between now and your next paycheck. If you need to fill your Envelopes again before the start of the next budget period, go back and edit the fill you already made. You can do this by clicking on the fill in your transaction history. By editing the existing fill, you’ll be able to see how much you’ve already added to your Envelopes, and their current balance. If possible, avoid adding more than the regular budget amount to an Envelope as that will reduce your cushion or make it take longer to build up.
That’s It! And Remember to Be Kind to Yourself
You’re done with the hard work for now, but there’s still lots of work to be done. The journey to breaking the paycheck to paycheck cycle requires lots of sacrifices, but we believe in you! Still, remember to be kind to yourself! Give yourself—and your budget—the room to make mistakes and adjust as necessary. Building up a one month cushion so you can stop living paycheck to paycheck isn’t like taking a test that you pass or fail. It’s a daily choice to move in the right direction. With your Goodbudget, you can make the right decisions day after day.