How to Break the Paycheck to Paycheck Cycle Despite Rising Prices

by Kaitlyn Ranze

According to a LendingClub report, 64% of the U.S. population is living paycheck to paycheck. That means that every month, they’re just barely make enough money to cover expenses. And if anything unexpected comes up – like a job loss, car repair or a medical bill – it means big trouble.

If it feels like it’s harder to get by lately, that’s because it is.

Even though wages have risen 5.1% over the past year, inflation is still growing at the fastest annual pace in four decades at about 8.3%.

In this money meme and money gif, a raccoon is seen washing cotton candy that quickly disappears, symbolizing the American workers paycheck with rising inflation.

What inflation has to do with the paycheck to paycheck cycle

Living paycheck to paycheck is tough enough, but it gets even harder during times of high inflation. That’s because when prices go up, your paycheck doesn’t go as far. More of your income is going toward covering the cost of food, gas, and housing.

This means that if you’re living paycheck to paycheck, you’re likely feeling the squeeze more and more. Inflation is also making it harder to save money and get ahead financially.

Wait. Why should you break the paycheck to paycheck cycle? Good question.

Some of the ways living paycheck to paycheck takes a toll on your wellbeing:

  1. Emotional stress: Worrying about money is one of the most common sources of stress. If you’re constantly living paycheck to paycheck, that stress can start to take a serious toll on your mental health.
  2. Physical health problems: Stress can also lead to physical health problems, including headaches, digestive issues, and even heart disease.
  3. Poor sleep: It’s not surprising that people who are worried about money often have trouble sleeping. If you’re constantly tossing and turning, you’ll start to feel the effects both mentally and physically.
  4. Relationship problems: Money is one of the most common sources of conflict in relationships. If you’re always arguing about finances, it can put a serious strain on your relationship.

If you’re living paycheck to paycheck, it’s important to find ways to reduce the stress in your life.

Here are a few tips to break the paycheck to paycheck cycle during times of high inflation:

1. Make a budget.

This is important at any time, but it’s especially crucial during periods of high inflation. That’s because when prices are rising, it’s easy to overspend. So sit down and figure out how much money you need to live on each month. Then, make sure you stick to that budget.

Budgeting helps you fight inflation in a few key ways:

  • Budgeting increases your awareness of price changes

When you track your spending, you become more aware of changes in prices. This awareness allows you to adjust your budget accordingly. For example, if the price of gas goes up, you may look for ways to save at the gas pump, choose to rethink your commute, drive less, meet in the middle, or carpool more often.

  • Budgeting helps you prioritize your spending.

When you know how much money you have to work with each month, you can make informed decisions about your spending. This knowledge can help you avoid impulse purchases and overspending.

Inflation can make it difficult to keep up with the Joneses. But when you have a budget, you can focus on spending your money on what’s important to you instead of trying to keep up with the latest trends. (Pro-tip: look into values-based spending.)

  • Budgeting helps you save money.

Budgeting allows you to set aside money each month to help offset the impact of inflation. These savings can be used to purchase items when they go on sale or to cover unexpected expenses.

  • It helps you stay disciplined.

It can be easy to overspend when prices are rising. But if you have a budget, you are more likely to stick to your spending plan. This discipline can help you avoid debt and keep your finances on track.

2. Invest in yourself.

One of the best ways to break the paycheck to paycheck cycle is to invest in yourself. You could start a side hustle or take courses, learn new skills, and doing anything else that will make you more valuable to your employer so that you can negotiate a higher salary. When you’re more valuable to your employer, you’re more likely to get raises and promotions. And that extra money can help you break the paycheck to paycheck cycle.

3. Practice money mindfulness.

Mindfulness is all about being present in the moment and paying attention to what’s happening around you. When you’re mindful, you can focus on your thoughts and feelings without judging them. This practice can help you become more aware of your spending habits.

There are several studies that support the idea that mindfulness can help people save money. One study, published in the Journal of Consumer Research, found that people who practice mindfulness are more likely to make thoughtful decisions about money and stick to a budget.

This is another important tip at any time, but it’s especially important during periods of high inflation. That’s because when prices are rising, it’s easy to fall into the trap of spending more money than you have. So be mindful of your spending and make sure you live below your means.

4. Save money first

One of the best things you can do to break out of the paycheck to paycheck cycle is to increase your savings rate. And one of the best ways to do that is to automate your savings.

When you automate your savings, you’re putting aside money each month without even thinking about it. It’s a painless way to save, and it can really add up over time.

There are a lot of benefits to automating your savings, including:

  • You’re less likely to spend the money if it’s not sitting in your checking account
  • It’s a set-and-forget way to save, so you don’t have to think about it each month
  • It can help you reach your financial goals faster

If you’re looking to get out of the paycheck to paycheck cycle, increasing your savings rate is a great place to start. And automating your savings is one of the best ways to do it.

5. Start investing.

While this might sound counter-intuitive, small investments (even $5 a paycheck) go a long way to fighting inflation and growing your net worth. Over time, the value of money declines as prices rise. This is why it’s so important to invest so that your money can grow along with the rising cost of living.

There are a couple of different asset classes that are particularly well-suited for fighting inflation.

Index funds have a history of outperforming other investments during periods of inflation. They offer diversification and protect against the risk of individual stocks underperforming.

Commodities are another asset class that can help fight inflation. They tend to do well when the cost of living is rising, as they are essential goods and services that people need regardless of the economic conditions. They include things like money, metals, oil, and agricultural products.

Why invest in commodities? Because they can be a hedge against inflation. When the prices of goods go up, the prices of commodities usually go up too. So, by investing in commodities, you can protect your money from losing its value.

What are the best commodities to invest in? That depends on what you’re trying to achieve. While some pursuing stability buy gold, other pursuing growth might go after oil. It’s important to do your research before you invest.

By investing in these asset classes, you can help ensure that your money keeps up with the rising cost of living and preserve your purchasing power over time.

Break the paycheck to paycheck cycle

By following these tips, you can break the paycheck to paycheck cycle and improve your financial well-being during periods of high inflation. So don’t wait – start taking action today.

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