How to Break the Paycheck-to-Paycheck Cycle Despite Rising Prices

According to a LendingClub report, 64% of the U.S. population lives paycheck to paycheck. That means that they barely make enough money every month 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 rose 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 more challenging during times of high inflation. That’s because your paycheck doesn’t go as far when prices go up. More of your income will cover 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 well-being:

  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 seriously affect your mental health.
  2. Physical health problems: Stress can also lead to physical health problems like 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 mental and physical effects.
  4. Relationship problems: Money is one of the most common sources of conflict in relationships. Constantly arguing about finances will inevitably put a severe 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 for breaking the paycheck-to-paycheck cycle during times of high inflation:

1. Make a budget.

Image of income and expenses in the Nav.it app. Gains include income. Expenses include groceries, healthcare, restaurants, pharmacies, and unsorted.

This is important at any time, especially during 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 price changes. 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.

Knowing how much money you have to work with each month can help you make informed decisions about your spending, avoiding impulse purchases and overspending.

Inflation can make it hard 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. You can use these savings to purchase items when they go on sale or to cover unexpected expenses.

Budgeting 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 helps 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. Start a side hustletake courseslearn new skills, or find another way to become more valuable to your employer to 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. You can focus on your thoughts and feelings without judging them. This practice can help you become more aware of your spending habits.

Several studies support the idea that mindfulness can help people save money. A Journal of Consumer Research study 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 essential during periods of high inflation. That’s because when prices rise, it’s easy to spend more money than you have. So be mindful of your spending and ensure you live below your means.

Image of a puzzle in the shape of a human head. One central piece is colored as a hundred dollar bill. The text on the right side of the image reads Money Mindfulness Explained. The read now button links to What is Money Mindfulness.

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. An excellent means of doing so is by automating your savings.

Image shows three different colors representing different types of savings: green = emergency fund-80%
orange = wedding-75%
blue = new puppy-50%
The text at the top reads Auto Saves We'll help you take the stress out of saving.

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

There are many 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.

Increasing your savings rate is a great place to start if you want to get out of the paycheck-to-paycheck cycle. 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. Investing allows your money to grow alongside the rising cost of living.

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

Index funds

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

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, commodity prices usually follow. You can protect your money from losing value by investing in commodities.

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

Investing in these asset classes 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.

Related Reads

Learn more button links to Nav.it for employees page.
We’re here to help you break free from the paycheck-to-paycheck cycle and navigate your financial journey, one day at a time. Nav.it At Work gives you the tools to take control of your financial future.

DOWNLOAD THE NAV.IT AT WORK APP TODAY!

Get it on Google Play button links to Nav.it At Work on the Google store on android.
Get it on Apple Store button links to Nav.it At Work on the Apple Store.
More Stories
Pros, Cons, and Costs of Freezing Your Eggs in 2023
%d bloggers like this: