How to save money while living paycheck to paycheck

Even when your income is tight and expenses are high, there are still effective ways to put some cash aside each month.

Living paycheck to paycheck can feel like you’re on a financial treadmill —working hard but barely getting ahead. Rent, groceries, car payments and utilities might seem to consume most of your paycheck before it even arrives. A cycle like this can be discouraging and appear to leave little room for savings or financial breathing space.

But even when your income is stretched to the limit, which is the case for the 34 percent of Americans who currently say they’re living paycheck to paycheck, there are ways to save money.

Here are four tips for getting ahead of your income.

Use goal setting as a guide — and motivation

It’s not easy to save, so starting the work requires having a firm idea of what you’re saving money for. Are you putting money together for a vacation, are you saving for a new computer or are you trying to put something aside for retirement? Do you need the money next month, in five years or in 40 years?

“I would encourage individuals who want to prioritize saving to be intentional about outlining a savings goal for themselves,” says Barry Saeger, a goals coach for U.S. Bank. “Visualize what it is you want to achieve and how that will make a positive impact on your life.”

Start your savings journey by writing down your exact goals and the amount of time you have to save for each one, which is called your time horizon. From there, you’ll be able to calculate how much money you need to set aside per month for that goal in order to achieve it. Sometimes you might find that a big number is less daunting when it’s broken up.

For instance, if you want to have $1,500 in a year for a trip, you’ll need to save $125 a month — around $29 a week. Suddenly, the really difficult can seem really doable. You can also set your savings goals in the U.S. Bank Mobile App and then automate your savings to reach them. Revisit and update your savings goals over time, as they don’t need to be etched in stone.

Review your expenses — and prioritize

There is no doubt that some of the essential purchases you make every month take a bigger bite out of your paycheck than they did just a few years ago. Inflation, the term economists use to describe the rising prices of common goods and services, had major peaks in 2021 and 2022 — and we’re still living with the fallout.

To stay vigilant in an uncertain economy, and ensure your financial health isn’t affected, it can help to track what you spend month to month. This could be as simple as tallying all your expenses and writing down the monthly averages in a notepad or spreadsheet. You can use digital tools, like the spending tracker in the U.S. Bank Mobile App, which automatically categorizes all your spending.

“For many people, not having a clear understanding of how much money they are spending, nor how much discretionary income they have to work with, can provide an immediate barrier to saving,” says Saeger. “It’s just human nature that if you don’t see where your money is going, you can sort of ignore that it’s not going where it should.”

Once you have a general sense of how much you’re spending each month (and what you’re spending it on), you can start to prioritize your essential expenses. Some of these are fixed — they’re the same every month — like your rent or mortgage, your car payment or maybe a student loan. Some can be variable, like what you spend on groceries, gas and electricity. You may be able to trim those variable expenses, but you can’t eliminate them entirely.

Reduce your spending where you can

“Nonessential expenses can be regarded as extra expenses,” says Saeger. “Those are costs that you have a choice over. By identifying them, you may find opportunities to spend less and place more emphasis on saving.”

So once you’ve figured out what you’re spending each month and what your essential expenses are, next you can identify and then eliminate some of your nonessential expenses. With a few tough choices, you can do so without completely stripping your life of fun. 

Are those morning coffee runs adding up? Consider scaling back a little. Are you buying lunch at work every day? Bringing your own can save you more than you think. Everyone’s choices will be different, but whatever you decide, be firm with yourself and remember the goals you’ve set.

Optimize your budgeting strategies

To help you make the tough choices about spending, you can employ smart strategies that maximize your savings potential. One effective approach is to use a budgeting method that fits your lifestyle and spending habits. While traditional methods like the 50/30/20 rule can be helpful (which allocates 50 percent of income to needs, 30 percent to wants and 20 percent to savings), you might find that a more flexible approach works better — especially when living paycheck to paycheck.

For example, the “zero-based budget,” which assigns every dollar a purpose, from bills to savings, ensures you know exactly where every penny goes —helping you avoid unnecessary spending. A popular alternative is the “pay yourself first” strategy, where you set aside savings before paying your bills, ensuring that you prioritize building your financial cushion even when funds are limited. 

Opening a savings account can also make a big difference. Even if you’re only able to save a little at a time, those small contributions add up (thank you, interest!). So a small weekly deposit can grow into a substantial amount over the course of a year, five years or even 10.

“I often hear people say, ‘I’ve never been good at saving’ or ‘I don’t have enough money to save,’” says Saeger. “But saving is really about reframing your mindset. Think of saving as a strategy; it may be new to you, but it’s never too late to implement.”