If you’re living paycheck to paycheck, you’re not alone.
In fact, 78% of U.S. workers live paycheck to paycheck just to make ends meet according to a CareerBuilder study.
Living paycheck to paycheck is super stressful.
Just one unexpected expense or illness that leads to having to take a day off of work can wreck your finances and result in painful debt that is tough to escape from.
While some people simply don’t make enough money to escape the paycheck to paycheck lifestyle, many families could make a few changes to start escaping today.
Thankfully, one simple concept is often the key to escaping the paycheck to paycheck lifestyle for good. Here’s what it is and how you can make it happen.
Live On Last Month’s Income
Living on last month’s income is a great way to break the paycheck to paycheck cycle. Instead of living on the money you earn as you earn it, you’ll start living on the money you made last month.
Obviously, most people can’t start living on last month’s income immediately. That’s okay.
Like most things with personal finance, it takes a bit of work to make living on last month’s income a reality. But when you do make it happen, it will change your life forever.
How It Works
The concept of living on last month’s income is easy to understand. For the month of March, you’ll live on the money you earned in February.
Basically, you’ll deposit your February paychecks in a savings account separate from the account where you spend your money. This keeps the money in a safe place where you won’t be tempted to spend it.
When March 1st rolls around, you’ll take your net pay you earned in February out of your savings account and deposit it into your checking account. This is the amount of money you’ll live off of for the month of March.
To do this, I recommend opening a CIT Bank Savings Builder Account. As long as you deposit at least $100 per month, you’ll earn their top tier interest rate which is multiple times better than most local banks or credit unions.
You can open a CIT Bank Savings Builder Account after reading more about it and how to open one in our detailed review.
Obviously, you can’t start living on last month’s income immediately. If you did, you wouldn’t have any income to live on this month.
Instead, you’ll need to start saving money to make living on last month’s income a reality.
Why It Works
So why is living on last month’s income such a big deal? Personally, I think it’s life changing as far as money goes.
Instead of waiting for your paycheck to hit so you can buy groceries or pay the rent, you’ll be able to make purchases when you need to throughout the month. After all, the need to make purchases rarely fits with your paycheck schedule.
One of the key reasons living on last month’s income works is because you can now be proactive with your money rather than reactive.
You’ll know exactly how much money you have to spend throughout the month. This allows you to plan in advance, rather than react to money events as they happen.
On the first day of a new month, simply add up your paychecks from last month and that’s the amount of money you can use to budget in the current month.
You can then allocate the money to your monthly budget categories, set money aside for savings and investing goals and work toward sticking to your budget rather than worrying about how you’ll make your paycheck stretch.
Living on last month’s income also gives you some buffer room to absorb any budget shocks. In the past, an unexpected doctor’s visit could put you into debt.
Now, you can reallocate your remaining monthly budget when the event happens to cut spending in other areas to still make your monthly budget work.
In the absolute worst case scenario, you’ll still have your current month’s paychecks you can borrow from. However, if you do this, you’ll be living on less next month so make sure to keep that in mind.
To avoid dipping into the current month’s income, I highly recommend you set aside part of your money for unexpected expenses or building an emergency fund.
These two planning steps can further prevent falling back into the paycheck to paycheck cycle. More on this in a minute.
How To Start Saving So You Can Live On Last Month’s Income
So now that you understand why living on last month’s income works, how can you get there? When you’re living paycheck to paycheck, that can seem impossible.
Thankfully, with some hard work, most people can escape and start living on last month’s income. It’s totally worth it, too.
There are two major factors in every person’s budget they can use to start saving money so they can live on last month’s income.
The first factor is your income and the second is your expenses. You can either work on increasing your income or lowering your expenses to start finding money save.
Both may seem tough, but they’re both doable when you put some thought into it.
Lowering Your Expenses
For most people, lowering your expenses is something you can start seeing real results with immediately. Here are some of my favorite posts about lowering your expenses.
- Save on your cell phone bill or cell phone purchase
- Save money on eating out
- General money saving tips and ideas
Increasing Your Income
Increasing your income can take more time to get started with, but your potential is unlimited.
Earning more income also makes things a bit easier because you aren’t sacrificing anything but the time to make the extra income.
Since you aren’t used to spending it, you can put 100% of the extra income after taxes toward saving to live on last month’s income.
Here are some of my favorite posts about increasing your income.
- Are You A Yard Sale Flipper? Maybe You Should Be!
- Want To Earn Money Freelance Writing? “Earn More Writing” Course Review
Next Steps? Build An Emergency Fund And Pay Off Debt
As I mentioned above, living on last month’s income won’t solve all of your financial problems.
It’s a great start to help you escape the paycheck to paycheck cycle. However, there are a couple more things you can do to continue improving your finances.
Build An Emergency Fund
Building an emergency fund can help you continue living on last month’s income without fail.
That way, if a large unexpected expense pops up or you have an unexpected dip in your income, you can use money in your emergency fund.
This is a better option than using your current month’s paychecks because you won’t be leaving yourself short next month. After you’re living on last month’s income, focus on building a $1,000 emergency fund to cover life’s unexpected twists.
Once you have a $1,000 emergency fund, work on paying off debt and building a fully stocked emergency fund.
Pay Off Consumer Debt To Free Up Even More Money In Your Budget
Getting out of consumer debt can free up even more money in your monthly budget allowing you to save and invest for your future.
These types of debt include credit card debt, personal loan debt and even car loan debt. Believe it or not, it’s possible to live the rest of your life without ever taking out a car loan again.
Want to know how to get out of debt? Check out our multi-post series about how to get out of debt when you don’t know where to start.
Start Setting Aside Money To Live On Last Month’s Income Today
The best way to get started toward any financial goal is to commit and start immediately.
Start setting aside $100 so you can open a Savings Builder account at CIT Bank.
Read more about it and how to open one in our detailed review.
Once you open an account, make regular deposits until you can start living on last month’s income.
After you’re living on last month’s income and have escaped the paycheck to paycheck cycle, you can continue working to Master Your Finances.
What do you think about the concept of living on last month’s income? What’s your biggest challenge to make it happen? How do you think it could help you?

Lance Cothern, CPA holds a CPA license in Indiana. He’s a personal finance, debt and credit expert that writes professionally for top-tier publications including U.S. News & World Report, Forbes, Investopedia, Credit Karma, Business Insider and more.
Additionally, his expertise has been featured on Yahoo, MSN, USA Today, Reader’s Digest, The Huffington Post, Fast Company, Kiplinger, Reuters, CNBC and more.
Lance is the founder of Money Manifesto. He started writing about money and helping people solve their financial problems in 2012. You can read more about him and find links to his other work and media mentions here.
Kimberly@lovetofrugal
Saturday 30th of March 2019
Great post, Lance! This is perfectly doable. As you laid it out, it takes some pre-planning and being very deliberate with your spending, but the benefits are amazing! It may take a couple (or even a few) months to get to this point, but imagine how much less stress one will have knowing your a month ahead...instead of a month or paycheck behind!