As a financial coach, I’m often asked what change someone can make to stop living paycheck to paycheck. My answer is always the same: be clear budget routine.

But it’s not as simple as it seems.

Approximately 62% of Americans live paycheck to paycheck. If you fall into this category, it means you might struggle to pay for a surprise expense or struggle to cover your bills without your next paycheck. And that’s a problem. This is a struggle I have experienced and I know it is difficult to overcome. In fact, I’ve had many coaching clients who make six figures and always live this way.

But I have a money hack that anyone can start implementing today to easily break out of the endless paycheck-to-paycheck loop. And you don’t have to make six figures to start implementing it.

Why budgeting is not enough

I have learned from coaching thousands of people that the vast majority I can’t stick to a budget because they live paycheck to paycheck, even though they make a lot of money. If you rely solely on your next paycheck to pay your current bills, you will never get out of this cycle.

For what? There are several reasons. First, you reinforce the mindset that you don’t have money. You’re also making it harder to achieve bigger financial goals because your money is already spent before it even hits your bank account. Sound familiar? This is where the “cash cushion” comes in, a crucial element of any healthy budget.

You need a cash cushion. Here’s why

The cash cushion is a buffer – or cushion – of money that you keep in your checking account. The exact amount varies depending on what you’re comfortable with, but it generally works out to a month’s worth of expenses. It’s not a emergency fund (although it is also important to develop it). Instead, this cushion will keep your current account padded to give you peace of mind.

So, for example, if you typically spend $3,000 on expenses each month, you need to make sure your checking account never drops below that figure. Having this money stashed away in your account can help you stop worrying about your next paycheck and finally free yourself from the paycheck to paycheck cycle.

How Cash Cushion Helps You Achieve Your Financial Goals

If we were to lose our primary sources of income tomorrow, 66% of American adults would worry that they wouldn’t have enough emergency savings to cover a month’s living expenses, according to Bankrate’s 2024 annual report. emergency savings report.

One of the biggest benefits of keeping a month’s worth of expenses in your checking account is reduced financial stress. Knowing you have a readily available buffer without manual intervention to cover your expenses provides a sense of confidence and serves as a hedge against spending fluctuations and income disruptions.

The cash cushion also helps you eliminate your mental and financial reliance on debt while you wait for your next paycheck to arrive. I have trained many financial coaching clients to accumulate that extra month of readily available expenses to pay their bills and close the gap between paychecks without resorting to credit cards or loans.

How to start (and grow) your cash cushion

Building a cash cushion starts with a clear calculation of your monthly expenses. Add up the total amount you usually spend in a month, including necessities such as:

• Housing, like your rent or mortgage
• Utilities
• Food
• Transportation
• Essential health expenses

Accounting for these non-negotiable expenses forms the basis for determining the amount required for your cushion.

After you have listed all your expenses and monthly amounts, start setting aside funds to cover them. This may involve reallocating some of your emergency savings or adjusting your budget to prioritize building your cash reserve over the coming months. You can also set up automatic transfers from your paycheck, even if it’s a small amount.

It may take you a few months to build up that cushion in your checking account, but it will be worth it.

Tip

Track your spending, at least quarterly, to ensure your cushion is enough to cover your monthly expenses. If you face unexpected expenses or notice a temporary drop in your income, it’s best to be proactive and rebuild your cushion as quickly as possible.

Once you have built up a cash reserve, it is important to maintain it. And it requires a commitment to make sure you’re not relying on your next paycheck to pay the current month’s bills.

I recommend starting with automate transfers from your main savings account to your checking account on a regular basis to ensure it is constantly replenished without requiring manual intervention.

If you want to pay off debt or invest, you need this financial cushion

Despite its benefits, you may wonder if it’s worth building that cushion rather than putting more money toward other goals, like investing or pay off debt. You may even be wondering why it’s better to put your money in a no-interest or low-interest checking account rather than earning interest. While you don’t have to completely abandon your goals — and yes, you still want to work on paying off your debt — you should also consider building your cash cushion a high priority.

Many of my clients’ consumer debts could have been avoided with an adequate cash cushion, especially in a time when inflationinterest rates and layoffs are at unprecedented levels. Without this filling in your main bank account, you will forever be stuck in the feedback loop, so you won’t have enough for your basic needs and it will be difficult to focus on other financial goals.

I like to tell people that debt is your past and investing is your future. The best way to conquer your past and your future is to ensure that you are making effective financial choices today.

The good news is that once you get into the habit of having a month’s cushion, everything else in your finances starts to flow more easily. Jumpstarting your cash cushion can start today with a few extra dollars in your checking account.

So what are you waiting for?

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