Posted by Lending Club :: April 19, 2008 @ 9:32 am

The number of Americans living paycheck to paycheck is difficult to quantify. A 2006 survey by the American Payroll Association found that about 65% of Americans are dependent on their next paycheck to meet current living expenses. Other surveys put the percentage much lower. Regardless of the actual number of people living paycheck to paycheck, many of those who do could save more using a simple technique.

Asked what they would do if they received a 100 percent pay raise, a combined 51 percent of American Payroll Association survey respondents said they would either deposit it into savings, contribute it to a 401(k), or invest it. I’d like to believe that people would save extra money, but I fear that many would not.

There are two different ways to live paycheck to paycheck: either earning so little that you can just cover your expenses or spending so much that you use up all of your income. While both groups are on the verge of living beyond their means, the first group tends to do so out of necessity, while the second chooses to do so. Those in the second group can make changes to their spending habits to improve their financial situation.

If you find yourself living paycheck to paycheck because you spend all that you earn, do this simple trick: give yourself a massive pay cut. By taking a large portion of your paycheck out of the equation before you even see it, you still allow yourself to spend your full income. You’ve just forced savings to happen ahead of time. For an in-depth discussion of implementing this method, see this related post discussing the benefits of a virtual drop safe as one way to protect your money from yourself.

If you spend all that you earn, hiding income from yourself is one way to finally start saving. While this method won’t help those who live paycheck to paycheck out of necessity, it will help the large number of people who inadvertently choose to live paycheck to paycheck as a result of their consumption habits.