I recently found a CareerBuilder.com survey where they polled 7,192 American workers about their saving habits. The statistics are alarming:

• 47% of polled are living paycheck to paycheck.
• 21% with salaries of $100,000 or more also live paycheck to paycheck.
• 25% have no savings.
• 40% feel that they need an extra $500 per month just to live comfortably.

I used to live paycheck to paycheck. It’s scary and it feels like a hopeless situation that is hard to escape from. It is possible if you are willing to embrace a few simple strategies to break the cycle.

Stop Spending Money

This is obvious, but seriously look at your spending habits and create a budget. Keep track of where your money goes. Most people will be surprised at how much money is spent on just coffee or soda a year. Reduce your spending on frivolous things. This might mean cutting back on eating out or you could take a drastic approach and eliminate Cable/Satellite TV, drop your cellphone plan or avoid going to restaurants altogether.

What you want to do is find a happy medium between cutting your expenses while still living a comfortable lifestyle. Your goal is to end the month with a POSITIVE cash flow instead of a “just barely made it” or worse, negative cash flow. For me, this meant taking a hard look at what was most important to keep in my lifestyle and purge all the remaining money traps.

Build Your Savings Account to $1,000 ASAP

Many people (myself included) make the mistake of using all of their extra money to pay down debt. If you do this without first having a sufficient savings account, you will forever remain in debt. When the car breaks down, the dog gets sick or you need to fly out of town on an emergency, you won’t have cash reserves and the unexpected expenses in life will end up on your credit card. Avoid becoming one of the many people who pay hundreds of dollars each month in credit card bills only to maintain a growing balance year after year.

Set a goal of building your savings account up to $1,000 as soon as possible. Go ahead and pay only the minimum payments on your credit cards and loans while you do this. Don’t worry about interest rates. You’ll just keep paying them if you always use your credit cards for unplanned expenses. Cut back on expenses, do side jobs or sell some items on eBay. Do whatever it takes to build your savings to $1,000. Also, be sure to set up a separate savings account instead of simply keeping a surplus in your checking account. It’s better to keep that money separate.

Once your savings account is at $1,000, commit to building it further. Set monthly savings goals and stick to them. I recommend that you try to always have enough in your savings to cover a major car repair, a plane ticket and an emergency vet bill all at once. It might take you some time to get there, but either of these emergencies cost less than $1,000 each and having that cash on hand means it stays off your credit card.

Prioritize Debt Reduction AFTER Building Savings

Once you have built your savings account to $1,000, work on reducing your debt. There is lots of advice on the web for becoming debt free. Strategies I’ve used included personal consolidation loans and balance transfer offers (be extremely careful with these). All the debt-moving and consolidation strategies mean nothing, however, unless you are committed to stop using your credit cards to pay for things.

While you are working on reducing and eliminating your debt, be sure to continue to build your savings.

Create a Profitable Hobby, Launch a Freelance Career or Small Business

The next step in freeing yourself from living paycheck to paycheck is to develop a profitable hobby or launch a small business. You will never get rich as an employee. You will never control how much money you make as long as you have a boss. As we all know from the latest news reports and personal experience, wages are dropping and the cost of living is rising. Besides, what happens when you loose your job? It’s best to have a side project or two that generates revenue and has the potential to be a full time business.

There are a lot of things you can do right now to generate cash if you need to. Offer your skills to businesses and individuals as a freelancer or private contractor. Start a small service business or create a product to sell. Whatever you do, don’t pay $49 to some Internet guy promising that you’ll be making a 6-figure income and driving a Ferrari in 30 days with his “can’t fail” online cash machine.

I left my day job in January 2008 to pursue freelance videography. I now earn most of my income from shooting video. I am currently working on additional projects that will generate revenue in the future. These include niche content websites, writing and creating paintings with my wife, among other things. If you subscribe to my blog or follow me on Twitter, you can find out more about how my “personal liberation” projects are coming along.

Embrace Frugality

Frugal living is a requirement if you want to stop living paycheck to paycheck. Frugality doesn’t mean you have to wear off-brand clothes. It’s doesn’t mean you have to eat rice and beans. You certainly do not have to be one of those people crawling under cars in parking lots looking for dropped change.

Frugal living is simply a ruthless approach to how you spend money. Hold off on big purchases until you can buy them with cash. Buy pre-owned instead of new. Live simply and enjoy your life. Watch less TV and actually LIVE your life and you’ll soon discover that you don’t really need or want a mega-screen TV and 400+ channels of cable TV. What a cost-savings right there!

The important thing is to remember that frugal living is a temporary strategy while you are building a bigger and better cash flow. It might feel like a sacrifice sometimes. It can also be liberating. You can always expand your lifestyle later, but it’s so much sweeter to do so when you don’t have to sweat and fret between paychecks.

Once you leave the 9-5 world, weekdays open up and you get the sense that time is an endless resource to finally drive your business to success. If you are not careful, your new found “free-time” will get swallowed up in minutiae and you’ll spend 20 hours a day in your home office without getting anything done. Here are some tips to keep you productive without working your tail off.

Defend Your Time

Many people who do not work from home have the mistaken assumption that those of us who do wake up at the crack of noon, sit out on our deck with a martini on Tuesday afternoons and get to play video games all day. The truth is that we often juggle an intense workload while working more hours for less pay than our employed peers. Some of your friends or family might think that because you work at home, you are always available.

Respect your time by defending it from interruptions. If you have a separate business phone, then you simply do not need to answer your home phone or even non-emergency calls to your cellphone while you are working. Try to avoid the temptation of checking personal E-Mail, stay off of Facebook and don’t fall into the time-wasting trap of running errands when you should be working. If you are that bored while running your business, then you made an unfortunate entrepreneurial choice and will hate your life in no time.

You wanted to leave the corporate world to experience the freedom of self employment, but in order to run a successful, solo venture, you should practice a solid business work ethic to make that happen. With that said…

…Take Time Off

The ability to pay rent and feed ourselves every month rests squarely on our shoulders. Especially when starting out, the crushing pressure of this fact is enough to instill a workaholic attitude where long, isolated days stretch into long, isolated nights toiling away in our home office.

A common habit for those of us who are doing something we truly love is to forget to take regular breaks. I cannot tell you how many times I’ve worked straight through lunch, spending an entire 10 hour day glued to my laptop. This is unhealthy and after just a short while, will affect productivity. Creativity and fresh ideas are not sustainable in a vacuum. You’re the boss. Get out there, enjoy life and allow yourself to be inspired with new ideas. Fresh ideas inspire productivity and provides new avenues for achieving success.

Always remember that your life is not your business, so be sure to take walks outside on sunny days. Meet a friend or lunch. Take 15-minute breaks throughout the day and get in a little physical exercise to keep the blood flowing. Take a half day. Take a day off. Take vacations. Quit every day at 5pm…or earlier!

Rediscover a Hobby

Launching a side business while employed full time usually means that you have to let go of enjoyable hobbies. There simply isn’t enough time in the day to do everything you want to do. Now that the day job is out of the way, be sure to rediscover an old hobby or start a new one. Give yourself a reason to quit at 5pm every day. Give yourself something fun to look forward to on the weekends, otherwise you’ll spend all day Saturday and Sunday toiling away in your home office…alone. What’s the point!

Enjoy the freedom of being your own boss. Give yourself permission to pursue activities outside of your business that spark your passion. Check off things from your life list. Actively engage yourself in living your dreams instead of simply running your business. How does this enhance productivity? You’ll be full of energy, passion and new ideas that will make you a better, well-rounded, more productive (profitable) person. You’ll also reduce the risk of burnout.

More Productivity Tips for the Newly Self Employed

Never agree to charge less than you are worth. If you don’t respect the value of your product or services, neither will your customers and clients. You will instead trap yourself in the cycle of working harder and longer hours for less pay.

Also, don’t undercut your competitors. Instead, find ways to outshine them on the value you provide. Starbucks launched a wildly successful business not by having the cheapest coffee, but by differentiating themselves from the competition through providing a product with higher value.

Don’t be afraid to outsource. Once you’ve got a steady cash flow coming in, focus your efforts on growing your business. Hire a housekeeper, find a personal assistant or outsource low-yield efforts that do not directly generate leads, products or revenue.

What is the best way to ensure you run your business in the most productive, profitable way without working 100 hours a week? Read these five tips for supercharging your productivity by becoming an early riser, batching tasks, limiting distraction and following the principles of a deceased Italian economist.