Did you know that 48%* of Aussies live paycheck to paycheck?
While it’s nice to have paychecks coming in the first place, a paycheck to paycheck living can be truly stressful and problematic, because it means you might not be able to pay your bills on time. When you live so close to the cuff that you can’t pay your bills until your next payday comes around, it’s a lot easier to get into debt or let a surprise expense pull you behind.
Want to back away from the paycheck to paycheck living stress? Read on to find out some tactics to help you get started and organise your finances.
How to break the paycheck to paycheck cycle
Recognize the problem and commit to dealing with it.
Living paycheck to paycheck is a problem of your own creation. But you’re not alone in creating that problem, and if you put your nose to the grindstone, you can get out of it and start moving towards financial prosperity. Use the internet – or your own social network – to find out about the experiences of others who turned their ship around and share your thoughts and difficulties anonymously. You’ll find it much easier to work through this tough process.
Look for regular expenses you can trim away.
The first big step is to trim your monthly expenses. Reduce that cable bill and that cell phone bill. Get rid of unused memberships like gym memberships or country club memberships. Look for ways to tone down your home energy use. Start a carpool or start using public transportation. Start cooking at home more and eating out less. All of these things will ease the monthly pressure on your wallet, allowing you to stop feeling like you’re falling behind and instead start getting ahead a little.
If you don’t know exactly how much you’re spending, it may also be smart to track all your spending for a while. Tracking your spending can be advantageous since it tells you exactly where your money is going every month. Once you have that knowledge, it’s a lot easier to find areas where you need to make a change.
Don’t shop for entertainment’s sake.
When you’re hanging out with friends, it can be tempting to go shopping for clothes or hit the electronics store. Don’t. Find anything else to do. Shopping for fun in a social environment is costly even if you don’t buy anything, because you’re surrounded by temptation and the mental picture of stuff you want but don’t really need. It’s an excuse to talk to your friends about stuff you want and potentially talk yourself into purchases, either now or later. If you want to save money, just stay away.
Cap your non-essential spending each month.
We all spend some money on things we don’t really need. Instead of just spending as opportunities arise, put a cap on that spending each month. Allow you and your spouse a cash allowance each month and agree that your discretionary spending comes from this cash and this cash alone. Make the amount lower than what you normally spend, but not enough lower that you’re tempted to cheat. Then, when you’re used to the amount, consider lowering it a bit more until you find a sweet spot of savings and fun.
As you gain some breathing room, move towards paying bills right when they come in.
One thing that many people living paycheck to paycheck waste money on is late fees. You’re a couple days late on a bill because you were waiting around for your paycheck, so you’re dinged for an extra five bucks. It used to happen to me all the time – and it was a serious money leak. The best solution for handling this as you move towards financial stability is to start paying your bills as soon as they come in – that way, you avoid the late fees by a mile. Later on, as you get more comfortable, you can develop your own bill-paying routine – I pay mine monthly – but the best way to handle things just as you’re getting some cash built up in your account is to pay bills ASAP.
Don’t carry more than one credit card with you.
Leave the rest at home. The only reason you should be carrying a credit card in your pocket is to cover emergencies or for specific purchases. Thus, carrying more than one credit card in your wallet is not only an identity theft concern, it’s also temptation to spend more than you should.
Personally, I have chosen to keep three credit cards. Two of them are for specific purchases only so I leave them at home. The other card is my general use card, and it’s the only one that resides actively in my wallet. Because I recognize that I need to keep a healthy free balance on it for emergencies, it makes the temptation of the plastic much lower.
Work together with your spouse and/or with your family.
Walking a new financial path isn’t easy. It’s like a diet – it’s a new set of routines and it can be difficult to get used to a new walk. The best way to make it easier is to ask for help, and the best place to ask is your spouse. Work cooperatively with your spouse to cut spending and get in a better financial routine.
If you’re single, try to find a “money buddy,” as suggested in the excellent book Money Drunk, Money Sober. Basically, this is a person that you can work in tandem with to overcome your financial challenges and spending issues. By opening up to this person (and allowing this person to open up to you), not only will you find an outlet to talk things over, you’ll also cement an already-strong friendship.
One major step you can take in getting away from paycheck to paycheck living is to downgrade your lifestyle in any way you can. Do you really need that gas-guzzling car when an efficient one would do? Do you really need a huge home when a smaller one would be fine for your needs? Consider moving to a smaller or more efficient version of these things. Doing so will lower your monthly bills, help you eliminate some debt, and put some cash in your pocket.
This is a major step for many people and it’s often one that gets inside the comfort zone. “I’ll NEVER do that,” you’ll think to yourself. Instead of just automatically rejecting the idea, think about it more seriously for a little bit. Think of how much easier life would be without a car payment or with a smaller house payment. You might find you don’t need the things you think you need.
Learn some basic skills so that you can deal with some emergencies yourself.
Get a book or two like the Reader’s Digest Complete Do-It-Yourself Manual, Fix-It-Yourself Manual, or the Popular Mechanics Complete Car Care Manual and learn how to do basic maintenance and repair yourself so you’re not turning to an expensive repairman every time something little goes wrong. Not only that, you can often do basic maintenance like oil changes and air sealing your home yourself without nearly as much effort as you might think. This cuts way down on expenses and doesn’t leave you at the mercy of “emergencies” quite as much as before.
Breaking free from the paycheck to paycheck cycle is one of the most mentally relieving things. But, that doesn’t mean it is easy. It takes time to replace bad spending habits with good ones and to change your money mindset so you’re capable of change.
As you move toward breaking the paycheck to paycheck cycle, make sure to be patient with yourself. You may make some mistakes along the way, but you’ll eventually reach your goals if you stay focused and don’t let life get in the way.
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*According to MLC research.