How to Stop Living Paycheque to Paycheque
I probably don’t have to tell you this but living paycheque to paycheque can be worrying, tiring and hard.
The good news is, it doesn’t have to be that way. It’s time to break the cycle – Here are the 7 steps to get you there…
1. Pretend you earn less than you do
In other words ensure you are living below your means or spend less money than you earn. This is a commitment to yourself. It is not luck that comes into play here, it is a mindset.
Set aside savings separately in a different account so you aren’t tempted to spend it. Automatic transfers are the easiest way to stick with it. Start small but aim to eventually set aside at least 10-15% of your wages.
2. Create a budget
To ensure you aren’t spending more than you have, you need to be taking care of your priorities first. This is what a budget is all about. It’s not restricting what you can spend but simply making a plan for your money so your priorities are taken care of first, then you can use what is left on life’s pleasures without guilt or worry.
Give every dollar a job. Ask yourself when you get paid, “what does this money need to do before I get paid again?”
Keep your budget flexible. You don’t always have all the information available to you when you create your budget. Priorities can change. Sometimes you might need to move some money from one purpose to another. Thats fine, it doesn’t mean you have failed. You have simply changed priorities.
3. Prepare for your larger long term expenses
Set aside regular monthly savings towards larger long term expenses. These might be expenses such as Xmas, council rates, school books or car registration. Then there are the expenses that often take us by surprise. We know we will need them one day, but don’t exactly know when or even how much. I call these ‘debt prevention expenses’. These expenses are things like car repairs, insurance excesses, house repairs, house appliances, computers, pet kennel fees for holidays, broken shoes, car tyres etc.
4. Consider downsizing and Reduce Living Expenses
So how much are you saving so far? Is it enough to still cover your long term expenses? Are you ready to increase your savings capacity to save for the things that really matter in life?
Perhaps it’s time to downsize the house, the car, the gym membership, the wardrobe…
I have a few easy ideas for you to reduce expenses in the household budget also in the “60 ways to Save” ebook you might like to try also.
5. Save a $1000 buffer
The purpose of this buffer is mainly to stop the need of going further into debt or into your dedicated savings for your goals and dreams. You can use it anytime on something you forgot to budget for or when something entirely unexpected comes along. If you didn’t have this buffer, you would end up going round in circles having to put your unexpected expenses on the same credit card you have been trying to pay off. This is called getting caught in the credit card float.
At this point you might like to consider a ‘sprint’ to save for that $1000. A ‘sprint’ is made up of short term tactics to both reduce your living expenses and increase your income.
A sprint is just that, a short term commitment. Maybe one month, maybe just one week. But these tactics are not meant to be a long term marathon of regular savings in your household budget. That will only lead to burnout. This sprint is just a means to reach that $1000 as quickly as possible. After you get there, you get to ease off and return to your normal budget and continue living within your means.
Short term sprints might include:
- No eating out or getting take away for one whole month. If that seems impossible, just commit to one or two weeks for now.
- Offer to mow your neighbours lawns or if you’re a little handy, maybe some small maintenance jobs for cash.
- Take one or two extra overtime shifts.
- Challenge yourself to only making meals from the pantry supplies or left overs.
- Put your gym membership on hold for a couple of weeks and enjoy going for an outdoor run instead.
6. Pay Down Debt
Now we look at all your debts, excluding your mortgage. List them all out. Include the outstanding balance, the interest rate and the minimum payment.
Implement a system called ‘the snowball method’ which is when you pay off each debt by smallest first, through to the largest by making the minimum payment on all your loans. Then add to the smallest, any extra extra savings you have. (Ie. the difference between your income and your expenses.)
You might also like to consider using any one off windfalls such as tax refunds, bonuses, garage sale money, inheritance, birthday money, overtime or any other unexpected income to pay off that smallest debt as quickly as possible.
When that smallest debt is finally paid off, transfer the regular payment you have been making on the smallest debt and add it to the second lowest debt payment and concentrate on paying it off as soon as possible. Then when the second debt is paid, continue in the same way on the third debt, now transferring both the first and second debt payments onto the third etc.
The reason I love the snowball debt is that when you start knocking off those smaller debts, the payments increase without needing to change the amount you are putting towards your debts and the results and momentum are so rewarding.
7. Live on last month’s income
The last step to no longer living paycheque to paycheque is by living off last months income. Why do we do this? Well have you ever had a ‘normal month’? No, they don’t really exist. However, knowing exactly how much money you have to spend, with no guess work. Means that you have taken away at least one unknown factor from the guesswork. Plus you are no longer living paycheque to paycheque, you have a whole month of expenses that can be paid immediately as soon as they arrive. Ahhh, now thats a relief.
Now that you are no longer looking at the past, you get to start looking towards the future… Want to concentrate on paying off that mortgage? Go for it! Then ensure your future is taken care of so you can really leave a legacy…
Would you like to have Money Confidence?
Join me in my Money Confidence Academy, so you can break the cycle of paying off the past, enjoy the present and start looking after your future instead!
In this program you will learn:-
- How to save more money
- Your best strategy to eliminate your past debts
- Tools and systems you can put in place to escape the paycheque to paycheque cycle
- Business budgeting
- How to create (and stick to) your own personal budget
Course includes 8 fundamental modules with videos, worksheets, accountability tasks, plus a dedicated Facebook group where you can share your trials and successes in the academy community.
Plus 10 business finance modules to help you get off the feast and famine rollercoaster of unpredictable income.
Also, every month you can join me for 2 group coaching and Q&A sessions.
As well as a monthly bonus money mindset session with special guest Ilka Oster.
Click here to learn more:
Money Confidence Academy