How To Stop Living Paycheque-To-Paycheque
The term “living paycheque-to-paycheque” refers to situations where someone must spend the contents of every paycheque just to cover bills and debts, with nothing left over for savings or other non-essential spending. Many people in this type of situation spend so much time worrying about every dollar they spend and the uncertainty of whether they can afford to pay for everything, resulting in heightened anxiety and worry. Especially in 2021 with the planet in the midst of a devastating pandemic and the financial fallout from it.
Things get even more worrisome when people have so little money to work with to cover their monthly expenses that they must dip into available credit cards or a bank overdraft just to keep going. That is frustrating and discouraging. And, eventually, not a workable solution to the problem.
You might be shocked to discover just how many Canadians live paycheque-to-paycheque. A survey by the Canadian Payroll Association found that that 47 per cent of respondents would have difficulty meeting their financial obligations if their paycheque was delayed by even a single week (and that percentage was pre-pandemic so that number will be higher now).
This type of financial pressure can feel like a never-ending cycle. But there are things those with such tight budgets can do to dig themselves out of their financial quagmire. Here are some tips that might help:
Tip #1: Track Spending Patterns
How many times have you reached the end of the month and thought “Where did all my money go?” It happens to a lot of people almost every month. The problem? It is too easy to spend money, between credit, debit and online purchases, and those big and little purchases add up to less money in the bank. This is especially true when people shop with a credit card. It is extremely easy to tap and swipe when making a purchase, and amazingly easy to overspend (especially online). Since there is no counting out on the counter of physical cash, it is easy to ignore the outflow from your bank account.
The solution to this? Track all spending. Whenever any money gets spent, take note of the cost and the details of the purchase somehow. Using the notes app on a smartphone (all Apple and Android handsets come with a note-taking app built-in), or an app designed to track spending (like KOHO or Mint), a spreadsheet on your computer, a pen and paper in purse or pocket, or any other method that works. Try to write down all purchases shortly after making them so none are forgotten.
I recommend tracking all spending for two to three months, then sit down and review the list. Where is the money going? Are there any purchases that stick out? Are there any areas where spending could be cut back? Once we know where our money is going, it is a lot easier to find potential savings and salt the extra away in a savings account.
Tip #2: Automate That Savings Account
Which brings us to the savings account – the crucial part of any good personal finance setup. Most banks and credit unions (especially the online banks like KOHO, Tangerine and Simplii) let you automatically transfer money from one account to another. I recommend a chunk of each paycheque going straight into the savings account. You probably won’t even notice it is missing! This can be a fantastic way to build up your savings. You can then use that money as an emergency fund.
Having an emergency fund is critical and a tremendous help when living paycheque-to-paycheque. As we’ve all discovered since the start of the COVID-19 pandemic in March of 2020, life can be very unpredictable and unexpected costs crop up. For example, car repairs are a big problem for many people if there is no safety net of an emergency fund available. A temporary loss of employment (as we have seen with COVID) can also cause severe damage to a household’s budget. If you have money in your emergency savings account, you will not need to go into further debt when these types of situations occur. Knowing you have some money to help you in an emergency can also relieve a lot of stress.
Even if you are only able to save a small amount each month, that is fine. Having some savings is much better than having no savings at all. Start small, grow that savings cushion each month, and very soon those extra savings will help you break the cycle of living paycheque-to-paycheque.
Tip #3: Review Monthly Subscriptions
Digital content subscriptions are hot right now and have come in handy during the COVID pandemic as so many of us were staying safely inside. Many of us pay for several subscription services every month, everything from Amazon Prime (deliveries, music, movies, etc.) to Disney+, Apple TV and Hulu. But these costs can really add up over time. It may be a suitable time to sit down, look at those subscription bills, and figure out how much is being spent on assorted services. There is a good chance these subscriptions are costing more than was budgeted for.
Once you know what these services are costing, think about whether the costs are worth it. For example, if you are paying for a movie or music subscription service (such as Netflix, Disney+, Spotify or Apple Music), are these services being used enough to justify their monthly expense? If not, consider stopping some, or all, of the services temporarily, or unsubscribe and see if you miss a service. This can be an effective way to stash some cash away in savings every month. And, as we have already said, having some savings put aside is the best way to stop living paycheque-to-paycheque.
If you have reviewed your budget and cut out unnecessary expenses and still cannot find enough money to stash in savings, consider reaching out to the licensed professionals at Farber. Our team will sit down with you and review your finances to help you stop living paycheque-to-paycheque each month. Please CLICK ON THE FREE CONSULTATION BUTTON, below, or give our team a call today! We are here to help you.