11 steps to manage your paycheque better
No one likes living from paycheque to paycheque but the harsh reality is that over 40 per cent of Americans today find themselves waiting desperately for their next pay cycle.
Being financially independent isn’t just limited to knowing how to earn money, having poor money management skills can leave you living from paycheque to paycheque—which can be very frustrating. How you spend your money is very important and living above your means can quickly run you into debt.
“It’s not just people who are low wage earners. People who are making what most of us would consider a decent salary are living this way,” said Cameron Huddleston, a life and money columnist to USNews.
It’s almost impossible to have a long-term savings plan if after taking account of your earnings using a weekly paycheque calculator, you are still unable to have discretionary income after paying for monthly living expenses like rent, groceries, transportation and mortgage.
How then can you manage your income better, so you stop living from paycheque to paycheque? Here are some useful tips to help you break out the vicious spending cycle.
1. Learn to make a budget
The most important step towards managing your income better is to have a monthly budget for all your expenditure. Having a central location for tracking both your income and expenses is great in curtail unnecessary spending.
A budget that actually works needs to have all of your expenses incorporated into it so you’re not left with any surprises should your car registration become due, or you need to pay premiums on your insurance, for example.
You can apply the 50/30/20 rule when budgeting which says 50 per cent of your paycheque should cover your essential needs, 30 per cent for your personal needs and the remaining 20 per cent should go towards your savings plan.
If you want to stop living from paycheque to paycheque, having a budget is the biggest step you can take.
2. Keep track of your expenses
Without sticking to your budget and tracking your purchases, you can easily spend much more money than you can actually afford to.
Take some time out to look through your monthly bank statement and prepare your next budget based on this. Don’t be like the 65 per cent of Americans who are unaware of what their monthly expenditure is, therefore are unable to identify areas of improvement.
Tracking your expenses equally allows you to adequately plan for big occasions such as birthdays and holidays that would require spending more money than usual.
3. Cut back on your spending
Once you’ve built a working budget using the 50/30/20 rule, it is time to cut costs wherever you can. Doing this would give you more money that can get you out of debt and help you in case of an emergency.
You can cut down on some of your essentials and wants to start with, especially if your essentials are more than 30 per cent of your income. Take advantage of cheaper deals on products and service and buckle down hard on your spending for a few months.
4. Stop using credit cards
If you keep transferring a credit card balance every month, you’re literally going to keep living from paycheque to paycheque. Until you can clear your debt, it is important to stop using credit cards, even if you think it is rewarding.
Credit cards make it difficult for you to control your spending and keeps you constantly in debt.
5. Contribute more towards your debt
Just like with credit cards, paying the minimum amount on your other debts only increases the long-term cost of the debt, making it difficult for you to clear it completely.
If you can increase the monthly payments on your debt, while still contributing towards your savings, it would be great for your financial goals. You can either try the Snowball method, where you can contribute more towards smaller debts, or the Avalanche method, where you pay more on debts with higher interest rates.
6. Increase your savings contribution
To build a healthy savings habit, ensure you deposit a fixed amount of money into your savings account monthly. It’s all about consistency; and once you become consistent with it, you can now slowly begin to increase your monthly savings allocation.
There are several cost-saving tactics that you can employ like cutting down on telephone bills, cable subscription, meal planning and many more.
7. Don’t rely on bonuses
If you work in an organization that offers bonuses regularly to employees, you may be tempted to include it as part of your budget. However, since this isn’t guaranteed income and your company can choose to give it or not, you shouldn’t build your expenses around it.
Rather, see bonuses as additional income that can be spent on things such as paying off your debt or added to your emergency fund.
8. Get an alternative income source
It is true that for many, no matter how much they budget, their primary income source is not enough to cater for their essentials, and they have to rely on payday loans, family and friends, and credit cards.
If you fall into this category, then it is time to find alternative ways to make money. In today’s gig economy, freelance job opportunities abound and you just need to utilize your network to promote your product or service.
9. Embrace minimalism
While you might want to spend $1,500 on a new iPhone, opting for a minimalistic way of life would save you a lot of money and reduce stress.
Only focus on acquiring the things that you need and cut down on impulse spending. You can equally sell off some unwanted items in your house, which would not only declutter your space but make you some extra cash.
10. Always plan ahead
After building a budget and setting clear goals, create a timeline and a clear path for how to intend to get off the paycheque-to-paycheque lifestyle.
Plan ahead on how much you intend to save before a particular period and include a reward system for when you achieve your savings goals. Also, determine what you’re saving for and how you’ll manage your newly found financial freedom.
11. Always stay motivated
It is necessary to acknowledge that living on a budget is a huge lifestyle tilt, especially for those who are quite carefree with their spending.
To keep you on track and pumped on your budgeting goals, get a trusted friend or family member to act as your support system. Whenever you’re feeling demotivated, take a step back and look at your goals to remind you of why you’re doing what you’re doing.
Remember, having a budget plan and financial goal alone is quite an accomplishment and you should always keep your eyes on the prize—which in this case is financial freedom.