5 things you can do to stop living paycheck to paycheck
Let's get this straight: Living paycheck to paycheck sucks. It's like someone has created an automatic cycle where no matter how much you make on the 1st, it all magically disappears by the last week of the month. You did not even want to spend so much and nor were you spending too much on anything. You just went out with friends on those two Fridays, bought a few birthday gifts for your two best friends, and went out for a concert that you just could not miss for the love of God!
So where did the money go? And how do some random expenses keep popping up out of nowhere? If you have been experiencing this cycle, I get how it feels. Especially when you cannot see how to get out of this cycle. So, here are 5 things you can do to get out of your paycheck-to-paycheck cycle.
1. CHECK YOUR BANK STATEMENTS
You might keep aside a budget of Rs 1,000 for your grocery shopping at Dmart, but you will eventually come out of the store (most of the time) having spent Rs 1,300. The thing is, you will never realise that you went over budget by the end of the month, even though you have. Especially, when it comes to your needs. Analyzing your bank statements at the end of the month gives you a crystal clear figure of your everyday patterns and how you spend. Classify all your expenses into categories and let this awareness help you find the gaps and the reasons for your change in budgeting. Find the everyday triggers that cause you to overspend and evaluate if you really want to repeat this pattern for the next month. Are you earning less or are you spending it all? What are the expenses for your real needs?
2. CREATE A BUDGET & FIND A WAY TO STICK TO IT
Now that you feel horrified looking at your spending patterns from your bank account analysis, it's time to understand and note down how you really want to spend. After you have created a budget, give yourself some leeway on your weak points since you cannot change your habits overnight. For eg: Say you cannot compromise on your groceries and cannot help but buy a couple more products. Or say you have a once-a-week ritual of having an 'exotic garlic bread & pizza' night with your friends. If you are looking to change your budget for good, keep those indulgences and sacrifice something not that important. Or maybe have three garlic bread and pizza nights instead of four and give yourself a reward for having saved money.
3. KNOW YOUR VALUE
Though loyalty is a good trait, sometimes being loyal to just that one low-paying customer or that one job opportunity can make you too comfortable in your work life. You might have wonderful colleagues and a lovely boss, but if you aren't being compensated well for the value you bring to the table, you should definitely be proactive in looking for better opportunities and speaking up to move out of the paycheck-to-paycheck cycle. If you are receiving another source of income, you need to save it unless you want to repeat the same cycle again.
4. HOUSING & CAR
Many experts recommend this to avoid a scenario where you have to live paycheck to paycheck: Keep your house EMIs (or rent) less than 35% of your income. The same goes for your car spending too - keep it below 30%. Since you have to manage other expenses too, keeping your house EMIs to about 35% becomes a necessity. Especially in today's times when annual rents are increasing in double digits and inflation is touching more than 8%.
5. THE 50/30/20 RULE
People living paycheck to paycheck, end up spending most of their income. Instead, apportion it and spend it using ratios like this or create a ratio that works for you: Spend 40-50% of your income on your real needs, 20-30% on your wants, and balance on your long-term savings. Just like Bugs Bunny.
6. STAY AWAY FROM LIABILITIES THAT LOOK LIKE 'ASSETS'
An Asset is anything that puts money in your pocket and a Liability is anything that puts money out of your pocket. Identifying and differentiating assets from liabilities is necessary to stop living paycheck to paycheck. Eg: Buying a car may seem like you bought an asset. A car may seem like an asset, but in actual terms, is a liability because you have to pay for it. If you get it on loan, you have to pay an EMI every month. See the difference? Instead, invest in yourself.