Living paycheque to paycheque can cause a great deal of unnecessary stress in your life.  Having to constantly worry about unexpected expenses and costly surprises can add undue stress to a relationship, cause you to lose sleep, or even lead to overspending to compensate for the depressed feeling.  I’m sure that if you talk to anyone living this way they will have nothing good to say about the situation.  A better choice is to live without the feeling of uncertainty and fear over financial matters.  This is not an easy thing to do however.

The best time to stop living paycheque to paycheque is yesterday.  The second best time is now.  The most recent statistics state that over half of Canadians are living paycheque to paycheque.  So if you are one of these people, you are not alone.  This doesn’t mean you can’t get out of it, it just means there will be some work involved and it may be a while before it happens.  It can be difficult to make happen, but not impossible.

Here are several effective ways to stop living paycheque to paycheque that you can start today.

Admit you are living paycheque to paycheque

Acknowledging you need to change has to be the first step to fixing the problem.  Just like in any other drastic change to your life, you have to admit you have a problem before you can fix it.  It may sound simple to do but a lot of people are afraid to take an honest look at their financial situation and do something about it.  Take responsibility for what’s going on in your life. That’s the first step.

Keep track of the budget

I always tell my budgeting clients that there is no way you can know where the money is being spent if you don’t track the spending.  You may have an idea how much you spend on groceries, and you have to know how much the rent or the mortgage is, but how much are you spending on food really?  I mean the exact amount not a ball park figure.  What about clothes?  Gifts?  Donations?  These things all add up and can break your budget in a hurry.

How much do you owe?  Again, I mean specifically and not just an approximate amount.  I guarantee if you add up all your debt and look at it as a whole, you will be surprised and possibly shocked at the total.  You need to know where you are financially in order to know where you need to go.  You cannot build a plan of action without first knowing the goal.  Track everything for a month; I mean everything!  Dollar donations to hockey kids collecting at the grocery store, coffees on the way to work, impulse magazine or tabloid purchases at the convenience store; these all add up quickly and there is no way to see the impact these expenses have without tracking them.  And be specific when you write down what you’re buying.  If you simply write down “groceries” for a Walmart purchase but have included toiletries, clothes, junk food, and books, your budget will not be complete or accurate.  Everything cannot be included in the food budget just because you bought it at Walmart.  Be specific and detailed with everything you track.  Trust me, it will be important later.

Make smart money choices

One of the problems with getting out of living paycheque to paycheque is not knowing where to start.  It can be difficult to know what to cut from the budget, when to cut it out, or even how to begin.  I think this is the main challenge for anyone starting out.

I think everyone has felt at some point that, sometimes, all you need is an extra set of eyes.  Someone to give you an unbiased opinion of your situation and the choices you’re making.  There are two ways you can get some free advice on this matter.  Either you ask a friend of family member you trust who won’t sugar coat the answers, or you can seek professional help.  Now, talking about money issues with family members may not be an option for you.  I know the last people I want to discuss money with is family.  That leaves the professionals.  You should seek out a not for profit credit counseling company.  You want to find an accredited, charitable agency who will look over the situation with a trained, analytical eye and give you an honest opinion.  Just Google non-profit credit counselling in your area and call them to see what the fee is for credit counseling (it’s usually free!).  If they try to sell you something, look elsewhere.

Only spend what you can afford

One of the hardest rules about not living paycheque to paycheque is to stop spending money you don’t have and curbing your spending habits.  This means you can only spend money when you can afford to pay.  No relying on credit cards or overdraft!  No borrowing money from savings!  You have to budget for the items you want to buy and pay for them in cash.  No cash, no purchase.  If you absolutely have to use your credit card, pay it off right away.  I don’t mean when the bill comes in.  I mean get on your phone or computer and transfer the money to the credit card right away!  The same hour you spend the money on the credit card.  That way you are still using cash and never carrying a balance on the card.  Ask yourself if you really want to take out a high interest, short term loan for the itme in question.  That’s really what usig a credit card amounts to.

Keep it simple

Learn to recognize needs and wants.  The best way to eliminate debt and start saving is to stop buying wants and focus on the needs.  Food, clothes, shelter; these are needs and must be paid for on a daily basis.  Coffee, books, supper our on the town; these are wants and can be cut from your budget.

This will be the most difficult thing to overcome during this whole process.  Cutting out wants can seem impossible for a lot of people and is most often why they give up on the budget, but I guarantee they are why the budget is not working.  Learn to spend less on the unnecessary things and use that money to pay off debt or add to savings instead.  This is key to stopping the paycheque to paycheque cycle.  I promise, after a few months of living this new lifestyle, it will get easier.  Soon you will start to see a dent in the debts and, hopefully, the savings account growing.  That is your incentive to keep going.  Focus in the positive and stay the course.  It’ll all be worth it in the end.

Plan for future purchases

Things like clothes, gifts, and vacations can still happen when you follow a strict budget.  You just have to plan for them.  The time to save for Christmas is in January!  I hear people say time and time again how Christmas crept up on them or took them by surprise.  News flash people, Christmas this year will be on December 25th.  I guarantee it!  It will not creep up on you or surprise you.  You will just be unprepared for it.  Same thing goes for clothes.  You know you will buy new clothes a couple times a year.  Prepare for it.  Start saving now so you will have the cash later to make the purchases and not have to use credit.  Figure out what you spend on these purchases and divide the total by the number of months you have until the date of the event.  That’s how much you need to save each month to have the cash on hand for the date in question.  If you spend $600 at Christmas you should be saving $50 a month starting in January.  And trust me, there is no better feeling then having all the cash you need for Christmas on hand when the time comes.

Review and change the budget often

Your life is a growing and changing thing, as should be your budget.  Don’t expect that the budget for March will work for December.  It needs to change and grow with you.  Do you need extra money for Christmas baking?  Maybe a child’s sporting event will cost a few extra dollars to attend.  Whatever the situation, your budget needs to change with it.  There will be surprise expenses along the way.  They are unavoidable.  Repairs on the car, over the counter flu medication, or a child’s sudden growth spurt can break the budget in a second.  The only way to overcome these surprises is with a savings or buffer.

Building a savings or buffer

There is no magic trick to building your savings for the unexpected expenses that pop up from time to time.  You factor in a little something every paycheque to contribute to saving.  $20 here and $20 there will add up quickly as long as you don’t dip into the savings for unnecessary spending.  The experts say that you should have at least three months of expenses saved.  This is a great goal to strive towards but not likely realistic right away.  Work at saving $1000 first.  This will cover most unexpected expenses and give you a sense of security when it comes to your budget.  Once you get the debts under control, you can work towards saving that elusive three months of expenses.

A great way to build some savings is to have 10% of every cheque go directly into a savings account before you have a chance to spend it.  Arrange it with the bank so that as soon as your paycheque is deposited into the account, the 10% is transferred over into the savings account.  You can then set it up so that you don’t have access to the account with your debit card.  If you want to access the money in the account you have to go into the branch (during business hours), stand in line, and wait to access your money.  This can be a great way to keep money in the savings account.  Most people, me included, don’t want to wait in line for money.  I’m too lazy to stand in line for $20 to buy lunch or some book I’ve been wanting.  More often than not, I walk out of the bank before I withdraw any money at all.  It’s a great way to make my laziness work for me.

Following these steps can lead to having a savings account and getting your budget under control in no time.  Remember to identify needs and wants and to seek free, professional advice when needed.  There is no magic to this process; you just need dedication and a plan.  What are some of your saving ideas?  Do you do anything differently?