It’s not impossible to get out of the paycheck to paycheck cycle. But it’s not always easy either.
Once you figure out how much you’re spending, or overspending, it’ll be much easier to escape the reality of living from paycheck to paycheck. With some patience and planning, you can finally get a handle on what you must do to have more cash in your bank account at the end of each month. Even better, you can start on smart spending habits. Spend money on priorities and you’ll find more cash in your bank account!
Here are 4 steps you need to take so you can find out what you’re overspending on:
1. Take stock of your financial statements
Start by collecting all your bank financial statements:
- Bank Statements
- Credit Card Statements
- Utilities Bills (power, water, phone, etc.)
- Loan Repayments (home loan, car, taxi, etc.)
- Credit Card Balances
To get a better picture of what you’re earning and spending every month, you’ll need to dig for statements going back at least 6 months (ideally, you’ll want to go back at least a year).
2. Sort your spending into categories
As you sort out your various statements, some categories will become immediately apparent such as utilities, loan repayments, groceries, dining out, travel (gas, mass transit), etc.
Pay very close attention to how much you spend money on maintaining your lifestyle especially – take note of how much you spend each month on “wants” as opposed to “needs”. These tend to be the categories where we ‘overspend’ on. For example, those post work drinks add up.
3. Add the numbers up
Once you add up all of the numbers, you should get the big picture of what you’re spending on and how much per month you’re spending on each category.
Adding the numbers up for at least 6 months can also let you see how consistently you spend per month on each category.
4. Get the big picture of why you’re overspending
Seeing how much you’ve been spending over the course of several months will immediately show you whether you’ve overspending in a particular category or not – we don’t want to scare you, but it’s quite an eye-opener. If you spend too much on dining out, taxi rides, or whatnot every month, it’ll become apparent.
Of course, everyone has different financial situations, but one thing most people living paycheck to paycheck have in common is this: they simply cannot save!
So, the point of being shocked by what you’re spending on and how much you’re spending each month is simple – to cut back on categories where you’re overspending. From here, you can start prioritising which categories you need to spend on and which you can start saving on. There, you can smart spending!
Originally by Jeff Cuellar, MoneySmart, September 2016 / Last updated by Isabel Wibowo