Few situations are as stressful as not knowing whether you’ll have enough cash to last until the end of the month, and nobody wants to be living paycheck to paycheck.
The first step to getting out this cycle is to know where your money goes every month. That way, you can know how much you’re spending and what you’re spending (or overspending) on.
Figuring out how much you’re spending
Is it impossible to get out of the paycheck to paycheck cycle?
Is it easy to get out of it?
Yes and no.
Yes – once you figure out how much you’re spending, it’ll be much easier to escape the reality of living from paycheck to paycheck.
No – it won’t be easy (it won’t be hard either), but 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.
Here are four steps you need to take so you can fight your way out of the paycheck to paycheck cycle:
1. Take stock of your financial statements
Start by collecting all of your 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 on maintaining your lifestyle especially – take note of how much you spend each month on “wants” as opposed to “needs”.
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 living paycheck to paycheck
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.
By Jeff Cuellar, MoneySmart, September 2016
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