How to stop living paycheck to paycheck!

One of the best ways to build your wealth is to stop living paycheck to paycheck, but how do you achieve this? Let's explore....

So many New Zealanders are living payday to payday and with the coronovirus crisis currently in full swing, many of us are feeling the pinch. A Kiwiwealth survey found that 53% of young people and low income households live this way. Read more below:

So how do you escape this trap? How do you have money set aside just incase something unpredicatable happens? Here's some ideas to help escape this trap:

Ok, but where do I start!?

One of the most important ways to to budget, this really is a must as it's only by budgeting that you know where you are spending your money. By the time you have added up all you outgoings, you should have some money set aside for saving - if you don't then something needs to change. It's time to spend less or earn more. In my experience, spending less is the quickest fix, however everyone's circumstances are different. Some of you won't even have enough money to cover bills and debts. If you are in these circumstances, you need to work it out today! There's different ways to tackle in. See our recent blog post:

'Ten Steps to get out of the cycle of debt'

to find out more but the most important thing is to have more money coming in than going out. Ask yourself honestly, do you really know where every dollar or even cent is going? If not, then why not? Is it too time consuming? Too pedantic? It needn't be and it definitely shouldn't be. Drawing up a budget after listing all our incomings and outgoings is the best thing me and my wife ever did!

Set up an emergency fund

Ever experienced a time when something unexpected happens and you have no money because you are living payday to payday? I have! My wife and I had recently moved to New Zealand and paid an absolute fortune to get the cat transported all the way from the UK. What we didn't do is get pet insurance, even though we'd always had it in the UK. And guess what!? Within a few weeks of our precious moggy arriving he gets hit by a car. A couple of operations later and a $5000 Vet bill led us to realise we'd made not one but two stupid mistakes. No emergency fund! No pet insurance! Please, don't be that stupid - when you borrow $5000 dollars, it becomes even more once you've added interest. Start your emergency fund - get to $1000 as quick as you can. Put it in a separate account and then build up to at least THREE months of living expenses (that's everything from your rent, bills, food, running a car extra). You'll know how much because you will have already done a budget, won't you!?

The 50/30/20 Rule of Budgeting

Ok, so there's many different examples and percentages for your budgeting. I'll go into a bit more detail about the one I use but before I do the important thing is that you need to be saving and if you are someone that doesn't save at all - start small, that's fine. We all have to start somewhere. It may be that you save just ten bucks from your pay to begin with. Don't be too hard on yourself, it's a start and it's exactly how as a family, we started.

The 50/30/20 rule works as follows, 50% of your income goes on essentials - these are things you need e.g. your rent, food, bills but not your Netflix subscription - sorry but that's a want! The Netflix and all your other wants goes into the 30% category, which incorporates your needs e.g. shopping, grabbing a takeaway, etc. Finally, your left over 20% goes into savings. You may not be at 20% yet but this is the category that should increase, whilst the percentage of your essentials and wants goes down. Stop drinking a takeaway morning coffee and the $5 leaves your wants (not needs!) and goes into the savings. So to break it down it may look something like this:

$2000 income from wages would equate to $1000 on essentials; $600 on needs and $400 on savings.

I don't know about you, but for me the $600 on needs stands out as something that could be cut down on. If you are just starting out and don't have an emergency fund yet, then maybe you could put the 20% straight into the emergency fund before starting separate savings.

How will I know I've achieved no longer living paycheck to paycheck?

The most obvious way, is that you will no longer desperately waiting for your next pay. In the past I used to wait for my fortnightly pay being broke for the final few days leading up to it. I used to joke, we had a good week and a bad week -on week we'd eat well, then next week would be a week of noodles! Lots of my colleagues I've heard say the same. That's no way to live, it's wishing your life away and it's a life of struggle every other week.

You will also have money in your emergency fund and in your savings, should anything unexpected happen. Life is always throwing us curveballs, expect the unexpected and be prepared.

As always, the information in this blog post is purely for illustration purposes only and in no way constitutes any legal or financial advice. Seek a professional for that.

Good luck on your budgeting journey and stopping the paycheck to paycheck lifestyle.

Comment below with your budgeting plans and are you living payday to payday or have you escaped the cycle!



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