Living from pay check to pay check? You deserve better
It’s less than 2 weeks after payday, and you’re already looking to be broke. Wallet empty, account already in the red. As abysmal and dismaying as this is, it’s the sad reality for most income earners, and it seems like a vicious cycle with no end in sight. More than 70 percent of workers live from pay check to pay check according to surveys.
A common noticeable trend is that many tend to spend their entire paycheck, if it is left lying fallow in bank accounts, regardless of whether these are low, middle- or high-income earners.
Breaking the pay check-to-pay check cycle takes discipline and a plan. Here’s what top financial experts recommend as the best steps toward more financial independence:
Monitor and evaluate your spending. Much of pay check-to-pay check spending is because you aren’t paying attention to your outflow of money. Take two to four weeks and document every purchase, whether it’s by card or cash. At the end of the period, you’ll be able to see where your nairas are going—and you’ll be more conscious of your spending. Kick starting this process will optimally transform a person’s cash spending habits and make your pay check serve for longer, and then you’ll find that even before the next paycheck arrives, you’re not doing badly.
Automate savings, scratch that, investment. Be less about those savings, and more about that investment. Well, that’s asides your savings for emergencies. If you habitually put up your savings in a savings or fixed deposit account, what really are the interest rates, and what do they actually do for you? When you start earning residual income by putting at least 40 percent of your earnings into investments, your broke, borrowing days are about to be over. Yes, 40 percent, its tough I know, I know, I hear you, but do you want to keep holding your breath every time it’s the 30th of a month or nah? Even better, make those investment deductions automatic from source, from your paycheck.
As for your emergency savings after having done your investments, make that automatic as well. If you plan to save “whatever’s left over” after you spend the rest of your paycheck, you’ll never put anything away. Whether you’re building up emergency savings or putting money away for retirement, that money should come out next after your investment funds. Set up an automatic transfer on paydays from your salary account to your investment platform and then to your savings account of your choice. The more you can put on autopilot, the better.
What’s going on with your fixed expenses? Now, take a good, hard look at those. Sometimes a pay check-to-pay check existence might be an indication that you’ve locked yourself into a lifestyle you can’t really afford. The general rule of thumb is that your monthly housing expenses should be 20 percent or less of your annual gross income.If you are outside of that range, you may want to consider moving to a less expensive neighbourhood or downsizing or getting a roommate. The same goes for that luxury car—how would it impact your budget if you sold it and purchased a more economy vehicle?
Then turn to your want-to-haves. Many of your expenses are necessary—rent, food, bills, tuition, self-improvement—but what’s left over is not cast in stone. Try ranking your discretionary spending items from most important to least important. You compromise on your premium gym membership, bottle popping Fridays, shopping sprees, premium cable tv that you’re never even home to watch, and spending on a whim. Now, what to do with your raises? Stash those away. Make it your goal to use raises and bonuses to stash money away, whenever you receive a salary bump, or a bonus, think three things: invest, emergency savings and retirement fund.
Find your “why.” You must have a strong reason to change your habits, and this is the greatest incentive to ending this pay check to pay check rat race. What’s your why? You must have a dream and a belief that you can make it come true. Maybe planning to invest real estate? Let us know when you’re ready, and there’s no better time than now. We’ve got the connects.