Sometimes no matter how much you earn, you end up living paycheck-to-paycheck. No matter how much you try to save, by the time your next month salary comes into your account, nothing is left of your previous salary. Some might say that there is nothing wrong about living paycheck to paycheck as long as you are living comfortably. While it might seem harmless now, but when you think about the fact that you are neither saving nor investing your money, it should worry you.
There are many reasons why we overspend. It could be because we aren’t aware of our true spending habits. Maybe we are guestimating our income, expenses, debt payments and spending incorrectly. Then, in the end, our bank account balance dips lower than what we expect.
For savings and investments to happen, it is necessary for you to stop living paycheck to paycheck and here are five ways you can do that:
1. Mapping and learning: First things first, you have to completely change your thought process of spending your money. Instead of saving what’s left after spending you should aim to spend what’s left after saving. It might seem a little absurd because how can you save beforehand. It is pretty simple, to be honest. All you have to do is track your monthly expenses and then plan your expenses accordingly for the next month. Once you have the rough idea of your necessary expenses you can already save the rest beforehand whenever your salary arrives.
2. Priority: One might argue that they want to save but the expenses are so much that it is not their fault. This is where a proper spending plan comes in. You need to make a bucket list of sorts with priorities on top. Paying off your loans, house rent etc should be at the top of the list. Sometimes people overestimate their earning and that is why they end up spending more than they should every month. It is a vicious cycle which does not stop until you make smart decisions. Every month try and pay for the things at the top of your priority list. You will just how much extra you have been spending.
3. Plus income: Some people might actually earn just enough to pay for the basic needs and therefore are not able to either save or invest. For such people, the only option to stop living paycheck to paycheck is increasing their income. There are two ways you can do that. You can do overtime and earn a little extra every month and save that extra money in a savings account where it can attract interest. Once you have enough amount in that savings account, you can learn about minimal risk investments and investment some of the money so as to get more in return. There are a lot of investments options but you have to choose the one with minimal risk to avoid losing your hard-earned money.
4. Resisting temptation: There are times where you get bonuses or special allowances. At that time it is very important for you to not get reckless. Sure, it might be tempting to just buy what you have been dreaming or wishing for. You don’t have to completely stop yourself from spending that money but all you have to do is just hold yourself back a little. Save a considerable portion of the extra bonus or allowance and spend what is left as per you want or need.
5. Credit and debt: Credit cards are very handy and useful. All you need to do is just spend money and swipe that card. While all of this is happening you do not realise how much extra you have spent. It is a fact that credit card gets you carried away when it comes to spending. You have a lot more chance of stopping or restricting yourself if you are paying in cash. In order to cut down your spendings, stop using credit cards. There are exciting discount and cashback offers on credit cards to lure you in but do not fall into that trap because you will be spending more than you will get back. Just avoid using credit cards for a few months and you will see automatically how your expenses have gone down.
The advantage of saving something every month is that the power of compounding helps the little savings grow exponentially over time and help you reap the benefits in form of handsome returns.