How to stop living paycheck to paycheck (2024)

Despite most people being familiar with the term ‘living within your means’, more and more people are spending everything they earn, or even taking on debt. The recent interest rate rises and inflation increasing the cost of goods and services isn’t helping slow this trend.

Generally speaking, building wealth starts with savings. What you can put aside from each pay builds up and you can use this to buy property, shares and other assets. But living from paycheck to paycheck without setting money aside to build wealth leads to financial stagnation, eventually culminating in retirement on the pension.

If this situation sounds like yours, you have two options – give up or try harder. Giving up is pretty easy, just close your eyes and dream of something better. Alternatively, cut up the credit card, grab a bank statement and implement these simple ideas for a better future.

Know your bank balance

You wouldn’t drive around in a car that doesn’t have a fuel gauge or speedometer. So why go about your day to day activities without knowing what’s in the bank? This is one of the easiest ways of making sure you’re not spending money you can’t afford. Make sure you log into your bank regularly or check the balance when using the ATM.

Reduce access to money

It’s easy to overindulge in chocolate when you’ve got cupboards full of it. The trick is to not have it in the house. Money is the same, and it’s easier than ever to get access to it. Now we can pay using our phones, get cash out at atms without our cards and buy a new outfit on our commute home from work with AfterPay. So cancel the credit card, shut down AfterPay and make it harder to spend money. The more difficult it is to spend, the less tempted you will be.

Automate your savings

One of the easiest ways to stop living pay to pay is to get your payroll manager to transfer a portion of your paycheck into a separate bank account each pay round. If you’re paying off debt, make this an additional payment that you make above the minimum repayment. If it goes out of your pay without you seeing it, there is less chance that you’re going to spend it.

Examine your spending

Living standards are higher than ever today. Items that were considered a luxury just a few years ago are now becoming the norm. The role social media is playing in society isn’t helping either. With the rise of Insta celebrities showing us the life we are apparently missing out on, it’s no wonder some feel the pressure to keep up. However, know that many people who appear to be enjoying the finer things in life may not necessarily be able to afford it either. The debt Australian households carry is crushing us and preventing us from ever getting ahead financially. Examine your money mindset to understand what’s really driving your spending and try to consume mindfully. If you ever feel like you’re missing out, take comfort in knowing that everyone else is missing out on growing their financial future.

Make small changes

According to financial commentator David Bach’s theory, The Latte Factor, those small, seemingly innocuous purchases for things like coffee, magazines, bottled water and fast food really do add up. Think about the small changes that you could make to your daily spending that could make a big difference amount you’re saving. For example, cutting the caffeine could save you $1,638 per year, or bringing your lunch to work could put $3,210 in your back pocket. Check out our posts 10 small changes that can bring big rewardsfor more ideas.

Avoid automating your expenditure

It’s so easy to commit to small regular expenses such as Netflix, Spotify and Foxtel. But over the long term, these seemingly small, but regular expenses really add up. To help reduce the temptation, always calculate what something is going to cost you on an annual basis before committing to purchase.

Save your pay rise

So you’ve just earned yourself a pay rise and suddenly you’re your Toyota doesn’t really fit with your new income. So you buy a Lexus. To go with your Lexus you clearly need a new wardrobe and, well, your furniture could use an upgrade too. Lifestyle creep is the name given to the ‘earn more, spend more’ phenomenon that has financial advisors shaking their heads in concern. For so many people, their spending increases as their income does. Don’t fall victim – if you get a pay increase or bonus, transfer the difference in income to your savings, rather than increase your lifestyle to match. The only way to stop living paycheck to paycheck is by putting money aside each pay round and getting pay rise is an ideal opportunity to do this.

Speak to a financial adviser

One of the best things you can do if you’re concerned about your ability build wealth for the future is to see a financial advisor. Even if you’re in a stable position, consulting with a financial adviser to review your financial situation in light of the changing economic environment is always a good idea. A finanical advisor can assist with budgeting and cashflow management by building a structure so you can maximise your savings to invest towards your future goals.

At Financial Spectrum, we do things differently to what you may think of as budgeting and cashflow management. We’re not about budgeting in the traditional sense. There are no spreadsheets. We don’t advise you to restrict your spending and limit you from living the life you want. Instead, we help you identify your core values, make conscious choices about what’s important to you, and then structure your finances accordingly. That way, money management becomes effortless and enables you to live the life you want.