Living paycheque to paycheque is not only stressful – it’s dangerous.
If your paycheque seems to vanish as soon as it arrives, and you find yourself surviving on instant meals toward the end of the month, you have a problem.
Specifically, you’re living paycheque to paycheque. And here’s the scary thing about it: A single emergency, such as retrenchment, will send you neck deep in debt.
Here’s how to break the habit.
1. Always pay yourself first
Before you start spending your money, make sure 20% goes into your savings.
For Singaporeans and Permanent Residents, the Central Provident Fund (CPF) does this for you already.
But you can’t take out your CPF money easily; and it’s important to have an emergency fund that you can tap into when you need. So the moment you get your pay, take another 20% and put it in a separate savings account.
However long it takes, keep doing this until you accumulate six months worth of savings.
Having an emergency fund means you won’t need to resort to loans in a crisis. It also gives you the confidence to make critical decisions, such as switching jobs or starting up a small side-business.
2. Reduce your loan interest
If you find that almost all your money goes into repaying loans, it’s time to reduce the interest rates.
One simple way to do this is to use a balance transfer to pay off a credit card completely, or to use a personal instalment loan to pay off higher interest debts.
For example, say you owe $5,000 on a credit card, which has an interest rate of 24 per cent per annum. You could take a personal instalment loan for S$5,000, at just 6 per cent per annum. You then pay off the credit card with the personal loan. This would effectively reduce your interest rate from 24 per cent to just six per cent.
3. Track your expenses
What gets measured gets managed. If you track your expenses, you’re less likely to overspend.
Experiment with the methods available, from writing things down to using phone apps. Stick to the one that feels most intuitive.
This is the first step to developing a functional budget. Which leads to the next issue:
4. Categorise your expenses
Trying to save an extra 20%? Cut down your budget in each category – from food to entertainment – rather than as a whole.
If you fail to keep the budget in one, you may still succeed with the others!
5. Stop automatingpayments
If you have automated payments, such as for gym memberships, MMORPG subscriptions, or clubs, we suggest you cut them off.
You should always be aware of what you’re paying, and how much you’re paying for them. This will remind you to stop forking out money for services or goods you don’t actually need.
On the other hand, you do want to automate your savings if possible.
6. Tighten your belt the first week you receive your pay
Make a pledge to do minimal to no shopping, on the very first week you receive your pay. This will help to break the habit of overspending in the first week when you’re feeling extra rich.
7. Let someone else do the shopping
As a last resort, if you truly cannot control your spending, consider letting someone else do the shopping.
Get a spouse, parent, or close friend who is willing to help, and give them a fixed shopping list. Pass them the cash to do the shopping for you, so you don’t get tempted.
You can still indulge in the occasional bit of shopping. During the LAST week of the month, if you have a surplus, you may take the money and go shopping yourself. However, you should not bring any credit cards, lest you be tempted to rack up debt.
By Ryan Ong, SingSaver, June 2016
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