.. and say hello to financial freedom
How do you break this cycle and stop living paycheck-to-paycheck?
It’s easy. Earn more, spend less, or both.
We do not mean to be flippant, but the only true way to savings and getting out of a paycheck-to-paycheck living situation is to control your spending. Even if your paycheck increases, without control of your spending habits, you are just going to spend the excess and be no better off than you were.
Here are some suggested steps to help you initiate a savings program and achieve fiscal freedom.
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- Change Your Mindset – You have to get past this first step for any of the following steps to work. Make savings a priority. Otherwise, there will always be a reason to spend your money and something on which to spend it.
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- Track Expenses – Do you know where all your money goes? You would probably be shocked at the answer.Either use the old school method of writing down every expense in a notebook, or find an app to do the same thing on your smartphone. Include all the seemingly trivial items like vending machine candy bars, Uber or taxi fares, and random sodas or cups of coffee. Do not forget to include any automatic payments (debit orders) that you have set up through your bank account.At the end of the month, total and categorize the expenses to find out where the majority of your money is going.
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- Prioritize Your Spending – Start by isolating the necessary spending, such as rent, from your other purchases (“needs” vs. “wants”). How many of your larger sources of spending fall into the wants category?Take a closer look at your needs category and see if some of them are really wants. For example, do you really “need” to eat out once a week? Move anything over that is not really a need, and then prioritize again within your wants category. This will give you an idea of which spending to cut.
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- Set a Realistic Budget – Apportion your income toward all your needs first and then set aside a certain amount for savings. Even if it is R100 or just R20, it is a good start toward the savings mindset. Use another portion to pay extra against any high-interest debt like credit card balances, then take whatever money is left and decide how to divide it among your wants. It is important that your budget be realistic. If you have nothing left for any wants or if your savings goals are unattainable, you probably will not stick with the program.
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- Reduce Credit – A long-term key to controlling spending is to slow credit card use. Try not to put any more on your credit card than you can pay every month, and pay your balances promptly.
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- Look for Savings Opportunities – Consider discounts and restaurant offers that you may have ignored in the past. Buy non-perishables in bulk. Sign up for loyalty discount programs. Look around your home for potential areas of energy waste. Every little thing contributes to the overall mindset of savings, even if the savings are small. However, keep savings in perspective — do not buy things that you do not need just because they are on sale.
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- Look for Extra Income – Consider part-time jobs, or selling unwanted items as a way to cut down your debts and the corresponding interest. However, it is important you take care of the spending part of the equation first. Otherwise…poof, your savings are gone in an instant. (That is why this tip is last in the list.)
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- Set up and maintain a personal budget – Money 101 has developed a free personal budget planner, it has an extensive list of recommended expense lists to help you to build a complete picture of your expenses big and small. This will give you a very comprehensive overview on where your money goes every month.
These are not easy steps, but they are necessary ones in order to succeed. However, as we mentioned, the first step is the most important. Are you ready to make some sacrifices for long-term gain? If so, congratulations! If not, go ahead, whip out that credit card, and head off to the mall. However, the next time you try to control your spending, we guarantee it is going to be more difficult.
