If you find yourself saying, ‘my paycheck never lasts’, you are not alone. We seem to be living in a world where our paychecks remain unchanged over longer periods of time while the cost of fuel, groceries, and utilities are constantly increasing.
Accordingly, more people are feeling the pinch and are faced with a paycheck that never seems to stretch to the next one, making it impossible to save for a rainy day. As a result, it may be a good time to examine spending patterns to determine which lifestyle choices are the most costly and which could be eliminated. Cutting out non-essential expenses can save that extra cash at the end of each month.
It all adds up:
- Smoking (1/2 pkg / day) $180.00 month
- Lunch out (if purchased each day) $200.00 month
- Alcohol (12 beer / week) $120.00 month
- Coffee (2 per day) $100.00 month
Cutting out those little extras can often be stressful in itself. But if doing so for a period of time allows you to have more disposable income to help pay off your debt, then it will be worth it. You will be able to reduce your stressors and know you are regaining control of your finances.
Besides eliminating specific lifestyle choices to reduce monthly expenditures, you could try rethinking how you shop to help stretch your dollar:
- Budget and plan for all purchases based on your paychecks
- Avoid impulse purchases, only shop for necessities
- Take advantage of advertised sales and use coupons when available
- Buy in bulk or large quantities for commonly purchased items
- Purchase items second hand, if possible
- Look for alternatives that may be cheaper
- Cook and bake from scratch
- Carpool with friends to work, when possible
Creating a budget to track your spending can be well worth the effort. It will allow you to get an accurate picture of where your money is going.
Tips to Follow When Budgeting:
- Be honest with your numbers: Don’t cheat yourself by not providing accurate numbers or guessing at costs. This only leads to a failed budget plan. Sit down with monthly bills and receipts to know what you are paying out.
- Use a budgeting tool or online resources. There are many tools out there to help you reach your budgeting goals. Worksheets and phone apps can all assist. Have a look at our FORMS page to find printable versions that may help. The FCAC (Financial Consumer Agency of Canada) has valuable information on how to create a budget and stick to it.
- Include all costs. Even small ones. Along with rent, utilities, car and phone bills, make sure to factor in your miscellaneous costs such as entertainment (movies, travel, etc).
What if your paycheck varies from month to month and you are living on a variable income?
Many self-employed workers can never predict what they will make in a given month, so this means budgeting for personal living expenses that are known. You know how much your rent is, your basic food bill per month and personal costs.
To truly budget, add all of the known expenses and calculate how much of your income you will need each month to cover these costs. This means a good percentage of your paycheck will be going towards your personal and living expenses. The other percentage should go towards paying yourself (whether it is saved for tax liability, extra house costs, or to treat yourself).
The 60-40 Approach
Here’s an example of the 60-40 approach:
60% of pay goes into personal and living expenses to cover bills, rent & gas, etc.
40% goes toward yourself. You may want to break this down further to save for taxes, school, or unplanned surprises. You should try to break down your percentages to include paying yourself if your income varies.
This being said, you obviously have to adjust based on personal situations. If personal expenses are more, then you have to allocate more there. If you use a car for business for example, then this may be an expense that needs separate budgeting (a separate percentage.)
There is no hard rule on percentages. You can have 50% toward personal bills, 25% toward taxes and 25% towards business. The key is to create a budget percentage that will get your main bills paid and give you back something, when possible.
Making the Change
Overall, you should be looking at the big picture to make your paycheck stretch as far as possible. This often means making changes to spending habits as suggested or using the percentage technique to budget with what you have.
If you find that all of your income is going to living expenses and there is none left over, then you may need to look at alternative options for rent/mortgage, cars, and/or childcare.
Everyone’s financial situation is unique. These suggestions of how to make your dollar go further are not exhaustive and there may be other options available to you.