According to a survey* by the National Australia Bank, one in five Aussies live pay cheque to pay cheque. In essence, that means 20% of those surveyed are one pay cheque away from financial disaster. With growing unemployment, diminishing business confidence and whispers of a rise in interest rates in Australia, these statistics ought to have the alarm bells ringing loudly.
If you’re living from one pay to the next, you need to find some way to create a buffer between you and potential disaster. All it takes is a protracted illness that wipes out your sick leave, a reduction in work hours or worse still, job loss to tip you over the edge and into the disaster zone.
Here are three tips to get you started on your trek out of the disaster zone:
Track your Spending
What you track, you can control. If you’re serious about getting off the pay cheque to pay cheque merry-go-round you need to understand where your money is going. Grab a small notebook or something similar that you have at hand. Don’t buy one unless you have absolutely nothing you can use to achieve the same end. Now, for at least one pay period, write down everything you spend money on… EVERYTHING. No exceptions. Parking meters, afternoon snacks, even if it’s only 50 cents, write it down.
Project your Cash Flow for 12 months
It sounds more complicated than it is. Grab a piece of paper (or use a spreadsheet) and map out the next 12 months by creating a table with 12 columns. Start the 12 months with this month, the fill in the following months in the remaining columns. Under each heading list the bills you know you’ll have to pay that month. Include all the regular bills you know about, rent or mortgage, phone, utilities, insurance, food, petrol/transportation, etc. You can use estimates but it’s best if you can dig out previous bills for those periods and use the tracking results from the first step. Total each column. How does it look? Any months look a bit scary? Now add all the column totals together and divide by the number of pay periods you have each year. How does that total compare to your usual pay cheque? For most people, even those who make an effort to stick to a budget and live within their means, can find this exercise a bit confronting.
Create a Plan YOU can (and will) Apply
Your plan can be detail oriented, an overview or somewhere in the middle. It doesn’t matter as long as it works for YOU. For example, I like the idea of details but the truth is I’m a ‘big picture’ thinker and can get lost in the minutia, losing sight of the direction I’m heading and why. Others might find the big picture too overwhelming and would rather focus on each step they need to take. Do what works for you. Create a budget based on the information you’ve put together in the first two steps and plan how you will make it work. There’s little point in allocating a specific amount for say, food, if you don’t also think about how you’ll make it work. Will you axe eating out? Will you take your lunch to work? Will you eat vegetarian once, twice, three times a week? The what of what you’ll spend is important but the how is equally important, so give it some thought. You don’t have a plan until you’ve answered all the how questions for your budget, you’ve just got a bunch of numbers.
There are lots of options for you to choose for managing your budget (I’ll discuss this in detail soon) but the real bottom line is about taking action. Choosing to live (and spend) differently takes effort and initially it can require what might appear on the surface to be sacrifices but, knowing you have the financial resources available to weather any storm offers a peace of mind that is priceless.
* The survey commissioned by the NAB and conducted by Newspoll involved telephone polling of 1,205 Australians aged 18 years and over in July 2014.