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Approximately 40% of UK employees live payday to payday, and half overspend each month, according to a 2020 study from Willis Towers Watson.
Many people work hard each month, earn money, and then spend it all. Despite their best efforts, they repeat this loop and fail to see that they are trapped. Often when they earn a raise, the cycle just continues.
Although many people fall into the ‘living from payday-to-payday’ trap, there is a way out. Here are seven things that will help you break this cycle.
1. Acknowledge the problem
Begin by acknowledging that you’re living payday to payday. This is the first step toward improving your financial situation. One of two difficulties (or a combination of both) is most likely to blame for the problem:
- You overspend on frivolities, entertainment, and other non-essentials.
- You don’t earn enough to meet your basic needs.
2. Get a clear picture
Recognise and take stock of your current financial situation:
- How much money do you owe right now?
- How much money do you have stashed away in an emergency fund or savings account?
- How much money do you make each year?
- How much money do you have to spend each month?
Answering these questions will provide you with the clarity you need to understand why you’re living payday-payday.
3. Review and revise spending categories
Look over your bank statements for any discrepancies. Be aware of the things you’re spending your money on. Look at your spending categories:
- Miscellaneous, etc
Many people are unaware of how much money is wasted each month on unplanned and impulse expenses. If your miscellaneous expenses are in the hundreds, it’s time to look at how you’re spending your money.
Are you spending money on services that you’re not using? For example, gym membership subscriptions may cost you £50 a month, and you’ve yet to visit the gym in 2022.
4. Create a budget
Having a budget for routine weekly spending, as well as for unexpected expenses in the future, is essential. Having a savings account set aside in case of job losses, illness, or family events can ease the agony of these difficult times.
Do you have an income problem or a spending problem? A budget will help you understand where you are now and the next steps you need to take to break the payday-to-payday cycle.
5. Set financial goals
Having a goal will help you stay motivated. What is most important to you? Understand your priorities and the reasons for those priorities. In the face of temptations to squander your money, this will help you stay on track.
6. Don’t miss payment deadlines
Make sure you are aware of the upcoming due dates for your bills. Set calendar reminders in your diary, and where possible, arrange for direct debits to be paid on the same day each month. You avoid incurring late fees and overdraft charges when you pay your bills on time.
7. Pay off high-interest debt
High-interest debt will make it hard to stop living payday to payday, as you’re using today’s money to pay for yesterday’s expenses. It’s hard to move forward when you’re still looking back.
When creating a budget, prioritise paying down debt. Avoid just minimum repayments, as this will keep you in debt for much longer.
Tolu is a Money Coach and Content Creator, passionate about helping others break the payday-to-payday cycle and achieve their financial goals, through the power of intentional budgeting, saving and investing. When she’s not talking about money you can find her spending time with her 3 boisterous boys.