First published on 12 July 2016. Updated on 17 October 2016.
Are you tired of living between pay cheques and want to head towards financial freedom? Follow these 5 tips on how to break away from that dreadful cycle!
1. Pay Yourself First
Amongst the first few things you should do when you receive your salary (besides paying your bills!) is to pay yourself first. Set aside a portion of money from your salary for yourself and put it into savings. This money should then be off limits unless it is for emergency or used for something long-term, such as to pay for a down payment on a house.
Worried that you may find it difficult to be disciplined enough to set some money aside?
Here’s a tip to motivate yourself: start by setting goals. Begin with an amount you are comfortable with, for example, to have RM1,000 money saved up in 6 months’ time. Then once you’ve achieved that you will feel a sense of accomplishment and it can help to inspire you up to save more.
Although it is recommended to save at least 20% of your salary, once you can afford to save more you should gradually set higher goals to achieve.
Once you’ve gotten the hang of setting aside a portion of your salary, you can then learn how to make your money work for you through investment. Here’s the beginner’s guide to investing in Malaysia to help you get started.
2. Write Down ALL Expenses
This is a step people often take too lightly when it comes to managing their finances. But it’s actually one of the simplest yet efficient ways to get your finances in order. Begin by tracking down your expenses, every bit of it even for those snacks or kuih you buy for tea time.
Give it a try and chances are you may be surprised at how much you’ve actually been overspending. If you’re not a fan of having to write everything down, there’s plenty of FREE apps out there to help you keep track of your finances like Pocket Expense, Goodbudget or Wally.
Tracking down all of your expenses can also teach you to curb impulse purchases the next time, especially after you see the huge dent they leave on your budget!
3. Trim Some Off
After you’ve written down all of your expenses, chances are you will be able to spot where you tend to overspend a huge chunk of your salary on. The next step would then be to re-evaluate those expenses, for example, your subscriptions and ask yourself if you really need and use them. Be honest with yourself, because what’s the point of paying for a monthly gym subscription if you only go once a month?
Once you begin to trim unnecessary expenses and subscriptions, you can then work towards rebalancing your budget. While you’re trimming your expenses, make sure you also work towards paying off all your debt too.
Keep in mind that the guide for your monthly repayment of loans and credit card debts should not be more than 40% of your net monthly income. So work towards reducing that percentage to as low as possible.
4. Create A New Path
Boost your income and don’t rely on one source of income only as this can help you to be in a more comfortable financial situation. As you may have also heard before, “don’t put all of your eggs in one basket”, therefore diversifying how you generate income is another way you can reduce the likelihood of living between pay cheques.
For ideas on how to generate a second income, check out 21 ways you can earn more money without quitting your job: Part 1.
5. Change Your Attitude On Money
Your attitude towards money will play a significantly important role in your financial situation. In order to stop living between pay cheque to pay cheque, you will have to change your mindset towards money. One of the most important attitudes you should have on money is learning to spend less than you earn. By doing so you will save yourself from being in debt and from sleepless nights thinking how to survive with the limited money you have left.
While you’re on the way towards changing your attitude on money, you should also hang out with the right crowd. If you still spend your time with those who insists on going out every night or frequenting expensive food joints, changing your mindset on money itself won’t do you much good.
Lastly, keep your eye on the prize. You don’t need to constantly upgrade your mobile phone or make unnecessary purchases you don’t need, lest you feel you’re missing out on life.
Breaking away from the cycle of living between pay cheques will be one of the most satisfying achievement, so follow the tips above and you can be on your way towards achieving it!