Stop Living Paycheck to Paycheck
Ah, the joys of living paycheck to paycheck. Looking forward to the 15th and 30th because you’re broke every 13th and 28th. Wondering where your money goes every month, and why it disappears so fast. Worrying about whether your paycheck will come before your bills are due so you won’t be hit with penalties.
Sound familiar? We’ve all been there. But you don’t have to stay stuck in the vicious paycheck to paycheck cycle. There’s a solution to this problem: get one month ahead on your finances. If you’re one month ahead, you’ll never have to juggle bills or worry about making ends meet.
How do you do this? Let’s say you make P20,000 a month. Basically, the goal is to save up one month’s worth of paychecks — and this becomes your “buffer”. You use this buffer to pay for next month’s expenses, so that you’re always one month ahead on your finances.
This method has been advocated by a lot of personal finance experts. There’s even software that’s supposed to help you do it, such as You Need A Budget (we’ve covered them before in our personal finance software roundup). In their words, this is how you get ahead on your finances:
“Spend this month, what you earned last month. How? Save enough money to go an entire month without touching your regular income. Then the next month, spend last month’s income while earning this month’s income. You’ll spend this month’s income next month.”
Ready to build your buffer? Read on.
Here’s the step-by-step guide to build your buffer.
- Track your spending now and see where your money goes. If you’re living paycheck to paycheck, that whole P20,000 is going somewhere — find out where.
- Adjust your spending so that you can put some money per month towards your buffer. This will take some time, so don’t worry if it takes a while. If you decide to save P2,000 a month towards your buffer, and if you start saving in January, by October you’ll be sitting on a P20,000 buffer, enough to cover one whole month’s expenses.
- In October, create your November budget based on how much is in your buffer. Allocate each peso from that P20,000 buffer to a specific item, such as rent, groceries, or bills. You can budget some for “fun money”, as long as the total of your budget doesn’t exceed P20,000.
- Pay your November bills and expenses using this buffer fund.
- When your November paychecks come in, don’t touch them — put them in your buffer, and use it to pay off your December bills.
- In December, put away that month’s paychecks in the buffer to pay your January bills. Repeat this process, always using last month’s pay to cover this month’s expenses.
- That’s it! From now on, you’ll always be one month ahead.
How can getting one month ahead help you?
- You can budget better. When you budget on last month’s income, you know exactly how much money you’ll be working with. This is great for people whose incomes can fluctuate greatly every month. For example, you can build a healthy buffer while you’re flush with cash, so you can prepare for a month when you know you’re not going to be earning as much. Also, when budgeting with a known figure, you’ll see more opportunities for saving and improving your finances.
- You won’t have to worry if you’ll be able to pay your bills on time. You don’t have to wait for paychecks to arrive before you start paying your bills. You already allocated money for them last month. So when a bill comes, you just pay it, because the money’s already there for it. No more late payments.
- You’re prepared for the unexpected. If your paycheck’s unexpectedly delayed, you don’t have to panic, because you’ve got a full buffer to cushion the blow. To those living paycheck to paycheck, even a few days’ delay in getting your pay have a terrible effect on your life, such as late bills, penalties for not paying on time, no money for groceries, or completely missed payments. With a buffer, you don’t have to worry whether you can make ends meet before your paycheck comes this month.
Is this method for you?
If the idea of having breathing room between paychecks sounds good to you, then give this method a try. It will take a while to get there, but if you make it into a main financial goal, you’ll be a month ahead of your finances before you even know it. And from there, you can further improve your situation to secure your financial future. Make the paycheck to paycheck life a thing of the past.