How to quit living paycheck to paycheck? Here are 5 routes to take you there!
For some it could be unimaginable living from paycheck to paycheck. However, in our prosperous island nation as much as it seems, Singapore’s citizens are unable to cope with unexpected financial expenses due to poor saving habits.
A report by Credit Lyonnais Securities Asia (CLSA) in 2015 revealed that:
30% of Singaporean households save <10% of their incomes.
A shocking 14% have no savings at all.
73% of low-income households are saving less than 10% of their monthly income which is not unexpected.
Most surprisingly- 37% of the top-income bracket, the same people that you see savoring luxurious high tea at Ritz Carlton is essentially spending everything they earn.
These numbers could have worsened post-pandemic. By now, you probably would’ve figured out that having no money can cause a constant slew of financial and mental issues and even affecting your health and relationships.
These include.
Having no money for sudden emergencies
Piling debt and interest fees from when you borrowed money
Fees from late bills, negative balances and overdrawn accounts, which all contribute further to the spiralling situation
The stress of constantly checking your bank account balances to make sure you have money to buy anything
So if you’re one of those people, stick around for tips on crawling your way out of this situation.
1. Start cutting back on spending and start living below your means
For many they don’t actually realise there is a problem if they’re just managing to keep their debt (credit cards, loans, overdrafts) under control.
And some who didn’t get a penny saved at the end of each month just tell themselves that someday, their salaries will increase and their financial situation will get better.
Now the truth is it isn’t just the low-income earners who are in credit counselling. The high earners are likely to fall prey to lifestyle creep or lifestyle inflation- the phenomenon in which a person's spending goes up every time their income increases.
You might have been carrying Casio watches when you were still in polytechnic, but when you get your first job you upgrade to Diesel. By the time you hit your late 20s, you’ve started buying Tag Heuer timepieces, and so on.
In addition, bearing in mind the ongoing inflation is going to chip away your purchasing power overtime.
Once you recognise and acknowledge this, you know that your lifestyle is going to have to change. What expenses should you cover first? The essentials, aka the Four Walls. The Four Walls are your top priorities, so make sure your budget is ready to pay for these things in this order before anything else:
Food
Utilities
Shelter
Transportation
When you identify your needs and wants, for many Singaporeans, that could mean cutting down on the number of fine dining per week, reduce visiting malls that would tempt you to shop or cancel your gym membership and instead to cycle or jog. Whatever it is, be prepared to bite the bullet stay disciplined as a first step towards financial liberation.
2. Automate your savings and start investing
If you’re someone who saves whatever’s remainder at the end of the month, you’ll never save much. You should always set aside a decent amount (we recommend 20% or upwards is reasonable) when you get your paycheck before the rest of it for your spending and rest of your expenditure.
That means stashing money away towards your savings or retirement fund. To make it easier, you could set up a separate savings account and to have an automatic transfer to that account on your scheduled payday (akin to a self-enforced CPF). This ensures a set amount of money is saved every month. Also, you could select a bank that gives you higher interest rates, such as OCBC 360 or UOB One.
Investment is one great way to help accumulate wealth, even if it’s S$1 per day — you can start investing with robo advisors such as Phillip SMART Portfolio, with just a small initial sum to get started. Otherwise try something of low-risk first if you've just gotten started, such as ETFs. As you built confidence and experience, you can then gradually increase your portfolio risk to accelerate your wealth accumulation.
Stick to the rule of not putting all your eggs in one basket, that is to invest broadly (in different assets, industries, countries etc) in order to diversify the risk. For instance the Evergrande liquidity and China property crisis would have negatively affected their share prices.
3. Re-examine your social circle
Peer pressure might be something you thought ended once you graduated from school but sadly that is not the case with many people.
In fact, a conformist culture, a need to keep up on images and fear of losing out (FOMO) has resulted in many grown adults here paying through their noses for senseless things they barely afford.
Many PMETs in their late 20s and 30s, spend without thinking much on socialising, entertainment, food and vacations which landed them in credit counselling. Definitely seen many such cases first hand.
For instance, if there’s a dinner and drinks session organised, it may be taken as poor form if you take a rain check in order to avoid a bill choking up $100 for that night.
If you can relate, maybe it is time to re-think the people you normally hang out with and how you spend your free time, as there’s a high chance your social spending is the culprit for poor manoeuvre in your finances.
4. Pay off toxic debts
Here’s the deal: Debt holds you back. It’s got you paying off last year’s Christmas pressies. And then you’re struggling paying off that island vacation. You can’t get ahead like that.
Debt is getting sneakier and sneakier. These days, installment payment companies are on the rise. They tempt you at checkout by saying you can pay for that waffle maker in 3 easy payments. Do you really want to sink money into that fancy machine for 3 months? Listen. Living with debt (of any kind) is one of the biggest things keeping you in the paycheck-to-paycheck cycle. So get out!
Solution: First, stop taking on any kind of new debt. That means stop paying for things with any kinds of credit. Don’t take out a new car loan, opt for public transport instead. Say “Heck no” to saving 10% on that lovely dress by registering to a store card, which will actually have you end up spending more. Next, kick your debt to the curb by paying it off smallest to largest using the debt snowball method.
Think of it this way: When you make your budget, how much of your money goes to debt payments every month? That’s how much extra you’ll take back when the debt is gone. Goodbye, debt payments. Hello, financial progress!
If you feel like you are drowning in unhealthy debts, consult a credit counsellor or explore the option of debt consolidation. This has the potential to give you a smaller monthly payout for a shorter period of time. On the flipside, there is no problem if you take up financing for assets that either appreciate in value or add to your ability to earn money. That’s “good debt”.
5. Create a Budget
Maybe your bank account is always running dry between paychecks because you don’t have a plan for covering recurring monthly expenses with your income amount.
Start tracking your expenses by drawing up an excel sheet or using budgeting apps linking to bank, credit card and other accounts. and noting every cent that leaves your pocket.
Maybe you don’t even know where your money go. Bills. Consumption. Food. You’re just keeping things paid and people fed. It’s time to start budgeting. Why? Because when you budget, you start seeing where your expenses went.
When you budget, you’ll see spending habits you didn’t even know you had. From there you can make the changes you need so you can reach your goals—for now and far into the future.
We can’t say it enough: Budgeting is the foundation for financial management, and it’s the first step toward ending this paycheck-to-paycheck life. Don’t put it off. Start a budget now!
Friyay- Earned Wage Access can help you instil better budgeting practices by freeing up consistent cashflow enabling greater financial control. If you are interested to learn more for how it works, we’d love to hear from you!
References
https://hr.asia/top-news/singaporeans-living-paycheck-to-paycheck/ 6 March, 2015
https://www.singsaver.com.sg/blog/how-to-stop-living-paycheck-to-paycheck, Kendra Tan 25 March 2022
https://www.ramseysolutions.com/budgeting/4-things-you-must-budget 24 June 2022
https://blog.moneysmart.sg/budgeting/singaporeans-living-paycheck-paycheck-must-3-things-now/?source=blog-login-wall, Joanne Poh 30 June 2016