Dear Millennials, Living Paycheck to Paycheck is not the Way Ahead!
Do you find yourself wishing the days would move faster just because you're waiting for the next paycheck? That's relatable. But did you know it's also preventable? Click here to read the steps you can take to break out of the living paycheck to paycheck cycle.
Stop living paycheck to paycheck and avoid financial stress. But you must be wondering how? If you're constantly wondering whether you will have enough money until the next paycheck, you would be familiar with the financial turmoil it brings. In this article we look at how to cut down on unnecessary expenses and find wiggle room to make space for more money.
Know how to plug holes in your budget & focus on living worry-free!
1. Start with a plan
Perhaps you are one of those who don't like making a plan, especially when it comes to money. Budgeting sets most people off, particularly millennials. The thought of spreadsheets, tallying figures, categorizing expenses, and denying purchases can be complex. But the good news is that your personalized spending plan, better known as a budget, is a flexible little tool that holds the key to financial freedom and wealth. If you are new to budgeting, start with the 50/30/20 rule, which is a simple and easy budget to follow. In this rule, you divvy up your income into three categories: 50% to obligations such as fixed expenses including electricity bills, groceries; 30% to discretionary spending such as the stuff you want, dining out etc., and 20% to saving and investing. Tweak those percentages to find out the right proportion for you.
Additional Read: How to build a Rs. 3 crore retirement corpus
2. Spend with an intention
If your income is not adequate to meet your needs, you may want to boost your income by either trimming your current expenses, working through a second job or a side gig or saving more towards your goals. An excellent way of cutting your costs is to spend with an intention. That means you need to pay close attention to where your money is going. If you are a habitual spender, you may now want to be mindful on cutting back.
Envision your larger goals. If you need more money to achieve them, think about a side hustle or freelancing. Or, you may want to negotiate a higher pay, consider networking to make a career transition or seek a better job. Look into your current expenses and make a simple plan to enhance your costs. Set down a budget, establish spending limits and lay down flexible goals.
3. Get debt out of the way
The unfortunate turmoil caused by the pandemic resulted in wealth erosion among a large population of investors and especially among millennials. If a significant part of your paycheck is eaten by debt, it's time to get out of it. For starters, you may want to stop using your credit cards until you are completely debt-free. Avoid taking out any other consumer loan until you've repaid all your previous debts in full. If you're looking to speed up paying debt, look for a side job where the income can go towards settling debt.
Additional Read: 8 ways to manage financial stress
4. Stock up on your emergency fund
A cash reserve that you can draw from in the event of unexpected or necessary expenses is your emergency fund. This repository of money is your own personal bank if something happens to your income. Having a well and fully stocked emergency fund can ensure you are financially okay even if your next paycheck never arrives.
In the current scenario, saving up an emergency fund of 6 to 9 months' worth of your take-home pay is ideal. It might sound a lot, but imagine if you needed the cash and didn't have it. Also, now that you have a spending plan, you can begin to work towards building your emergency fund slowly, month by month.
5. Recognize insurance as a necessity
You never know when the unexpected can take place. That’s why you need to ensure the protection of you and your loved ones with suitable life and health insurance policies that can provide a secure future for all. More importantly, having adequate insurance can take away the stress of worrying how to fend for cash if a medical emergency arises or premature demise occurs.
As a millennial, you can benefit from purchasing life insurance at a low premium with a high sum assured. Similarly, you can also take advantage of a comprehensive health coverage plan at a low cost, given your age. Having adequate insurance can ensure that your future needs are met without having to dip into your savings, investments or seeking out emergency loans.
6. Start investing today
In the early days of your career, consistent investment can make all the difference to wealth accumulation. Begin with a modest savings allocation towards a mutual fund of your choice through a Systematic Investment Plan [SIP] by contributing at least 20% of your paycheck every month.
No matter how little you set aside, you can start small and slowly increase your allocation to improve your income. Living from paycheck to paycheck may derail your retirement. And hence, you need to bring your finances under your control by investing for your future today. Your automated SIP scheme helps set aside the money towards your aims without giving you a chance to spend it. Your SIP also helps eliminate the temptation of spending now and ensures your long-term financial goals are met.
Additional Read: Why it's important to be financially free
To live paycheck to paycheck is mentally and financially stressful. Getting out of the vicious cycle of waiting for your next salary is easier said than done. But you need to give it a try. You owe to yourself to take care of your finances and resume control over them. Start investing, keep aside money for the short term and set yourself up for a financial future with excellent and disciplined money habits today.
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