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Living paycheque to paycheque: How to break the cycle

Take steps to reduce stress by putting your financial life on a better footing.

August 16, 2019 ​​6 min read


Spending all your income each month with nothing left over is a precarious way to live. Unforeseen expenses can put you in a hole, forcing you to dip into retirement savings, draw on a line of credit or pay with a credit card while carrying a balance.

That kind of financial stress is very real for 44% of employed British Columbians who live paycheque to paycheque, according to the Canadian Payroll Association*. 

Fortunately, there are both immediate and long-term steps you can take to break free of the cycle. We cover them here: 

Earn more, or spend less? 

To put your financial life on a firmer footing, you need to spend less than you take in.

This could be achieved by increasing your income, for example by moving to a higher-paying job, doing additional work on the side, or maybe renting out extra space in your home.

But if earning more isn’t realistic or achievable, you’ll have to decrease your monthly spending. A good rule of thumb is to limit spending to at most 90% of your net (take-home) income, so that at least 10% can be deployed to improve your financial well-being.

Track your spending to see where your money is going

To see where you might trim back, track all your spending for two months. Your chequing account and credit card transaction records will cover a lot of it and many financial institutions enable you to download account records and export them to a program of your choice.

It’s also a good idea to keep receipts or make notes for your cash purchases. There are many expense tracking and budgeting tools available to help you, from simple spreadsheets to sophisticated mobile apps. Choose one that works for you, and make sure that that it assigns each expenditure to a category such as groceries, transportation, clothing, entertainment and so on.

Trim your spending

Some of your expenses are non-discretionary, such as mortgage or rent, insurance premiums, hydro and mobile phone service. Others are discretionary, such as eating out, entertainment and vacations.Focus first on the “low-hanging fruit”—your highly discretionary expenses. Can you eat at home more often instead of buying meals at restaurants? Can you reduce your clothing budget? Be realistic, because if you cut too aggressively and can’t meet your target, you’re going to feel discouraged.

Other expenses are somewhat discretionary. Can you live without cable, or drop a streaming entertainment subscription? Can you find a cheaper cell phone plan? Can you cut down on online shopping?

If you still can’t find 10%, look at transportation. If you have a vehicle, can you drive it less to reduce fuel costs and possibly your insurance premium? Can you trade it for a less expensive vehicle with lower operating costs?

Then finally, if necessary, you may need to look at housing, which for most people is the biggest spending category. What if you downsized in order to have lower mortgage or rent payments?

Set a monthly budget and stick to it

Once you’ve figured out where to trim, create a solid budget that leaves some free cash at the end of each month, and commit to limiting your spending to the budgeted amounts. Continue to track your spending and compare it against your budget. Analyze any significant variances so that you can make your next monthly budget more accurate.

What should you do with the available cash each month?

Your priority should be paying down any high-interest debt, such as credit card balances.

The second goal should be to create an emergency fund. Many financial experts recommend it be equivalent to three months of your net income. Resist the urge to use it as a slush fund — it’s there for real emergencies like a job loss, illness or a major home maintenance bill.

Next, you can decide whether to pay down other debt, such as loans or lines of credit, or channel funds towards retirement savings or some other savings goal. You may choose both: a portion to debt repayment and a portion for savings.

Make your progress automatic

To help ensure you make steady progress towards these goals, it’s highly recommended to set up automatic transfers, ideally on paydays, so that a set amount of money goes towards debt repayment or savings. By doing this, you are effectively making your own financial health a “fixed expenditure” just as much as a mortgage or rent payment.

Peace of mind is priceless

This process will require focus and effort. It may require some lifestyle changes. It will certainly take time, and progress may seem slow at first. But when you’ve broken the cycle of living paycheque to paycheque, you’re bound to feel less stressed and more confident about your ability to remain financially stable. That peace of mind is priceless and worth the effort.

*Canadian Payroll Association 2019 survey of Canadian workers: