Living paycheque to paycheque: how to break the cycle

Posted on 15 August 2023

Written by Colin Boulton

In today’s fast paced world, the idea of living paycheque to paycheque has become an all-too familiar reality for many Canadians. In fact, more than half of Canadians (54%) say they are now living paycheque to paycheque. This increase on previous years is likely down to interest rate increases, a rising cost of living, stagnant wages, and unexpected financial challenges. All of these reasons can make the idea of breaking the cycle seem like an impossible feat. Yet with motivation, clever planning, and a change in mindset, it is possible to escape the cycle of living paycheque to paycheque. In this article, we share some of the best strategies and tactics you can use to regain control of your finances and achieve greater financial stability.

What does living paycheque to paycheque mean?

Living paycheque to paycheque means spending your entire paycheque before receiving the next one. This lifestyle can happen to anyone, no matter what your income. Generally speaking, it occurs when a budget is not followed, when there are no emergency funds, you are overspending beyond your means, or you have experienced a loss of income or job loss. Living paycheque to paycheque may seem familiar if you feel anxious about pay day, or if you have very little left in your account once your bills have been paid. The pressure of this situation can affect your mental health, and impact your work and relationships. Thankfully, this does not need to be permanent. Managing your money efficiently can help you to regain financial stability.

How to break the cycle of living paycheque to paycheque

Here are our top tips to stop living paycheque to paycheque, no matter what your income might be.

Review your current financial situation

The first step to breaking the paycheque to paycheque cycle is clearly understanding your financial situation. Track your income and outgoings, including any expenses and debts to assess where you may be able to make improvements to your finances. By creating a budget, you can begin to visualize your financial incomings and outgoings and see where you can cut back. Budgeting does mean staying accountable – you should check your spending against your budget each month.

Create an emergency fund

One of the primary reasons many Canadians fall into the paycheque to paycheque cycle is a lack of emergency funds. Creating such a fund can help to provide a buffer should you face any unexpected circumstances like a divorce, home maintenance, or car repairs. It does not have to be anything hugely substantial – even initially putting aside a small amount of your income each month to build up an emergency fund will help.

Cut back where you can

When money is tight, you will need to carefully examine your spending habits and see where you can cut back. Cross-check your spending against your budget to ensure you are in line with what you committed to. This might be reducing the amount of takeout you get in favour of cooking at home, or cancelling unnecessary subscriptions. Every cent counts when it comes to regaining financial stability. Before buying something, check if it aligns with your financial goals, and if you really need it.

Pre-authorize bill payments

By automatically having your bill payments to be paid when they are due, you will avoid not having money left over after payday. Speak to your lender or service provider to see if you can arrange a pre-authorized payment for your financial obligations on the day you receive your paycheque. This will ensure your paycheque goes towards your financial obligations first. The rest you can enjoy without needing to worry about your bills.

Prioritize debt repayment

If you have high interest debt, like credit card debt, can be a major hurdle to breaking the paycheque to paycheque cycle. By dedicating additional funds to paying off your debt, you will edge closer to gaining financial stability. You may find the debt snowball method or the debt avalanche method helpful in doing so. As you reduce your debts, you will have more income for saving and investments.

Increase your income

If you are finding that your current income barely covers your bills and expenses, you might want to consider trying to increase your income. You might be able to ask for a raise at work, or take on a side hustle. Investing in your education is another way to try and enhance your skills so you can climb the career ladder. Although it might mean sacrificing some of your time, the financial freedom you will receive could be worth it.

Monitor your bank account to stay out of your overdraft

When living paycheque to paycheque, it can be all too easy to dip into your overdraft. Overdrafts can, however, prove expensive and it does not make breaking the cycle any easier. You should try to prevent bank fees by keeping a buffer in your bank account to stop you from going into your overdraft. This can also be used for any emergency expenses if needed.

Create a long-term financial plan

Breaking the paycheque to paycheque cycle is not just about making short-term changes. Instead, it requires a longer term perspective. Consider your financial goals, like whether or not you wish to buy a property, save for retirement, or start your own business. Once you understand your goals, you should create a plan that outlines the steps needed to achieve these financial goals and allocate funds accordingly.

Speak to a Licensed Insolvency Trustee

If you are struggling with living paycheque to paycheque, have overwhelming debt, or do not know how to manage your finances independently, you may want to speak to a Licensed Insolvency Trustee. The only professionals in Canada legally able to file all forms of debt relief, they can review your financial circumstances and advise you on the best form of debt relief for you, be it a debt consolidation loan, consumer proposal, or bankruptcy.

If you are worried about how to make it to your next paycheque, you are not alone. At Spergel, we are here to help you break the cycle. Book a free consultation with one of our Licensed Insolvency Trustees to understand how you can substantially reduce or eliminate your unsecured debt altogether. We have been helping Canadians gain financial stability for over thirty years, and we are here to help you too. Reach out today – you owe it to yourself.

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Colin Boulton

Colin Boulton is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on unemployment and wage garnishments and manages Spergel's offices in Eastern Ontario (including Oshawa, Peterborough, Lindsay, Ajax and Scarborough). When not at the office helping clients cross their debt-free finish lines, Colin enjoys training for and participating in triathlons.

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