These past weeks, we’ve tackled the different steps on how to break the paycheck to paycheck cycle or improve our savings. We started from understanding why we overspend, creating our goals, developing our budget, tracking expenses, and boosting our savings. This week, we’ll put them all together to give you one complete ultimate guide on how to improve your financial situation so you can improve your savings or get out of the paycheck to paycheck cycle.
Here are four steps to improve your savings:
Step 1: Write down your financial goals
These financial goals will act as your guide. Without a clear goal, it will be harder to improve our savings or get out of the paycheck to paycheck cycle. Let’s say our main goal is to break the paycheck to paycheck cycle. We can break this main goal into subgoals, such as getting out of debt or building an emergency fund. By creating these subgoals, it’s easier to reach the main goal.
When we write our goals down, we need to make them SMART: Specific, Measurable, Achievable, Realistic, and Timely. Here are some examples of SMART goals:
- By 11 December 2019, I will be free of debt, paying $500 every month, starting 11 July 2019.
- By 11 November 2019, I will have $3000 saved for my holiday, by saving $500 every month, starting 11 June 2019.
These examples show exactly what we want to happen, how we can measure it, and when it will be achieved. You can find the complete guide on creating SMART goals here.
Step 2: Create your budget
Once we’ve created our goals, the next step is to come up with a budget plan. Now this step can be dreadful, but if we only take a few minutes to create our budget plan, we’d be a step closer to finally reaching our financial goals. Budgeting is as easy as eating cake.
When we serve cake at a birthday party, we would ideally split the cake into slices based on what our guests want. That’s how budgeting works, except instead of giving slices of our income to our guests, they go to our expenses. Some recurring expenses will require a bigger chunk of our cake, while others will only require a small bit.
Here’s a list of what you could include in your budget:
- Phone & Internet Bill
- Electricity, Water, Gas bills
- Subscriptions (Netflix, FOXTEL, Stan, Spotify, etc.)
- Transportation Allowance (public transport tickets or petrol for your car)
- Debt repayments
- Emergency Funds
- Entertainment & Eating Out
Just like our birthday cake, when the money has been allocated to the different bills and expenses, there’s a chance we’ll be left with a little bit of our income. Ideally, we’d put this into our savings. If we want to get rid of our debt right away, then we can put the money towards that. But if debt payments and savings are already part of your budget, then you can use this money as your disposable income, so you can buy whatever you want.
Step 3: Track your expenses
After creating our budget, tracking our expenses is where the real work happens. Tracking our expenses allows us to see where our money goes. Sure we’ve got our budget ready and we know how to allocate our money, but as humans, we have the tendency to splurge a little bit. Sometimes, we also fall into the traps of marketing, causing us to overspend. We also tend to be habitual when it comes to our expenses, and these are some of the things we may be unaware of.
Tracking our expenses could be a lot of work. But don’t be discouraged. Financial tools, such as Frollo, exist to help make this task easier.
When we get full control of our spending habits and our expenses, we can put the extra moneey towards building our savings or debt repayments so we can finally become financially stress-free.
Step 4: Boost your savings (and put them towards your debt/loan repayments)
When we track our expenses, these spending habits we’re unaware of come to light. With these, we can achieve our financial goals faster if we boost our savings by changing these behaviours.
For instance, we may not be aware that we spend $4.10 for a cup of coffee every day. Perhaps we’ve just gotten so used to it. But spending $4.10/day means $120 in a month. If we could find alternatives to buying coffee, say bringing coffee from home instead, then we could surely save more money.
Another example would be eating lunch out every day. Lunches could cost up to $10 or more every day. That’s $50/week or $200 a month. If we choose to bring lunch with us half of the time, then we could be saving $100 a month, which we could use to build our emergency fund or pay off our debt.
There are a lot of other ways we could boost our savings. What’s important is that we turn these into smaller goals where we can experience small wins, gratifying us and validating that we’re on the right track.
Reaching your financial goals is easier once you get started
Imagine spending more time with your family or friends without feeling guilty. Imagine going on a holiday without stressing about finances. Imagine getting to build your savings that you’ll no longer need to work another day. The amount of stress our current financial situation brings could be overwhelming right now. But the moment we decide to work on improving and achieving our goals and follow these four steps, we can soon find ourselves focusing on the things that matter more.
To make it easier, Frollo is a helpful tool if you want to get out of the paycheck to paycheck cycle. It will help you create your goals, setup your budget, track your expenses, and win challenges to boost your savings. Frollo also offers insights on your spending habits so you can immediately see where your money’s going. By making the most out of these features, we can surely improve our financial situation in no time.
Now go on, and take the first step.