How to Escape the Paycheck-to-Paycheck Trap


"How would you describe the current state of your finances, using four or five adjectives?"

That's one of the questions I ask my new clients when I meet them in my money coaching practice. This single question can reveal a great deal about how you are currently managing your money.

Some of the most common answers I hear are: "out of control", "lacks planning", "unpredictable" and "hard to manage." However, there's one term that never fails to show up, and that's "paycheck-to-paycheck."

This has led me to dub our generation the "Paycheck-to-Paycheck generation".

A recent survey by the Canadian Payroll Association found that 51 percent of employees "would find it difficult to meet their financial obligations if their paycheck were delayed by a single week."

In other terms, half of those with a regular salary don't have financial breathing room in their bank account to keep them afloat for seven days. This statistic becomes even more alarming for those aged 18 to 29 -- it increases to 63 percent.

So what drives so many families to be controlled by their pay day to such an extent?

Through my coaching work, I have often observed the same unhealthy financial habits that push families into that tight corner. So, in order to avoid getting trapped in the paycheck-to-paycheck spiral, I recommend incorporating some of these healthy habits into your lifestyle:

Become crystal-clear how much your life is costing you.

Most households know the main numbers (mortgage, car loan, insurance) but they have never taken the time to add up all the other smaller or irregular amounts, such as the daily coffees, kids' activities, music downloads, movies and electronic gadgets. Doing a rough estimate is not sufficient.

This exercise entails tracking every dollar you spend for at least three to six months so you have very specific figures. Once you have exact figures, it becomes easier to pinpoint the areas that need adjustments.

Get off the auto-pilot spending mode.

Human beings are creatures of habit. You get comfortable with your ways and routines, and it takes a certain level of self-awareness to get off the auto-pilot mode.

When it comes to your money, you are most probably spending without giving it much thought: You pick up the same coffee every day; you keep your membership with the same gym because you have always done so; you deal with the same bank because you've had your account with them since you were 12; you buy gifts to everyone you know because "that's just the way it is."

What if you stopped and asked yourself the real reasons behind your spending: Is it out of boredom? Out of laziness? Out of fear? Out of stress? Or out of wanting to be accepted?
Getting off the auto-pilot spending mode will put you in charge of how you are using your money.

Differentiate between your needs and wants.

"Is it a need or is it a want ?" That's a key question to ask yourself, especially in today's reality.

As more and more products are introduced to the market place, the list of your needs keeps growing. A decade ago, a smartphone or a tablet were simple wants. Now they almost represent a basic need.

It is therefore crucial to dig deeper and honestly ask yourself if your purchase is a must-have, or is it simply a nice-to-have.

Practice patience.

As Oprah would say "You CAN have it all. You just can't have it all at once."

Unfortunately, we all want the in-ground pool, the car, the latest smartphone, and the holidays and we want them today. We are not willing to save for them first.

For your next "want" purchase, save for it first, rather than accepting the payment plan the merchant is offering you. If it's a" want", it means you can easily wait before buying it.

Practice gratitude.

If there's one tool that can help you notice the existing abundance in your life, rather than infinitely chasing what you don't have, it's the magical practice of gratitude.

With gratitude, you shift your focus from what you don't have to what you already have. If you can't find anything to be grateful for, you can always be grateful for your perfectly functioning eyes that let you read this article. Abundance is everywhere; you simply have to practice noticing it.

Materialism has become our new religion, and as a generation we lost focus of what a true enriching life looks like. To get out of the paycheck-to-paycheck trap, it takes some deep digging inside of us and reverting back to real values, such as family, community, simplicity and balance.

Which methods do you use to avoid the paycheck-to-paycheck trap?