Ending The Checkbook To Checkbook Way Of Life: What It Takes:

There was one Tuesday in particular when I looked at my balance before getting a lunch made out of shawarma wraps for myself, at the cost of PKR 6. Is that because I wanted to make sure I didn’t waste any money? No, it’s just that I wasn’t certain whether or not there was any money left in the checkbook for just one lunch.

I have a proper job. I don’t spend on fancy holidays or expensive clothes. But still, every month I found myself in dire need of some help. Can you say you can understand what has been mentioned above? If yes, I encourage you to read further, as I managed to figure out exactly what keeps people trapped in the vicious circle and solve that problem.

The Systemic Problem People Refuse to Acknowledge:

There is plenty of financial advice circulating online nowadays. Much of it comes from people who have never needed to choose between their monthly utility bill payments and buying food. Here are a couple of typical examples:

• “Don’t spend on coffee drinks daily”. Well, okay. But does that mean that when my rent increases by PKR 150 per month, I shouldn’t buy my usual drink anymore?
• “You should build an emergency fund of six months of expenses”. Sure. So, when exactly was I supposed to come across this amount of money?

As you can see, people are well aware of what is right and wrong. It is not the lack of knowledge, but the system in place, as well as the mentality of scarcity, that keeps you trapped in the constant struggle with your bank account.

After four years of earning what I’d call decent money, I was able to pinpoint specific changes that made all the difference. I will share my insights below, but first, let’s talk about some fundamental aspects to keep in mind.

Step 1: Stop Budgeting, and Start Allocating Beforehand:

Many people tend to mix these concepts; however, there is quite a difference. When budgeting, you create an action plan and expect to stick to it. On the other hand, allocation involves making such changes to the way you handle money that you cannot spend it on certain expenses.

Let me give you an example of what I mean:

At the same time as my salary is transferred into my bank account, there are automatic transactions for transferring the set amount of money into my separate accounts. Some funds are reserved for savings, while others are for paying various bills. Thus, only the remaining amount of money becomes available for my use.

I decided to stop resisting my impulses and temptations. Instead, I removed them altogether from the equation by implementing a certain system. In other words, instead of trying to avoid doing something, I simply made it impossible for me to spend the money that I allocate to a particular goal. This practice is known as “paying yourself first”. However, I think this term is not entirely accurate, because I would call this ” Prioritizing yourself before impulses.

My tool for managing money:

You Need A Budget, but not the free version, the paid one. It took a long time to persuade me to buy an application to manage finances because I felt that I knew everything about managing my finances perfectly well. However, using the application showed that there is always room for improvement and changed my way of thinking entirely.

Step 2: Finding out the fund Leak:

Now, it is important to understand the actual leaks within your budget. When I finally decided to look through three months’ worth of bank and card statements line by line, I realized I’ve been overspending on something really silly:

1. Subscriptions. Around PKR 8,000–9,000 were spent on forgotten subscriptions every month. The apps that I’ve signed up for but never used.
2. Eating out. No luxurious dinners here. Just convenient takeout meals because I was too lazy to cook myself.

These were the main leaks. They are common, as they usually represent relatively small amounts spent multiple times per month. Yet, as I discovered, the amount is still pretty noticeable.

It is crucial to understand that there is a major financial issue hidden in your budget. The problem is that it may be really difficult to detect. Hence, you need to follow one simple step to figure out what is going wrong with your money management:

Open your bank and card statements for the last 90 days and analyze every single transaction. This way, you will definitely understand what’s wrong.

Step 3: Avoid Thoughts About “Resetting Next Month”:

Once I came to realize that I was overspending during the third week, I thought that starting next month, I would become more disciplined. But rather than learning from my mistakes and following my previous budgeting strategy, I kept making mistakes and resetting my finances on a monthly basis.

I am pretty sure that this issue is common for many people, including you. The problem is that the “starting a new month” thinking pattern leads to losing 10 days every single time. Therefore, one should learn to do financial management every week rather than trying to create a monthly budget.

On every Sunday, I allocate 10 minutes in order to review my spending, look for any financial leakages, and plan for the next week.

Step 4: Create an Emergency Fund First:

I understand that it is easy to suggest that you start saving money for retirement. However,

I want to point out a few things here:

An emergency fund is a goal that needs to be met when having more than one week’s worth of expenses set aside. A good amount of money and income does not guarantee that emergencies won’t happen. It tells you that you have some money in your account that comes in handy when you are in the worst financial condition. If the preparation is not made, it will result in panic and bad decision-making at that time.

For instance:

You may decide to go into debt instead of saving money.

Therefore, my recommendation is to start small by creating one month’s worth of expenses as a buffer. I had to save for my first month’s worth of expenses for 4 months. I used to blow money on things I didn’t need, and that is where that money went into my emergency savings fund. Additionally, I began making extra cash due to the freelance work I did as a writer.

Step 5: Begin Making Additional Income:

This piece of advice sounds extremely obvious. However, most people fail to acknowledge one critical aspect here:

Income and expenses are independent variables. While increasing your income, you may continue overspending, failing to see the improvement.
It is essential to sort things out with your expenses before thinking about earning more money. If your budget is on track, it’s time to begin seeking extra funds.

Here are some realistic ways of making some additional cash:

1. Apply those work skills to make some cash from freelance work.
2. Know how to negotiate a current salary. You may be earning less than you should be right now.
3. Think about ways to earn a significant amount of money at once. One of them is to sell something you don’t need anymore.

Step 6: Talk to yourself:

This tip may sound strange. However, it is based on some behavioral economic research. In order to avoid temporal discounting, it is critical to think about yourself in the future as a separate person.

In other words, I treat all my decisions as conversations with Future Me. I believe that when I make poor financial decisions, I create problems for Future Me. Similarly, when I pay off debts, I give him or her more freedom of choice and options.

By adopting the “talking” approach, you will be able to make more rational decisions and save money effectively. I started addressing Future Me with brief messages every time I had to make a financial decision. It was awkward but very effective.

Common Mistakes and Their Consequences:

There is one important rule that everyone who tries to break their paycheck-to-paycheck cycle needs to adhere to: you cannot achieve a lot all of a sudden.

Here is a list of mistakes that will help you figure out which actions are not effective and which decisions are counterproductive.

1-Starting with everything at once:

Trying to manage finances, saving, cutting expenses, and repaying all debts seems like an obvious solution. Still, you can last only several weeks. Try to choose a single area to concentrate on and proceed with it.

2-Irregular expenses are always unexpected:

Thus, people are surprised every single time when they pay for car registration, annual insurance, or Eid shopping. Prepare for such events and allocate money every month to cover your expenses.

3-Financial advice provided by people:

Financial advice provided by people with different backgrounds may confuse you and prevent you from making effective decisions. Do not apply suggestions if you realize they will not work for you.

4-Not getting deeper into debt means nothing:

Not getting deeper into debt means nothing. You have to swim rather than tread water.

Why Is the Paycheck-to-Paycheck Life Cycle Harder Than You Expect?

I am convinced that financial struggles can be explained by two aspects: systems and mentality. The truth is that you live within a system that creates many difficulties for you and makes it nearly impossible to save money.

More than that, people tend to minimise the financial stress of financial problems and maximise the impact. If you are having financial trouble, your mind doesn’t work like it does when you are not. If you’re feeling financial stress, your thinking is much narrower, and it’s easier to make bad decisions. Therefore, it is not simply a matter of self-discipline but of structural changes that are needed in order to overcome financial difficulties.