How to break the pay-to-pay cycle

Sep 6, 2022 | Budgeting, Debt Management, Wealth

Now and then, Jodi borrowed $100 from her parents. She’s good for it, and always paid it back, but her situation was not uncommon.

5.9 million Australians live pay-to-pay

A study by Deloitte between November 2021 and January 2022, surveyed over 14,000 Millennials (born 1983 – 1994) and Gen Zs (born 1995 – 2003) worldwide.

The results were alarming: over 30% of respondents indicated that they did not feel financially secure, while 47% of millennials and 46% of Gen Zs lived paycheque-to-paycheque.

All said cost of living was their number one concern – ahead of climate change and unemployment.

Easy to assume these are people earning lower wages, but that’s not always the case.

For Jodi, despite earning a good salary as an I.T. specialist, pay-day didn’t always align with the due dates on her bills. This resulted in the occasional week when she needed a little extra to tide her over.

Jodi didn’t have a lavish lifestyle, but she enjoyed a monthly facial treatment and having her nails done. She also had two streaming subscriptions and a gym membership on monthly payment plans.

Physiotherapist Aaron had a cashflow issue. He loved technology and couldn’t resist any new gadget, even if he didn’t need it. Additionally, he had an active social life involving weekends away, dining out, theatre and concerts.

Consequently, Aaron’s credit card was maxed-out and he had lost track of his buy-now-pay-later (BNPL) plans.

After making his minimum monthly repayments, Aaron was forced to live on credit until next payday.

When his clapped-out car died it needed replacing. It was a wakeup call when the finance company rejected Aaron’s loan application.

Aaron felt trapped with no way to break the pay-to-pay cycle. The worry kept him up at night and began affecting his work.

According to mental health support organisation, Beyond Blue, financial worries impact our physical and mental wellbeing, potentially leading to further financial stress.

Jodi’s parents introduced her to their financial adviser who identified areas for savings and developed a realistic budget.

She suggested Jodi cancel one streaming subscription, saving $15 per month ($180 pa), and reduce her monthly facial to bimonthly, saving $140 every two months ($840 pa).

The money was placed into a savings account that Jodi could access if necessary, and within the first year, she’d accrued nearly $1,000. Further, Jodi hadn’t needed to borrow from her parents.

Now, she plans to use her savings on studies that will qualify her for a work promotion.

Aaron’s situation was slightly different. As debt was his main concern his financial adviser suggested he sell his unused gadgets online. This alone, raked in enough for Aaron to pay off his BNPL plans.

His adviser then developed a debt-reduction strategy: if Aaron sacrificed three nights out per week and the occasional weekend away, he’d be debt free within three years – one year if he never left the house!

But any plan must be workable. The pair agreed that meeting half-way would be best, so Aaron’s adviser recommended a weekly spending budget which would see Aaron debt-free in 18 months – provided he curb his passion for gadgets.

The simplicity of internet shopping, despite good intentions, means it’s easy to rack up debt without realising it. Any wonder reports that 46% of Australians live from pay-to-pay!

If you’re trapped in the pay-to-pay cycle, reach out to a qualified financial adviser and remember that no situation is so dire that it can’t be fixed through budgeting, planning and professional advice.

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Financial Advice services are provided by Insight Financial Partners Pty Ltd T/A Insight Wealth Perth as a Corporate Authorised Representative of
Australian Unity Personal Financial Services Limited (ABN 26 098 725 145), AFS Licence no. 234459.