Financial Freedom Nigeria

Digging Deep

Break Out of a Pay Cheque Mentality


Build financial stability in a broken economy. Learn how to reallocate your cash to live a happier and better life.

Living from pay check to pay cheque is an expression used to describe an individual who would be unable to meet his or her financial obligations if unemployed because his or her salary is predominantly devoted to expenses. People who live this kind of life are hardly able to save and are at greater financial risk if suddenly unemployed compared to those who have developed a savings culture because they have broken free from pay cheque mentality. We often wrongly imagine that this kind of people fall into the category of those who do not earn so much and have limited skills and education. But this is not necessarily true. Individuals with high paying jobs also fall into this situation, especially when their outgoings or expenses equal or exceed their income.

Building financial stability in a broken economy can be difficult but not learning how to manage your money at all will certainly make you broke. For many people, they have become accustomed to a life where they are totally dependent on the next pay cheque and sometimes even need a salary advance in anticipation of their salaries. People who really want to be on the path to financial freedom have learnt that solely depending on a pay cheque and waiting for that monthly alert is another kind of slavery. There is always a difficult choice to make between living the good life now, spending your money in frivolous things such as having an expensive family holiday abroad, buying expensive cars and delaying gratifications so that you can save up, build financial stability and live a good life in future. When you think about it, you will see that it makes sense to carefully weigh your spending decisions. If you need to borrow money to sustain your lifestyle just a few days after being paid, then you must urgently learn how to reallocate your cash to live a happier and better life. You also need to always check that you do not have a negative net worth when you compare what you owe to what you actually have.

organizational-debtThere is a simple formula that will enable you control your financial resources so that you can once and for all deal with all the anxieties should the unforeseen happen such as loss of a job or sudden illness that makes it impossible for you to continue working. You must always bear it in mind that every kobo in your pay cheque must be judiciously allocated and accounted for.

Adopt a 50:30:20 formula that allows you to take care of your fixed costs, plan for the future by investing a part of what you earn and meet your basic needs.

Fixed costs: Depending on the stage you are in life, it is suggested that 50 per cent of your monthly earnings should cover certain fixed costs such as mortgage payments, utilities rents, and car payments. As a general rule, you are to ensure that you do not exceed 50 percent of your total monthly take home.

Financial goals:
It is recommended that at least 20 per cent of your total monthly salary go towards your future plans, for emergency(unknown), savings, saving for retirement, saving to start a business or to invest. For those who have children, you should save for your children’s college.

Flexible spending: Thirty per cent of your pay ought to take care of your day-to-day needs such as feeding, shopping, entertainment, fueling your car(s), etc. You can also add here expenses such as making your hair, going to the movies, etc. This will usually vary from month to month. To get it right, try the following tips:

Cut your coat according to your cloth

You must be careful not to compare yourself with people around you such as your neighbours, co-workers or friends. The fact that your neighbour goes on family vacations every year does not mean you have to too. What often happens is that in trying to live like them, you, live above your means.

Avoid impulsive buying

You need to always ensure that you live with a budget. This ensures that you do not buy everything that comes your way. As Joshua Becker wrote in his book The More of Less, “the search for happiness in possessions is always short-lived because it is based on faulty reasoning that buckles under its own weight. If happiness is found in buying stuff, those with more will always be happier. The game can never be won”.

You should never borrow to eat

If you ever need to borrow money or shop on your credit card, it should be for an item that can be sold for a profit. Never ever borrow to eat or do things that financially drain you. You should only borrow money for things that bring money. Borrowing is not for Christmas or a family vacation.

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