Paul Clitheroe
Paul Clitheroe

Break the payday to payday cycle

PAYDAY is one of those days that virtually all workers look forward to - and for many Australians it can't come around fast enough.

Research from ING DIRECT shows almost two thirds of Australian households say they have been strapped for cash between paydays at some stage - and one in three of these people have used a credit card to tide them over.

I remember being in this leaking boat myself back in my early married days, when interest rates on my mortgage hit 18.5%. That made juggling our finances tough.

The fact is, I came across some US research dispelling the notion that people living from payday to payday are all battlers. Interestingly, the study found many people struggling between pay checks earn a decent income and own their own home. In fact many of what the survey described as 'wealthy hand to mouth households' are relatively asset-rich.

The problem is that they face significant living costs including things like mortgage and car loan repayments, school fees plus regular bills for groceries, utilities, private health cover and so on. These all add up to a substantial chunk of take home pay.
While the research applied to America, I have no doubt the situation would be pretty similar here in Australia.

Constantly living from one pay packet to the next creates serious risks. In particular it becomes difficult to plan ahead for emergencies like the car breaking down or a major repair on your home. When that happens, there may be no obvious alternative beyond relying on a credit card.

Nonetheless it is possible to break the cycle of living from payday to payday. The first big step is to cull your monthly expenses - stick with the essentials and ditch the nice-but-not-necessary extras.

Cancelling the pay TV subscription for instance, can save around $60 a month. Try eating at home more and eating out less - a colleague of mine crunched the numbers here and found she was paying close to $5,000 in annual restaurant bills just by taking the family out to dinner once a week. Visiting the shops less is another great way to save money. If that sounds like a tall order, try setting yourself a realistic spending allowance - and stick to it.

As you gain a bit more financial breathing space, aim to pay more off your credit card. On the average card debt of $3,000 you could be paying around $50 in interest charges every month. It's a hidden cost we don't always factor into household budgets, and over the course of a year it could see you save around $600.

Getting your finances under control may involve making some lifestyle changes, and that's not always easy. The upside is fewer worries about how you'll pay the next big bill, and no more scrimping for cash before payday rolls around.

If you're facing serious cash flow problems, the government's Money Smart website has published a new booklet titled 'Do you need urgent help with money?' Featuring handy tips and contact numbers it's definitely worth a look. You can download it for free from

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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