by Emily Hechler 
According to Forbes, 78% of Americans live paycheck to paycheck. This means that their income barely covers their basic needs, and missing a paycheck would be a big problem. Many are stuck in a paycheck to paycheck cycle because of ongoing debt payments. You might be one of these people, but you’re not alone. Escaping the lifestyle of living paycheck to paycheck means creating a payday routine. Not only will creating a payday routine help you save for future expenses, but it will help you pay off your debt too!
What is a Payday Routine?
A payday routine is a set of steps you follow each time you get paid to ensure your money is used wisely. It involves creating a budget, paying bills, saving money, tracking spending, planning for fun, and reviewing your finances regularly. Follow this payday routine to help you make the most of your paycheck and stay on top of your financial goals.
Step 1: Create a Realistic Budget
Budgeting is about staying on track with your financial goals. To create an effective budget, start by reviewing your past spending. Use tools like Alltru’s Digital Banking to analyze how you spent your money over the past year. Organize your expenses into categories such as utilities, rent, groceries, and personal care. For greater accuracy, consider breaking these categories down further if needed.
Next, plan for new expenses you might encounter throughout the year. Whether it’s braces for your child, a family vacation, or weddings to attend, saving a little each month for these anticipated costs can help prevent your savings from being depleted by large, unexpected expenses.
Adjust your budget if your expenses are more than your income. For instance, reducing spending on dining out could free up funds for other priorities, like swimming lessons. Regularly adjusting your budget helps ensure it remains realistic and achievable.
Set financial goals to plan for the future. Whether you aim to pay off an auto loan early or increase your contributions to your 401(k), including these goals in your budget keeps you motivated and on track.
Step 2: Create Your Payday Routine
Just as you would schedule an important meeting or a catch-up with friends, set aside a specific time each payday to handle your finances. Then review your current financial situation. If money is tight, your approach to budgeting might differ from when you have extra funds. Begin by creating a timeline that outlines when your bills are due and when you receive your paycheck. This helps ensure that you have enough funds to cover all your bills on time and avoid late fees.
Calculate your required expenses by listing all your financial commitments and determining how much you need to cover them. If your expenses exceed your income, identify areas where you can cut back. It might also be helpful to contact companies to see if you can adjust your due dates.
Step 3: Follow Your Budget
When your next paycheck arrives, allocate your money according to your budget. It may take some time to adjust, but sticking with it will become easier as you become accustomed to your new routine. After the first month, review your spending to see if any adjustments are necessary. For example, if you didn’t allocate enough for groceries but have extra funds in another category, make the necessary changes.
A well-followed budget helps you avoid living paycheck to paycheck in the long run. By saving for emergencies, such as job loss or unexpected medical expenses, you ensure you’re prepared for the future.
Bad Payday Routines
If you’re in a pinch for money because your next paycheck can’t come soon enough, you might have considered a payday loan. A payday loan is a short-term loan that’s due a couple of weeks after you take it out, usually during your next pay cycle. These loans are usually for small dollar amounts. It’s supposed to be just enough so your expenses are covered until your next payday. Payday loans, also called cash advance loans, are easy to get approved for. Even if you have poor credit and no savings, a lender may still approve your application.
Predatory Payday Loans
While the idea doesn’t sound bad, payday loans are predatory. The fees to pay back the loan are extremely high with an average interest rate of 400%. When the time comes to pay back the loan, the payday lender either cashes the check you wrote them in advance or pulls the money directly from your bank account. Because the interest is so high, this often leaves you without enough money to pay your other bills. The solution? Getting another payday loan. You end up taking out another payday loan to pay for your other expenses. This leads to a cycle of taking out payday loans that is difficult to escape from. It makes it really tough to create a payday routine because the debt keeps piling in.
Payday Loan Alternatives
Payday loans are illegal in some states because they are harmful, but they are still legal in Missouri. Fortunately, Alltru offers alternatives to payday loans. Small businesses in St. Louis can partner with us to offer their employees access to our Salary Advance Loan. This loan gives employees access to small dollar loans at an affordable rate. Plus, they can start building credit and savings for future emergencies. These loans come with flexible terms and no extra fees, unlike a payday loan.
If your employer doesn’t partner with us for Salary Advance Loans, we have other options and suggestions too. The worst thing to do is not ask for help. Many creditors have payment plan options that can spread out your payments over a period of time.
You can also get a cash advance from your credit card if you’re in a pinch. While you will have to pay interest on the cash advance, it will be significantly less than the interest of a payday loan. Alltru also offers courtesy pay for eligible members. This feature has us pay for charges presented against your account, so your payment won’t be declined. You’ll pay a small fee for having us cover the cost. You can also apply for a Personal Loan from Alltru. Our low interest rates and flexible terms make this loan an affordable option if you need extra money quickly. Plus, there’s no collateral involved.
Planning for More Debt
Your new payday routine should empower you to pay down your debt while managing your other expenses and goals. Once you get into the routine, you’ll feel more in control of your finances. You may end up wanting or needing another loan for a large or unexpected cost. Before applying for another loan, it’s helpful to know how potential lenders look at your finances to determine whether they should give you a loan or not. Plus, you can also determine if you can even afford another loan payment. This is where your debt-to-income comes in.
What is a DTI Ratio?
Your debt-to-income ratio, or DTI ratio, is the percentage of your income that’s needed for your minimum loan payments. This percentage is used by lenders to help determine if you can manage the financial load of another loan before lending it to you. The lower the percentage, the more likely lenders are to believe you can afford the minimum payment.
Calculate Your DTI Ratio
We have a debt-to-income calculator to help you find your ratio. A DTI ratio of 35% is good, so another loan payment should be manageable. A DTI ratio of 36-45% is ok, but you should try to reduce your minimum payments before applying for another loan. Anything higher than 46% is hard to manage. This becomes even harder if you’re living paycheck to paycheck or have a sudden dip in income.
Adjust Your Payday Routine
After running the numbers and finding how much of a loan payment your DTI ratio says you can afford, don’t apply for the loan just yet. Go back to your budget and plug in the loan payment. Where will you have to make changes? My husband and I recently bought a car with an Auto Loan. We were able to reduce our student loan payments since we were paying more than the minimum to slot in the car payment. For you, maybe it’s applying for debt consolidation or saving a little less each month to make the payment work. No matter what option you choose, rework your payday routine with the new loan to stay in control.
Take Control of Your Paycheck
Regardless of if you got approved for a new loan or not, creating a payday routine before your next paycheck comes will help you stay on track with your financial goals and pay off debt.
Like the name implies, a payday routine is a routine. Once it’s a habit, it’s easy peasy but it must be followed every payday to be effective. If a plan like this seems too out of reach, contact our financial advisors at Alltru. We can help assess your situation and get you on track for financial success.
