paycheque trap

Living paycheque to paycheque can be stressful, to say the least. A recent poll by Leger found that almost half of Canadians are living that way. Stepping off that treadmill is possible with a few sacrifices and a bit of hard work.

Licensed Insolvency Trustee, Leigh Taylor talks about the paycheque trap – how it can slowly happen if we don’t pay close attention and become a bit more proactive. He also discusses:

  • Advertising tricks we may not be aware of
  • The slippery slope that can lead to debt problems
  • How lack of budgeting can be one of the biggest factor
  • Steps to creating a realistic budget
  • High interest lenders
  • Talking to a Licensed Insolvency Trustee to find out your options

You can be assured that the advice you receive from a Licensed Insolvency Trustee will be unbiased and have your best interests in mind. They are licensed by the federal government and follow a strict code of ethics.

Wayne Kay 00:04
Escape the paycheque to paycheque trap. That’s our topic today on the Debt Matters podcast, where we help Canadians find solutions to their debts with Licensed Insolvency Trustees from across Canada.

I’m Wayne Kay. Coming up in today’s show, what is that paycheque to paycheque trap? Why is it a problem? How do you get out of the trap? And what if you’re in too far and the unexpected expenses just keep growing? And finally, there’s a big one. What do you do about this and more.

Leigh Taylor, joining me from LCTaylor Licensed Insolvency Trustee in Winnipeg, Manitoba. Welcome back to the show, Leigh.

Leigh Taylor 00:46
Oh, thanks, Wayne. It’s great to be with you.

Wayne Kay 00:48
We always have great discussions on all that is going on in Canada, and we’re going to talk about something that is – paycheque to paycheque, the wheel, if you will. It’s been around forever, isn’t it?

Leigh Taylor 01:00
That’s true.

Wayne Kay 01:01
The paycheque trap. How would you describe the paycheque trap?

Leigh Taylor 01:09
Well, in general terms, I think it’s when you live from paycheque to paycheque, and a lot of people do that. The money comes in, it pays all your bills, so you spend it all. But if you don’t leave room for unexpected expenses, and we all know that someday we will have unexpected expenses, then what’s going to happen is that you’re going to fall behind.

And once you start falling behind, it’s really difficult to change your standard of living when things happen. That’s one of the hardest things we find with people that we talk to, is they’re used to their kids going to play hockey, and hockey costs money.  Their daughters are going to ballet classes, and that costs money. And they want to go on that vacation again because they enjoyed it so much in Jamaica last year that they want to go do that.

So you develop a certain standard of living, and it’s very difficult then to step back from that and change those habits. So that’s one of the reasons that people fall into this paycheque trap.

Wayne Kay 02:13
I’ve noticed that when it comes to buying goods, oftentimes they’re really pitching us on a monthly fee. No longer do you see ads for a car for the actual price of it. It’s more about the price per month.

And that’s the same with everything these days. And I think they know that people basically have to live paycheque to paycheque. And so it’s not about thinking about that big number. It’s about, what’s the monthly cost to bring this product home?

Leigh Taylor 02:52
Well, I think that example that you used for purchasing a car is probably the best one, because you look at the newspaper and every issue of the newspaper has big ads about the cars. You can’t find out how much the car costs. They just say it costs $500 payments or $250 payments biweekly. So all sorts of ways of disguising it. And the fact of the matter is that that’s an easier way to sell the car to somebody. Oh, I can afford $250. What is biweekly?

But when you find out that the car actually cost $50,000, that’s a little bigger bite than you want to take off sometimes. So they make it sound good. It’s not all that surprising that people sort of live payday to payday, right?

But then again, we talk about unexpected expenses. Whether it’s a car repair or a veterinarian bill, you divert your resources towards that sort of thing. And that means that you don’t have enough money left over for the food budget or the rent or other necessities that you would normally pay month to month because you don’t have a budget for it.

So you try to recover those extra expenses. You start by putting maybe some of your bills on your Visa card because you don’t have to pay it off till the end of the month. Then you get to the end of the month, and you realize that your standard of living hasn’t changed. You’re still living paycheque to paycheque. You don’t have enough money to pay off the whole visa bill.

So that’s okay. They only want 5% or something to keep you in good standing. The problem is you do that for a few months, and you’re on what could be called a slippery slope of debt, where what’s really happening is that you’re going a little further into debt. And because you’ve got credit, maybe really good credit, there’s no problem because all it does is cost you a little bit more interest. What happens if you do that for, I don’t know, two, three, four years?

Suddenly you find out that you’re paying more in interest on your visa bill than what the principal is, and that’s not going down. It gets harder and harder to get out of that hole. That’s where you’re really digging a hole for yourself month by month, because you can’t afford these extra expenses.

And heaven forbid that you have another unexpected expense. And I can probably name about 100 as you could, too, that come along and suddenly you find out that you’ve fallen headfirst into this trap. It’s easy to do. A lot of people do it because they don’t look ahead.

Wayne Kay 05:22
Yes, exactly. You mentioned something there when you’re talking paycheque to paycheque. You also mentioned lack of budgeting. And I think you’ve really done a great job of describing where the problem lies is that you don’t budget, I’m assuming.

Leigh Taylor 05:39
Well, I’m a big advocate of budgeting because I know it works and it saves a lot of hardship for a lot of people. The problem is they don’t teach you budgeting in school. They never have, and it’s really hard to pick it up except learning the hard way. So it’s a good idea to get a good budget because this does prevent falling into the trap. And if you don’t fall into it, then you don’t have the problem.

Once you’re into it, the solution may be a little different. But good budgeting with an allowance for emergencies is crucial because there are going to be emergencies, unexpected expenses, something comes up, it always does. So such planning can prevent many problems. It’s crucial to live under your income rather than over it, so that there’s room to save for unexpected expenses. If you make that allowance for it, and that could be even if it’s only $25 or $50 a month, after a while that adds up.

And if you have money in the bank in an emergency account and your transmission goes on your car and you need your car for work, then suddenly that becomes the emergency that you saved up for and that’ll get you by it. And then hopefully you wouldn’t have too many emergencies all at once so that you can build up your emergency fund again. But at least you’ve taken a big step to prevent a real financial hardship.

Wayne Kay 07:08
Right. So when we’re taking action here, we’re getting out of this trap where it’s very easy to fall into. Being that you’re such an advocate of budgeting, can you do a little budgeting 101 workshop for me?

Leigh Taylor 07:25
Sure. There are several steps to it, and you don’t want to do it too quickly because you’ll make mistakes and a poor budget doesn’t help you all that much.

The first thing you should do is get yourself a notebook and write down in that notebook every time you spend money. So you go at that for a month and you look at it.

I’m not asking for rationalization whether you spend the money well, or not, but just keep track of where you’re spending it at the end of a month. You’re going to have a pretty good indication of where your money is going at the end of a month.

And sometimes it might take two months, because while it sounds easy to do, and I’ve done this myself. You forget your notebook in the morning and try to remember where you spent your money when you get home at night. And it doesn’t work unless your memory is a whole lot better than mine. So you have to really work at finding out where your money is going.

Then you can sit down when you have all this information about where it’s going and start to prioritize things. You say, what’s the most important thing? Well, maybe the most important thing is going to be your rent or your mortgage payment, because that’s going to be set the same every month and you’re in big trouble if you don’t meet it.

And then there’s going to be other things that you go down the list. Food, well, you’re going to have to eat something. But if you break down in your budget that you had food, eaten out, lunches at work, groceries, and separate that from things like cleaning supplies and that sort of stuff, then you have a good idea of what part of that food budget is really necessary.

Going to the grocery store and buying the groceries so you can feed the kids is important. Maybe not going out for dinner to a fancy restaurant every once in a while, you could cut out if you had to. Or if you make yourself a sandwich and an apple in the morning for lunch, you might be able to save yourself $10 a day. Well, $10 a day is $300 a month. These things add up.

You can go down your list of priorities. And when you get to the point where you’ve run out of money, everything after that you can’t afford, you may want to go back and readjust things. Well, you know, maybe my cappuccino at Starbucks wasn’t as important as changing the oil on my car or getting bus fare to get to work or these sorts of things. You start to prioritize that sort of thing.

One of the things that you should put in there is savings. Savings for a rainy day, the emergency fund, if you will. And that doesn’t have to be a lot, but it should be in there. And if you can work your budget out based on what you’re actually spending and how much money you have coming in, a lot of people don’t know how much money they have coming in.

If you’re working at a service job, you get tips. The tips aren’t necessarily going to be consistent. So you want to start keeping track of them so that you can sort of average it out. Or if you’re working shift work and your shifts aren’t always the same, you can work out an average of what you’re anticipating having in every month as part of the budget. If you work that out, then you have a practical budget because it’s based on reality. You put the priorities in there.

And that’s important because different things are of different priority to people. So you want to make sure, and if you’ve married and you have a family, you better take their thoughts into consideration as well. So if you’re doing it with your wife, you better have her involved in it because she’s going to be spending the money, too. And the budget wouldn’t work. If you both don’t agree on what the budget is, you might have bigger problems as you’re going through this.

Wayne Kay 11:13
I’m thinking, okay, these all make perfect sense. And there’s probably apps for anybody who’s got their cell phone. We’ve all got cell phones. And so you have apps for all kinds of things as well. That would help.

But I just love the old strategy of writing it down and figuring it out from there. How often do you then go back and revisit that budget? Should it be every six months or every year?

Leigh Taylor 11:40
Well, I think you should look at your budget every month, so you get down. And once you get the budget set up, this is how much money I can afford to spend on things, then you have to stick to the budget.

If you say you’ve got a $600 a month food budget at the grocery store, then you better keep track of how much you’re spending. And are you within that budget or not? And a budget may need adjusting. I mean, we just talked about things like inflation, et cetera.

Prices change. You have to make adjustments, and you may want to adjust your budget on a monthly basis. If we’re not spending as much on, let’s say, our clothing budget as we are on entertainment, and you think, well, going out for dinner once a month isn’t a bad idea, then maybe what you do is say, okay, I’m going to spend less on clothing this month and put an extra $100 into going out an extra time to the restaurant.

So it’s your priorities. It’s what you can afford, but it’s really important to live within your income and you don’t know that unless you review your budget. It is an ongoing thing. You have to look at it every month. Having the budget and not paying attention to where you’re spending your money sort of negates the benefit of the budget.

Wayne Kay 12:57
Can we also say that it’s probably better to do this when you’re younger than after you’ve had a fair amount of life experience? It’s easier to adapt to it as opposed to being forced to adapt to it.

Leigh Taylor 13:11
I think good parenting would be to get your kids involved in the budget as well. Start them out very young.

Most of us give our kids allowances to spend. Do we tell the kids, okay, here’s your allowance, where are you going to spend it? Well, if they’re going to go out and buy slurpees and things, that’s fine, but what about the things that they might have to save up for?

If you say, okay, if you want a new Nintendo game or whatever, you have to save up for it. And how are you going to save up for it? If you get x number of dollars a week as an allowance, how much would you be willing to set aside for something that you want to buy in the future and get them thinking about the value of money and the value of money as it relates to everyday life?

If they don’t care about it until they finish school and they’re 20 years old and they go out on their own, I can’t help but think that most of them are going to have a hard time dealing with it.

Wayne Kay 14:13
Absolutely. My daughter, I remember she saved up and saved up and saved up and bought some fancy shirt of some sort, some name brand shirt. And she bought this fancy, fancy shirt for a gazillion dollars. And then she realized she could have bought a lot of regular priced clothing instead of that one. So it was actually a great lesson for her.

Leigh Taylor 14:38
In the end, we all learned the hard way. We just hope it isn’t too hard.

Wayne Kay 14:42
Exactly. Now, if you’re having a tough time, you’re going through this whole budgeting and you’re finding there’s just no way. How do we know when we’re in too far or if we need some help?

Leigh Taylor 14:57
Well, a lot of people, when they get in that deep into that situation, they start using credit cards because you can put money on your credit card and you don’t have to pay it all off at the end of the month. So that gives you a break until the next month when the interest accrues on it, they can go to what I’ll call shady lenders. That’s things like payday loan companies.

Payday loan companies charge you a horrendous amount of interest on a short term loan, and they may have their place somewhere in our economy. I can’t think of it off the top of my head, but stay away from those.

Because if you get that desperate, boy, I’d go to one. If I needed money for open heart surgery for my kid, I’d go to them and worry about it later. But other than that, I can’t see that that’s anything but a very short term solution to long term pain.

You want to avoid those kinds of things, but if you find yourself going to these kinds of lending institutions or even borrowing from one creditor to pay another, you see that all the time with credit cards. You get an advance on your credit card to pay off your other credit card, but the interest you pay on the second credit card is probably going to be higher. Forget the introductory offer of 11%. After three months, it goes up to 28% and you’re worse off.

So those kinds of things are really difficult to get out of once you get into them. And the interest rates are so high in those scenarios, and the debt load accumulates rapidly. And again, we’re on that slippery slope of debt very quickly. Sometimes without a drastic lifestyle change, you’ll run out of room in your credit cards, get behind on your payments and downward slide. You’re not alone, but it’s an easy trap to get into.

Wayne Kay 16:49
So that’s where they make that phone call and do a free consultation with your team.

Leigh Taylor 16:55
Yes, I think at that point in time they should be talking to us. They’re already in trouble at that point in time. So it may very well be that we can put them on the right track if they’re not too deep, but at least we’ll find a solution for them. It’s like taking medicine.

Sometimes the medicine doesn’t taste all that good, but it’s going to solve the problem, right? That’s sometimes what has to happen. So we’ll look at their situation. We’ll go through it very carefully. We’ll let them know what the options are.

A lot of people just don’t know. Well, what can the creditors do to me? What do I have to give up, what do I have to do in order to make this thing work? And we can give them answers to all those questions. And once they have the answers, they’ll be able to make a decision as to what to do that’s in their best interest.

Not the creditor’s best interest or the Trustee’s best interest, but what’s in their best interest. Get them back on their feet again.

Wayne Kay 17:51
I love it. And they can do that through the website. Leigh, always great.
Let’s just hope that we helped out some people today when it came to budgeting and getting off that paycheque trap. Thank you so much for the information.

Leigh Taylor 18:05
Always a pleasure, Wayne.

Wayne Kay 18:06
My guest today, Leigh Taylor. And you can learn more or schedule that free consultation with LCTaylor Licensed Insolvency Trustee through the website,

And that’s it for today’s Debtmatters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out our website, Thanks for listening.

About Leigh Taylor

Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant and attained his license as a Licensed Insolvency Trustee in 1980.

LCTaylor’s mission is to help people get out of debt through compassionate care and professional service. With over 40 years experience in the insolvency field, Leigh and his staff have helped over 50,000 Manitobans solve their debt problems.

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