Edwina Joesler, pictured at her Bondi home, manages to happily live on $20,000 a year. Credit:Ben Rushton While the "poor" hand-to-mouth households were mostly young with low incomes, the wealthy hand-to-mouth were older (peaking at about age 40), had high incomes and substantial illiquid assets. The same study looked at seven other countries including Australia. In Australia the proportion of households living hand to mouth was about half that of the US, the UK and Canada. But 90 per cent of them fell into the wealthy category. In part, the results reflected Australia's compulsory super system, but even when super accounts were excluded, the proportion of Australia's poor hand-to-mouth households only rose from 3 to 9 per cent. So why has lurching from one pay to the next become such a prevalent lifestyle?

Jeff Oughton, consulting economist at industry super-fund-owned bank ME, puts it in an economic context. "The labour market has been deteriorating; the unemployment rate has been going up over time; and of course, income gains are at a historical low while costs keep rising," he says. "About 60 per cent of Australians didn't get a pay rise last year and their biggest worry is maintaining their standard of living," he says, adding that incomes went down for 20 per cent of people. ME's latest Financial Comfort report, published in February, shows about 5 per cent of people cannot afford to pay for essentials, says Oughton. "That's roughly in line with the unemployment rate. Then there's about another 24 per cent that can only afford the essentials."

But there's more to it than inadequate income. ME's inaugural Savings Intention report, published in January, shows many of us don't know what we're spending. "Almost 60 per cent of people don't budget, so they're not sure where they're heading with their finances," says Oughton. Bergel-Grant thinks the habit of living week to week has a lot to do with the values we're taught as children. "I think we're not actually learning the value of money and the value of saving – learning that you can spend some of your money today but you actually need to put some aside for future investment and some aside for future fun," she says. Rik Schnabel, founder of Living Beyond Limits, puts another spin on it. He says people are often operating from a "move away from" mentality where they are driven by the fear of not having enough. So if living pay cheque to pay cheque has become a habit, how do you break the cycle?

Extra income isn't necessarily the way out, although it can help. "What you earn doesn't necessarily determine your savings capacity," says Bergel-Grant. "It's how you manage your money and how you treat your money when it comes in; it's how you treat every pay rise that you get." Reacquaint yourself with cash Bergel-Grant says people on a monthly pay cycle often find it harder to stick to a spending plan than those paid weekly. One way to restore a sense of balance to your financial world is to set yourself a weekly cash allowance. Get your salary paid into a savings account and then withdraw your allowance each week and only spend cash. "If you treat it on a weekly basis it's much, much easier to manage and you don't find yourself crying poor for two weeks at the end of a monthly pay cycle."

The exercise offers a powerful reminder that money is tangible, she says. "It stops spontaneous spending for clients. If they are looking at buying a new pair of shoes or a new shirt or a new piece of computer equipment, actually physically having to hand over $50 notes is a lot harder than presenting a credit card to make that payment." Of course, setting a realistic cash allowance relies on you having a firm grip on where your money goes. If you have no idea, the Moneysmart budget tracker tool can help. Plus, Bergel-Grant suggests: "Look back at your bank account for the last three months and see what it is that you're spending on. Is it realistic? Are there areas where you know you could pull back?" It might highlight that you're overcommitted and need to look for ways to increase your income. Plan your spending Curbing spontaneous, or binge, spending is key to breaking the pay cheque to pay cheque cycle, particularly if it means you're living on plastic by the end of the month.

Michelle Hutchison, head of PR at Creditcardfinder.com.au, says: "A lot of people don't keep track of their spending so they just thoughtlessly make purchases, particularly impulse purchases, where they don't necessarily need it or they haven't planned for it. "It becomes a rut that you can't get out of because you're constantly chasing your tail, living pay cheque to pay cheque, because you keep spending more than you earn," she says. A creditcardfinder.com.au survey of 1200 credit card-holders recently found more than one in four (22 per cent) didn't pay off their balance in full each month. Of those, 79 per cent admitted to using their card for unplanned purchases. Almost half (49 per cent) made one to three unplanned purchases each month, while one in 10 made more than 10 unplanned purchases each month. Unplanned purchases ranged from shopping sprees (23 per cent) to going out or entertainment (27 per cent). Unexpected bills (21 per cent) and emergency expenses (19 per cent) also had people reaching for their cards. To many (58 per cent), sales were like cat-nip, but they can be a false economy. "If they couldn't afford it to begin with, or they don't need it, they are not actually saving anything if they end up paying interest on it," says Hutchison.

"But if they were going to buy a pair of shoes in the next few months and there was a sale on them then that would be a saving. So you've got to be more thoughtful and more conscious of how you're spending your money." Expect the unexpected Oughton says ME's studies show a lot of people would struggle in an emergency. About 30 per cent of people don't have $1000 in savings and 18 per cent say they couldn't raise $3000 in a week to cover an emergency. Reduce the likelihood of an unexpected bill creating financial havoc by saving an emergency buffer, ideally at least three months of expenses. Bergel-Grant suggests keeping those savings in account that can't be accessed straight away via an ATM.

Set a goal beyond survival Think about what you will gain by breaking the week to week spending habit. One immediate benefit is money doesn't disappear on interest charges, credit card surcharges and late fees. Longer term, it might mean a house deposit or retirement savings. When we look beyond survival to a larger goal, we start shifting to the more expansive "move towards" mentality, says Schnabel. He points to the shift that happens when a couple decide to have a baby or buy their first home. "What they'll do is they will look at their finances; look at what they need to do; and they will have a good reason to get out of that pay cheque to pay cheque mould and they will start investing." The goal may also be emotional stability. Aim for feeling in control of your money, steady and balanced throughout the month, rather than free and easy at the beginning of the month and then panicky, stressed or deprived at the end.

Reward yourself "If you do meet your targets and your savings goals it is OK to give yourself a little bit of a reward to enjoy," says Bergel-Grant. If you love sales you could set aside an allowance for indulging in some bargain-hunting. "So you can have a splurge but you can afford that splurge," says Hutchison. ACTION PLAN Know where your money is going

Set a weekly cash allowance

Plan your spending

Save a buffer

Set a goal beyond day-to-day bills

HAPPILY SURVIVING ON $20,000 A YEAR The wait between paydays can be long for performing artist and freelance caterer Edwina Joesler (pictured above). "Frequently, I will be waiting not just weeks, but months, for clients to pay up," she says. The Sydneysider's annual income is less than $20,000 and she lives without a credit card. So how does she do it? "Budgeting is simply: how cheaply can I do this in every single aspect of my life." That means restaurants are out and entertaining at home is in. So is swapping and sourcing things on Gumtree and Freecycle. Transport is an e-bike ("it's saved me massive amounts of money on public transport and petrol") and she's turned her Tarago into a money-spinner by renting it out to others via Car Next Door. Cheapest prices aren't always best. "It's made me very, very aware of how well a product is made and whether it can be repaired", and she recently switched to Powershop so she could monitor her power usage.

The 50-year-old makes extra dollars from her skills - painting, decorating, window-glazing, upholstery - and lecturing on how to avoid food waste. She knows her lifestyle isn't for everyone, but she's happy to own it. "My work has often taken me overseas living in places that are really poor and even when I'm doing it the toughest I feel really wealthy in this country," she says. "I know how much of a luxury it is to turn your tap on and get hot water."