Stop Living Paycheck to Paycheck

An overwhelming number of Americans are living paycheck to paycheck. There have been various studies and polls over the past few years (2017 and on), with the percentage of families living paycheck to paycheck ranging from 53% to 78%. Regardless of which poll you recognize to be the most accurate, one thing is for certain, the majority of Americans are living paycheck to paycheck. As we saw in 2020 with the Pandemic, many, many individuals became unemployed. When you become unemployed while living paycheck to paycheck, it puts you and your family in quite a financial predicament. Often times, unemployment benefits can be a temporary fix. But, when the money stops flowing in, the money stops flowing out. When that occurs, you now have issues with your debtors (landlords, mortgage companies, car companies, banks, utility companies, the list goes on and on).

Living paycheck to paycheck isn't just a low income problem. It spans across many different demographics. In fact, a Nielsen study showed that 1 in 4 families earning $150K or more were also living paycheck to paycheck. So, what does that mean? Overwhelmingly, the largest indicator is "lifestyle creep". Sure, there are various factors for why people are struggling to bridge the gap week to week and month to month to make ends meet; from the increased cost of living, stagnant wages, increased spending, etc. But, for those in this higher earner bracket, there is simply no excuse for not being able to save. This lifestyle creep means that as a person's wages grow and increase, so does their spending. For example: you start out in a "starter home", but as your wages increase, you move up to a higher cost home. Maybe you have a used vehicle that is paid off, but as your wages increase, you trade that in for a new vehicle and you finance it with monthly car payments. Additionally, the frivolous spending has increased since you have more "discretionary income". While various areas of the budget (or non-budget) are seeing an increase in spending, there is one that notably is not, the savings bucket. This is the big mistake for these high income earners and ultimately why there are plenty of Americans with a significantly lower income that have a more disciplined approach and thus are in a significantly better financial situation.

Aside from the lifestyle creep, this also suggests that there is a behavior problem associated with money and finances. It's a pattern of bad habits surrounding spending and poor money mistakes. Many people feel the need to "keep up with the Joneses" and have issues living within their means. Below are some steps to break the paycheck to paycheck cycle.

  • Lifestyle Creep - As discussed above. Maybe it's time to think about big ways that you can start saving instead of spending. A few things you may want to consider are downsizing your house, buying a used vehicle in cash instead of having an auto loan, creating a weekly grocery list and look at supermarket sales to avoid overspending on food. There are many things that can be done, but the items that will have the most impact are in the categories of housing, transportation, and food.

  • Get on a Budget - No matter how much money you make, nothing will be more important in staying in control of your financial situation then having a budget and carefully managing your money. Detail all of your bills/debts and also be sure to include discretionary spending such as gas, clothing, etc.

  • Build an Emergency Fund - A January, 2020 poll from Bankrate indicates that only 41% of Americans would be able to cover a $1,000 emergency from their savings account. The remaining 59% would use a credit card, borrow from relatives, etc. Of that 59%, 12% said they would not be able to cover the emergency at all.

  • Save for the Future - Once a budget is in place, as well as an emergency fund, the next step is to save for the future. The mirror opposite of living paycheck to paycheck is living freely without financial worry or concern. Some know this situation as being financially free.

  • Increase Income - An important step to get out of the paycheck to paycheck cycle. You can budget all day, but it is difficult to build an emergency fund and save if your income is too low. Sure, everyone's situation is different, but the most important thing to do is always be thinking of ways to increase income. Whether that's getting a side hustle, going back to school to position yourself for a higher paying job, or just job searching on a consistent basis for something that pays more, anyone has the ability to position themselves to earn more money.

In short, a paycheck to paycheck lifestyle doesn't have to be the only way. In fact, it shouldn't even be a way at all. By implementing some/all of the items discussed above, you can be well on your way to a lifetime of financial freedom and breaking the chains of the paycheck to paycheck life.