An alarming number of Americans are having a hard time saving any money.
"Living paycheck to paycheck" is an expression used to describe spending all the money you make every month. It's a precarious position to be in because you won't be able to save money, and any unexpected emergency could lead you into debt.
Unfortunately, recent research has found that living paycheck to paycheck is the most common financial lifestyle in the United States. It's not something that just affects low-income Americans, either. As you'll read, this is also a problem for people across income brackets.
The latest data on Americans living paycheck to paycheck
A whopping 64.4% of Americans are living paycheck to paycheck, according to a report by PYMNTS and LendingClub. While that's challenging enough, what makes it even worse is that many also have trouble paying their bills. The report found that 23.8% of Americans have issues paying bills, while 40.5% live paycheck to paycheck but don't have issues paying bills.
It stands to reason that lower earners are more likely to live paycheck to paycheck. That's true, but more than half of those earning six figures were in the same position. Here's the percentage of people who live paycheck to paycheck by income bracket:
- Less than $50,000: 77.7%
- $50,000 to $100,000: 65.6%
- More than $100,000: 50.8%
Overall, there were 9.3 million more Americans living paycheck to paycheck at the end of 2022 than in 2021. A whopping 8 million of them earn over $100,000 per year.
How to break the cycle of living paycheck to paycheck
Habits are hard to break, especially when they're forced on you because of your financial circ*mstances. If your current income is just enough to break even on your bills, then it may feel like being paycheck to paycheck is your only option. But you can break this cycle, and you'll be much better off for it.
Start by keeping track of every dollar you spend. You might find that there are areas where you're spending more than you realize, and making simple changes could free up some cash. To better track your spending, check out budgeting apps that connect to all your financial accounts. You Need a Budget, in particular, is great for managing money by giving every dollar a job.
After you've done that, here are a few steps you can take to make immediate progress with your finances:
- Pay yourself first. Set up an automatic transfer to your savings account to ensure that you're putting away money every month. Make sure you have a high-yield savings account, since this type of account offers the most generous interest rates. Don't let limited disposable income stop you. Even $10 or $20 per month is a good start, because it gets you into the habit of saving.
- Get better deals on monthly bills. Some bills, like your rent or mortgage, may be nonnegotiable. But with many others, including car insurance, internet service, and cellphone service, you could get a better deal by shopping around.
- Find financial products that can help you save. For example, if you have debt, see if debt consolidation is an option. If you aren't earning credit card rewards yet, check out cash back credit cards so you can save on everyday purchases.
Just these small changes could be enough to start building your savings. Here's an example of how this could work for you. Let's say you:
- Use a budgeting app and realize you can save $50 per month by cutting out the occasional food delivery.
- Go rate shopping and save a combined $40 per month on your auto and homeowners insurance.
- Get a cash back credit card and earn $30 per month back on your regular purchases.
- Take that $120 per month and send it to your savings account.
Stick with it for a year, and you'll save $1,440. And that's just from small steps that you can put into practice immediately.
Those are the short-term moves, but to really put the paycheck-to-paycheck life behind you, there are also two more long-term goals to work towards.
Take all that money you're saving and set it aside for an emergency fund. Keep at it until you've saved at least three months of living expenses. Emergency savings is so important, because if you don't have it, any unexpected bill could send you back to square one.
In addition, look for opportunities to boost your income. Financial habits play a large role in whether you live paycheck to paycheck, but there's no denying that your income matters, too. If you can negotiate a raise, change jobs to secure a higher salary, or start earning money on the side, that can be a gamechanger for you financially. Just make sure you plan how you'll use any additional income so that you get the most out of it.
It takes work to stop living paycheck to paycheck and develop new habits. While it's not easy, you will end up in a much more secure financial position.
