Financial problems are plaguing Americans at levels not seen in generations. The current economic woes are impacting people in many ways (egg prices, anyone?). What is particularly surprising is how this is affecting people regardless of income level, driving them into living paycheck to paycheck.
A recent report from LendingClub discussed the astounding number of Americans in this category. Overall, 64% of Americans are living this way financially.
But even those earning over $100,000 a year are feeling the pinch too.
The data show that 51% of Americans earning over $100,000 a year live paycheck-to-paycheck. Over half!
More Details on What the Report Says
The number of Americans living so close to the margin each month has increased since the end of 2021. At that time, 61% of Americans found themselves in this situation. That has increased by 3 percentage points over a year.
But here is what is particularly striking. There are 9.3 million more people living paycheck to paycheck since the end of 2021. But of that number, 8 million earn over $100,000 a year.
That means 86% of the increase in such marginal living is among Americans whom many consider “high-income earners.“
To really show just how bad the problem is, about 16% of Americans in this income strata struggle to pay basic monthly bills. That’s up from 11% in 2021.
For that who earn between $50,000 to $100,000, the number living on the margin has actually remained fairly consistent at 66%. For those under $50,000 a year, nearly 80% live paycheck to paycheck.
Why Are So Many People Living Paycheck to Paycheck?
“The effects of inflation are eating into every American’s wallet and as the Fed’s efforts to curb inflation drive up the cost of debt, we are seeing near record numbers of Americans living paycheck to paycheck,” said Anuj Nayar, financial health officer at LendingClub.
“While the number of Americans living paycheck to paycheck is close to the height we saw in the middle of the pandemic, the causes appear to be very different, as the economy is not sheltering in place like it was back in 2020.”
The number of people in this financial situation has increased over time. It’s even higher than it was during the Great Recession.
In 2009, about 61% of Americans lived this way (up from 49% in 2008). For those earning over $100,000, that rate was 30%, up from 21% in prior years.
Some explanations might be something along the lines of wages not increasing enough to keep up with the cost of living. And to some degree that may be true (depending on your approach to your job and career).
But that’s a passive explanation; not one that looks at the things we actively do each and every day.
A lot of our financial difficulties come from impulsive spending or uninformed decisions. But these are things we can control.
We can choose to say no to impulsive temptations. We can become more financially literate to understand how various products and services really work.
This active role places us in the driver’s seat instead of relinquishing our financial destiny to forces beyond our control.
How to Stop Living Paycheck to Paycheck
Regardless of your income level, you can start making decisions today that will set you on the course of breaking out of this paycheck to paycheck cycle.
Here are two things that you can do starting right now.
Make a Budget
You can get yourself on a budget and diligently plan out all of your spending. This does not mean self-deprivation. Rather, it gives you the freedom to spend in the ways you want to.
Contrary to popular belief, doing a budget is not impossible if you’re bad at math. (Confession: I am not a math person!).
Most of personal finance is behavior-based. That means by being diligent with our behaviors, we can do well with our finances. Our budget will tell us the things we need to do based on the things that we want to accomplish.
Check out my guide to making a budget here.
Pay off Your Debts
You can also power through your debts by getting on a plan that will help you attack them systematically. I am a big fan of the debt snowball because of how it helps you build momentum.
Other plans direct you to attack the debts that have the highest interest rate (debt avalanche) or the ones that have the most emotional baggage (debt tsunami).
The important thing is to find something that resonates with you. Devise a plan and follow it.
Check out my overview of 3 plans for paying off debt here.
Final Thoughts on The Paycheck to Paycheck Pandemic
(Okay, the word “pandemic” has been used way too much, but you get my point).
In the wealthiest society in world history, I find it appalling that so many people are paycheck to paycheck. If these folks missed just one paycheck, there would be a downward spiral of financial problems.
America, we have to do better. Not just for our sake, but also for our children’s sake.
Our current habits and mentalities are what our kids see day in and day out. If all they see for their childhood is this cycle, how can we expect them to know that they can have better?
Financial freedom starts with us. Today. Right here. And by saying no more cycles of financial hardship, you can escape this financial bondage and create something great for your family and community.
It all starts here. You can do it!
It may feel overwhelming. But you’re not alone. To see how I can help you break the cycle, book your free Discovery Session now!