Money flows in November and December as Americans prepare for the holiday season. But many are finding themselves cash-strapped going into the shopping season. Still, high prices are stretching paychecks.
Living Paycheck to Paycheck CommonWhen a person lives paycheck to paycheck, they cover basic living expenses, but no funds are left over for savings or retirement. Some people can’t cover the basics.
According to a Lending Tree poll, 60 percent of Americans live paycheck to paycheck. This is two points higher than in 2022.
The Federal Reserve’s Economic Well-Being of U.S. Household report found that more than one-third couldn’t afford to cover a $400 emergency.
High-Income and Low-Income Earners StruggleBoth low-income and high-income earners are being hit.
Sixty-five percent of high-income consumers, earning $50,000 to $100,000, live paycheck to paycheck. This is compared to 63 percent in 2022.
Low-income or those earning less than $50,000 annually increased from 74 percent in 2022 to today’s 78 percent.
But not everyone’s paycheck even covers the monthly bills. In the high-income category, 13 percent struggle to pay the basics. That’s up from 8.8 percent in 2022.
Paycheck to Paycheck Differs With GenerationMillennials are the most likely to live paycheck to paycheck. They come in at the highest, with 21.7 percent having no savings and barely able to pay expenses.
The lowest are baby boomers, at 14.4 percent. Gen Z is slightly behind at 15.4 percent.
Hyper-Consumption and Living Paycheck to PaycheckNonessential spending has contributed to living paycheck to paycheck. Twenty-six percent of high-income consumers cite non-essential spending as the reason they’re in financial straits. While 17 percent of low-income consumers said they were living paycheck to paycheck due to hyper-consumption.
Reasons for Living Pay-Check to PaycheckMany who live paycheck to paycheck have chronic health problems. Forty-three percent of those living paycheck to paycheck have a health condition or disability. Medical bills, medication costs, and specialized care make it hard to save money.
Acting as a caretaker for a loved one is also a reason for financial stress. Many Gen Xers must take care of their aging parents while also raising small children.
Without a backup savings account, many must turn to buy now pay later plans, payday loans, subprime credit cards or other alternatives to come up with cash.
Servicing High Credit Card DebtIn the third quarter of 2023, Americans’ total credit card debt was $1.079 trillion. This is the highest since the Federal Reserve Bank of New York began tracking in 1999.
The average consumer is carrying a $6,365 credit card balance. And credit card interest has been rising. The average is 22.16 percent.
Paycheck to Paycheck and Credit ScoreLiving paycheck to paycheck doesn’t directly affect a credit score. But using credit cards for excess spending or emergencies can have an effect. You'll likely turn to credit cards if you don’t have savings. This can lead to being overextended and carrying large balances month-to-month.
In a January 2023 survey by Bankrate, 35 percent of consumers carry a credit card balance month to month.
And those who don’t make timely payments on credit cards will see their credit scores drop. Even worse, credit scores will plummet if the minimum payment isn’t made.
Break the Paycheck-to-Paycheck CycleThe two ways to break the paycheck-to-paycheck cycle are to reduce expenses and increase income. Once this is done, an emergency fund can be established.
It may be necessary to take on an additional job. Side hustles are becoming increasingly popular. From a ride-share driver to childcare and pet care, there are jobs to be had. Some will resell goods online.
Living Paycheck to Paycheck ChallengingWhen you live paycheck to paycheck, you’re constantly robbing Peter to pay Paul. It’s an endless circle. Many Americans are continually juggling paying expenses and debt.
Take steps to increase income, reduce expenses and break the paycheck-to-paycheck cycle.