Living paycheck to paycheck is now ‘the most common financial lifestyle’ in the US — even the wealthy aren’t immune

Although forcing yourself to save can be difficult, more and more people are adding up their monthly bills and discovering they have no money left over to do so.

According to a recent research, 58 percent of Americans reported doing so in May, up from 54 percent in the corresponding month last year. About 62 percent of people making $50,000 to $100,000 a year were trapped in this loop.

According to the survey created by personal loans website LendingClub and payments and commerce platform PYMNTS, it’s not just lower-income groups who struggle to pay their bills.

Even the researchers were surprised to see that 30% of persons with earnings of at least $250,000 also lived paycheck to paycheck.

This was “a tremendous eye-opener,” according to Anuj Nayar, financial health officer of LendingClub, who spoke to Matt Nesto of PYMNTS.

“A year ago, when [people] heard the phrase “paycheck to paycheck,” they thought it meant low income, subprime, and that all of these folks might fall into that bracket. No, actually. All of them. We’re all involved, says Nayar.

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Paychecks are going up — but prices are too

Over the past year, there have been numerous claims of wage increases, but they haven’t kept up with inflation.

Paying for a family member’s expenses has proven to be a substantial contributor to financial distress, according to some higher-income earners and nearly half of all people who live paycheck to paycheck.

This indicates that there won’t be much money left over at the end of the month for savings or discretionary spending.

Additionally, record-breaking inflation is eating away at what is left over. According to the Consumer Price Index published by the Bureau of Labor Statistics, the rate of inflation in June was a blistering 9.1 percent.

While petrol prices increased by about 60%, the cost of food at home increased by over 12% for the year.

The Fed raised interest rates by 0.75 percent in June to combat inflation, but it will take some time before this change has an impact on pricing.

For the time being, borrowing money is just getting considerably more expensive, and there will be another announcement following the Fed’s next meeting on July 26 and 27.

COVID encouraged bad spending habits

While low-income workers are most affected, some middle- to high-income earners are also feeling the effects.

According to Rod Meloni, certified financial advisor and business editor at Local 4 News in Detroit, “I think that COVID kind of skewed things financially.”

Many consumers who continued to work throughout the epidemic were able to put some of their regular spending on hold. For instance, remote workers saved significantly on petrol, travel for work, and restaurant meals.

Meloni responds, “But it doesn’t imply they saved all that money.” Many people used the chance to spend money on other items.

The PYMNT analysis demonstrates that during the past year, people’s savings have also suffered. The average amount saved by people who had trouble paying their expenses each month fell from $4,065 in May 2021 to $2,464 in May 2022.

Additionally, the removal of limitations and lockdowns earlier this year pushed people to spend a lot to make up for missed time, which resulted in a rise in spending on vacation, dining out, and other activities.

I believe that we’ve fallen out of the practice of planning ahead before making purchases, says Meloni.

“And then you suddenly have no discretionary spending left because you haven’t planned it,” the author continued, “when inflation ticks up and petrol prices go up and food go up in unanticipated ways.”

The issue is becoming even more pressing

Meloni thinks that part of the problem may be a lack of financial knowledge because some people perceive overspending as the limit. This is particularly true for the segment of paycheck-to-paycheck consumers whose salaries easily meet basic necessities.

“I don’t necessarily believe that anyone is to blame. Just that [financial literacy] needs to be passed around. And I believe that one of the bigger issues is that many parents are ignorant.

He advises folks to keep a record of their monthly expenses and then compare it to their monthly income. 20 percent of your income should be placed aside for savings, according to one of the best pieces of advice Meloni has ever received.

It’s time to consider more long term for people who make more than enough money to cover their expenses.

The idea that you have unrestricted discretionary spending needs to be refuted, according to Meloni. I refer to it as the hamster wheel. because no matter how quickly you turn the wheel, you remain still.

Planning is necessary in order to escape the hamster wheel. Making a budget is one of the easiest ways to help people escape the pattern of living paycheck to paycheck.

According to Meloni, the best way to plan for situations like an unexpected job loss is to set aside money for three to six months’ worth of expenses.

Given the possibility of a recession, now may be the ideal time to tackle issue.

“I believe that we should all begin preparing for what is to come… It will undoubtedly get difficult, according to Meloni.

And the only way to survive that storm is to take charge, recognize your resources and needs, and then devise a strategy for dealing with them.

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This article does not offer advice; it just provides facts. It is given without any type of warranty.

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