You will probably have heard of the phrase ‘living paycheck to paycheck’ as it’s both a common expression and a reality for millions of Americans. The number of people in the United States who are living this way continues to increase every year, caused by various factors ranging from poor financial literacy to increased costs of living and other macro-economic problems. Living this way isn’t just uncomfortable; it locks people and their often descendants into living in poverty, causing many societal ills in the process.
To live paycheck to paycheck is to exist on the bottom rungs of the economic hierarchy in the United States and is one of the most common reasons we get contacted by our users looking for advice. Signing up for a free budgeting app like PocketGuard is a great start to climbing the ladder to a financially stable future, but it can be difficult to stop living paycheck to paycheck. In many ways, our economy punishes those who need help the most, so finding a way up can prove challenging.
Don’t feel ashamed if you need help; there are millions of other Americans in your position. You’re not alone.
That’s why we’ve consulted with our financial experts, and polled members of the PocketGuard team who were stuck living this way before joining us, to help you stop living paycheck to paycheck. By following the advice in this article, you should be able to take the first important steps towards getting out of the living paycheck-to-paycheck black hole.
What Does Living Paycheck To Paycheck Mean?
We’re often asked the following question: What does paycheck to paycheck mean? A good definition of paycheck to paycheck is when a person or family’s income is insufficient to pay for basic living expenses, including housing, utilities, groceries, and transportation. Someone who lives paycheck to paycheck would find himself in a tight place after one missing payment and have to consistently live day by day without being able to plan for the future financially.
Saving money, let alone investing it, is tough or impossible when you’re living paycheck to paycheck. You become considerably more exposed as a result of emergency situations or when you lose your job, which makes people susceptible to resorting to high-interest payday loans in order to survive these types of situations. This puts the person into more debt, thus locking them into the continuing paycheck-to-paycheck cycle.
It’s often believed that people living paycheck to paycheck are the poorest of the poor, barely able to keep themselves afloat, but that’s actually not true. Nowadays, it’s not unusual to encounter people living like this who hold advanced degrees, come from familial wealth, or have very high-paying jobs. There is no typical person who is living paycheck to paycheck, and given the right (or wrong) circumstances, it could happen to any of us.
Living paycheck to paycheck can be caused by many mitigating variables, such as industrial downturns and difficulty finding regular work appropriate for one’s talents, or even because of poor financial management skills. Someone earning over $150,000 a year who spends so much they can’t afford to save could be said to be living paycheck to paycheck. These are just some examples, there are many more reasons.
How Many Americans Are Living Paycheck to Paycheck?
More Americans are currently living paycheck to paycheck than you might suspect. Many are currently doing so, perhaps yourself included.
The full scale of the problem is severely underestimated. According to SurveyMonkey’s most recent Your Money International Financial Security Survey, 62% of the respondents reported that they were living paycheck to paycheck, a finding corroborated by other studies. The idea that a significant majority of Americans are living like this might be shocking, but it shouldn’t be surprising.
It also shouldn’t come as a surprise that, according to the same study, more than half of respondents earning over $100,000 per year reported that they too were living paycheck to paycheck. For someone who’s scrapping by on a minimum wage job, this result would no doubt be like a thunderbolt, something shocking and maybe even a little bit maddening, as how could someone earning a good wage like that be struggling? We’ll cover more on that later, but let this remind you that almost anyone can end up living paycheck to paycheck.
Ever since the COVID-19 pandemic, the number of Americans living paycheck to paycheck has increased steadily, correlated with job losses and people dropping out of the labor pool. A Pew Research Center review of official statistics in February 2021 revealed that 4.1 million Americans had been unemployed for an extended period of time and that 41.5% of unemployed people had been unemployed for more than six months. Inevitably, this has led to a significant increase in paycheck living, and it’s a problem that’s likely to persist for some time.
What Makes Americans Live Paycheck to Paycheck?
The job losses and joblessness created by the COVID-19 pandemic had a lot to do with the increase in the number of Americans who live paycheck to paycheck, but other factors have had a major impact as well. Here are some of the most notable factors that have helped to create this crisis:
Debt
Credit card debt and student loan debt are the two most prevalent types of long-term debt. It becomes harder to save money as your debt load grows, particularly as interest rates rise. This results in people with this kind of debt allocating much, or the majority, of their finances to service their debts.
Lack of Savings
Many Americans live paycheck to paycheck because they don’t have enough savings to cover themselves in case of an emergency. According to Bankrate’s yearly emergency savings report, 10% of Americans have no savings at all, and around a third of those polled reported they had more credit card debt than savings.
Financial Illiteracy
To put it simply, financial illiteracy is the inability to establish sound financial foundations for yourself. This means that you struggle to balance your books, pay your bills, operate your bank account efficiently, and manage your debt. Many people who are living paycheck to paycheck struggle because they find financial management challenging.
Chronic Health Problems
Many Americans are forced to live paycheck to paycheck do so due to the long-term costs of managing a chronic health condition—whether it be for themselves or a member of their family. The expense of long-term care can have a major impact on your income and long-term ability to make enough money, even if you have health insurance.
Age
Increased age is correlated with an increased risk of living paycheck to paycheck. Among Baby Boomer respondents who are either retired or close to retirement, nearly half (49%) claim to be living paycheck to paycheck. We can compare this rate to Millenials, of who less than 40% report that they’re living to paycheck.
What are the Negative Effects of Living Paycheck to Paycheck?
There are no benefits to living paycheck to paycheck, it is a financially dangerous existence that constantly keeps you on the edge of ruin. It can be difficult to get out of the paycheck-to-paycheck trap, and once you’re in it, there’s a good chance that your family members and children could remain trapped too.
Financial Stress
If you’re living paycheck to paycheck, you will never stop worrying about your finances, as one mistake or unexpected event could leave you ruined. The value of a penny in your hands increases exponentially, and every purchase you make, even if it’s essential, becomes something that you’ll worry about.
Reduced Credit Score
If you’re having to live paycheck to paycheck because of debt, you’ll be risking your credit score in the long run, especially if you end up missing credit card payments. Remember, a missed payment can remain on a credit report for up to seven years, and it has a major negative effect on your rating.
Difficult with Accumulating Savings
Everybody should be saving money for various purposes like emergencies, retirement, college funds, the list goes on. You miss out on the opportunity to save money for these and other crucial needs when you live paycheck to paycheck, which can have a significant impact on your quality of life going forward.
Reduced Professional Options
It can be difficult to take professional risks or pursue a new career that offers more potential for advancement and financial security if your current work barely pays your bills. This highlights how living paycheck to paycheck can lock people in, it ties people down into low-paying but steady work.
How Do I Save Money Living Paycheck to Paycheck?
People live paycheck to paycheck and can still save money for emergencies; it’s difficult but not impossible, and it’s the first step towards getting back on firmer financial footing. The good news is that there are lots of things you can do to help you save money and begin to get out of the paycheck-to-paycheck cycle. We asked some of our financial experts and members of the PocketGuard team to provide their suggestions, and their answers follow below.
Use a Budgeting App
Apps like PocketGuard are designed to support you in taking full control of your finances, regardless of your income level, and can help you stop living paycheck to paycheck. By controlling all of your finances in one place, you’ll be able to see every transaction and every bill and make better choices about your finances, helping you to save in the process.
Transfer Your Debt to a Balance Transfer Card
If you have credit card debt, you can apply for a balance transfer card, which will allow you to transfer the debt on your cards to a new account with a 0% interest rate. As this rate can be valid for up to 21 months, this will provide you with breathing space to reduce your debt. This will also allow you to put more money aside for emergencies as you won’t be paying interest.
Cut Unnecessary Expenses
Many Americans get sucked into the living paycheck-to-paycheck cycle because they spend frivolously on things that they don’t need. While this is a major problem, it’s also relatively quick and easy to fix if you have the self-discipline that’s required. Cut all your unnecessary expenses, and you’ll soon find you have money left over to put into a savings account.
Take on Supplementary Work
You can look for opportunities to improve your take-home salary by taking on more work or switching to a position that pays more. You could, for example, make money from your interests or abilities, such as writing, music composition, or teaching. You may also think about taking up part-time employment related to your hobbies or taking on occasional labor work.
Set up a Direct Debt
This point comes back to the point we made earlier about financial illiteracy. If you struggle with this, then consider setting up direct debit on your bank account to ensure that when you receive money, a portion of it every month is transferred to your savings account automatically. The amount doesn’t have to be large to start; the purpose is to get you into a routine.
How To Stop Living Paycheck To Paycheck
Putting money aside every month as savings is the first step towards breaking the living paycheck-to-paycheck cycle. The next step is to stop living paycheck to paycheck altogether. This is a difficult proposition for many, but you can do it, especially if you follow our advice. We have listed these points as numbered steps, as we recommend you follow our recommendations sequentially.
- Be Patient with Yourself
The first thing you can do to help you stop living paycheck to paycheck is to take a deep breath, realize the situation you’re in, and be realistic about your expectations. Be kind to yourself; the process of breaking the cycle will be long and it won’t be easy, so it’s crucially important to be patient throughout.
- Re-examine Your Expenses
Cutting unnecessary expenses will help you build up some savings, but to help you stop living paycheck to paycheck, you need to fully re-examine all of your expenses. You might be able to renegotiate some bills, but you still have to make difficult choices about which expenses you want to prioritize. You may, for example, need to consider moving home to cut rental costs.
- Adopt the Frugality Mindset
Becoming frugal means that you commit to living at the lowest cost possible, to abandoning needless spending and to live sustainably. We’re big advocates of this idea, as it can do wonders for your daily budget and seriously improve your prospects of getting out of the paycheck-to-paycheck cycle. Check out our article on frugal living to find out more.
Step Number Four – Sign Up with PocketGuard
The final and most important step to getting out of living paycheck to paycheck is to sign up for PocketGuard today, create an account, and download our app. To survive paycheck-to-paycheck living and go on to live in financial stability with bright prospects is no small achievement, but it is a difficult process. That’s why you need all the help you can get, and a budgeting app that helps you control your finances with a dedicated customer support team like PocketGuard’s is the way to do it.
Our budgeting app has helped countless people take charge of their finances, allowing them to control all their routine expenses, ingoings and outgoings, savings accounts, and other parts of their financial ecosystem. You can create custom categories on our app to ensure that it works for you rather than the other way around, and the interface is very simple to use, making it perfect for newcomers taking their first step into financial management. It’s ideal for beginners and financial experts alike, from someone making the minimum wage, to someone making over $100,000 a year.
Living paycheck to paycheck is miserable. Don’t delay in taking the first steps towards a life without consistently worrying about the money coming in and the bills you’ve got to pay.
Downloading PocketGuard will make a tangible difference in your life, reducing the stress caused by poor financial management and providing numerous other benefits aside. Make the smart choice, sign up for an account with PocketGuard today!
