More than half of Americans live on pay after pay, even the rich feel the heat of continuing inflation

Pushing you to save can be a challenge, but more and more consumers are counting their monthly expenses to find that they still have nothing left to save.

A recent study shows that 58% of Americans report living from pay-to-pay in May, up from 54% in the same month last year. Of those earning $ 50,000 to $ 100,000, approximately 62% were stuck in this cycle.

But it’s not just low-income groups that are struggling to pay their bills, according to the report produced by the payments and commerce platform PYMNTS and the personal loan website LendingClub.

Surprising even the researchers, 30% of people with an income of $ 250,000 or more also lived on salary after salary.

Anuj Nayar, LendingClub’s head of financial health, told PYMNTS ‘Matt Nesto that it was “a real revelation”.

“A year ago, when [people] after hearing the term paycheck for paycheck, they thought it was a low income, a subprime, all these people maybe in the lowest income sphere. Actually, no. They all are. It’s all of us, ”says Nayar.

Do not lose

Salaries are rising, but so are prices

There have been many reports of wage increases in the past year; however, they have not kept up with costs.

Nearly half of all paycheck-to-paycheck consumers say their salary covers only basic expenses, while some higher incomes say paying the expenses of a family member has proven to be a significant factor in financial hardship.

This means there is little left for discretionary spending or savings at the end of the month.

And what’s left is also being consumed by record-breaking inflation. The Bureau of Labor Statistics Consumer Price Index shows that inflation hit a burning 9.1% for the month of June.

Food at home increased by more than 12% during the year, while gas increased by nearly 60%.

And although July’s 8.5% inflation rate was lower than June’s 9.1%, a month of moving in the right direction isn’t enough to stop pressing, Federal Reserve Chairman Jerome Powell said. He added that it was not the time to press “pause” or “stop” the inflation measures.

In July, the Fed raised its federal funds rate by 75 basis points to 2.25-2.5%, the second hike in as many meetings.

If Powell’s short speech at the end of July is anything positive, a hike is likely to come in September, which could drive the rate above 3%.

COVID has encouraged bad spending habits

While low-income workers are facing the brunt of the effects, some upper-middle-income workers are also struggling.

“I think COVID has somehow warped everything financially,” says Rod Meloni, corporate editor of Local 4 News in Detroit and certified financial planner.

A lot of consumers who were still busy during the pandemic were able to use the time to pause some of their usual spending. For example, remote workers have saved a lot on gas, business trips and lunches outside the home.

But, says Meloni, that doesn’t mean they’ve invested all that money in savings. Many took it as an opportunity to spend on other things.

As the PYMNT study shows, people’s savings have also taken a hit over the past year. For those struggling to cope with monthly bills, average savings plummeted from $ 4,065 in May 2021 to $ 2,464 in May 2022.

And the end of restrictions and lockdowns this year has also encouraged people to work hard to make up for lost time, resulting in an increase in expenses for travel, restaurant meals and other activities.

“I think we’ve somehow lost the habit … of being intentional about what we’re about to buy,” Meloni explains.

“And then, when inflation rises and gas prices go up and groceries go up in unexpected ways, suddenly now, you have no discretionary spending anymore because you didn’t plan for it.”

The issue is becoming even more urgent

For the wage-to-paycheck slice of consumers whose salaries comfortably cover basic expenses, Meloni believes part of the problem may be a lack of financial education – some people see overspending as the limit.

“I don’t think it’s anyone’s fault, necessarily. We just have to go through [financial literacy] On. And one of the biggest problems is that I think a lot of parents don’t know. ”

It suggests people write down how much they spend each month and compare that number to how much money they have brought in. One of the best tips Meloni ever received was to set aside 20% of your income as savings.

And for those earning more than enough to cover their bills, it’s time to think longer term.

“I think the idea of ​​having unlimited discretionary spending needs to be dispelled,” says Meloni. “I call it the hamster wheel … because the faster you spin the wheel, the faster you go.”

Getting off the hamster wheel takes some planning. One of the best tools to help break the pay-to-pay cycle is simple: create a budget.

Budgeting for three to six months of spending is key to preparing for emergencies such as unexpected job loss, says Meloni.

And there’s no better time than ever to tackle it, with talk of a recession on the horizon.

“I think we all have to start preparing for what is coming … it will be absolutely difficult,” says Meloni.

“And the only way to weather that storm is to take control, figure out what you have, what you need, and then devise a battle plan to deal with it.”

What to read next

This article provides information only and should not be construed as advice. It is provided without warranties of any kind.

Leave a Reply

%d bloggers like this: