The Realities of Living Paycheck-to-Paycheck
Long months of high inflation have forced people to get by on less, and the financial cushions that they padded during the pandemic are drying up. According to a new study from LendingClub, the number of people living from paycheck-to-paycheck jumped by 12 percentage points between April 2021 and January 2022.
At the start of the year, a full 64% of Americans were living one paycheck away from disaster — and things have only gotten more expensive since then. Even more striking was the fact that nearly half of those with annual salaries greater than $100,000 were living check to check, up from 43% in December 2021 to 48% in January.
Breaking the Cycle Is Difficult
Money trouble breeds more money trouble. People who are struggling, for example, are more likely to put off car repairs, which makes them more likely to suffer major breakdowns that they have to borrow money to repair, which sets them back even further.
“Getting out of a cycle of living paycheck-to-paycheck is incredibly hard,” said Carter Seuthe, CEO of Credit Summit. “You either have to make more money or spend less. Making more money is often difficult when wages aren’t keeping up with inflation. You’re often forced to take a second job, likely gig work, just to make ends meet.”
The reality, Seuthe added, is that spending less is rarely a realistic option for people who are already strapped — not when inflation continues to catapult the cost of food, housing, gas and everything else.
“You can cut back to the bare necessities for a while and hope to get ahead,” he said. “But for most people, one emergency will wipe them out.”
Financial victim-blaming is common because it’s comforting to think that if you play it straight, save your money and don’t overspend, it can’t happen to you. In most cases — as the 48% of struggling six-figure earners prove — it can.
“The biggest misconception — and one we as a society desperately need to move away from — is that someone living paycheck-to-paycheck must be fiscally irresponsible by default,” said Jake Hill, CEO of Debt Hammer.
Given that the federal minimum wage hasn’t been raised since 2009 and rents can take up to 70% of take-home pay, he said, “What can we expect?”
The myth that people living paycheck-to-paycheck are low-income is nearly as prevalent as the myth that they’re irresponsible.
“It can affect people on any income level,” said Ben Reynolds, CEO and founder of Sure Dividend. “This is because they don’t budget their money, which means you’re overspending and not accumulating savings.”
The Grind of Getting By
Since spending less is usually off the table, most people have to work harder to make ends meet.
“Even being able to get a few hundred dollars more a month can help,” said Hill. “Others become obsessive about budgeting and living well below their means until they can build up savings and improve their situation.”
Some people don’t know or won’t acknowledge just how precarious their situation is because they assume that the next paycheck will always be there to bail them out.
“If you would endure financial hardship because of a missed payday, you are indeed living paycheck-to-paycheck,” said Rebecca Brooks, owner and financial coach at R&D Financial Coaching. “This hardship can manifest as being unable to cover your bills, incurring debt, having to sell something, or needing to borrow money from friends to cover necessities.”
Emotional Stress and Tough Decisions
Tiffany, a 33-year-old California mother of young children, left her job as an office manager right before the pandemic to raise her son full-time, citing the prohibitively high costs of child care. Her partner works full-time as a fitness manager and personal trainer at a gym, and the shift from two incomes to one was challenging.
“Emotionally, it’s stressful seeing my bank account reach below a certain threshold because it means I need to really go into survival mode and be very judicious with every penny spent,” she said.
There are months when she has to decide which bills to pay and which she will have to put off to the next month. Other times, she chooses between which grocery stores to shop at, stretching her dollars as far as they can go. At the moment, she and her partner are several months behind on their gas and electricity bills so they can keep up with the car payment, a necessity.
Their rent is $1,700, which is considered cheap for the area they live in, the car payment is $404, groceries are around $600 per month, utilities are $80, water and garbage are between $50 and $70, and baby-related items such as diapers, wipes and baby food pouches run her another $200-$300 per month.
“Nobody likes living this way,” she said. “It’s incredibly stressful, but ultimately it was cheaper for me to stay home than to put my son in daycare.”
‘Not a Whole Lot of Wiggle Room’
Julia, a 23-year-old teaching assistant in California, lives with four other family members in a two-bedroom apartment that rents for $1,600 per month, sharing expenses. She is frustrated by the misconception that people who live paycheck-to-paycheck “must be spending their money on frivolous things because everyone should be making enough to live,” she said. “A lot of jobs that are necessary for everybody to function — especially labor jobs or customer-service focused jobs — are not providing a livable wage or providing the other things necessary to live well, such as health insurance.”
Julia earns about $1,600 each month and pays her share toward rent, food, gas, a car payment plus car insurance, wifi, utilities and other household expenses. “You don’t eat out, you don’t buy that thing you want,” she said. “You learn how to operate and live in those parameters.”
If not for the ability to live with family, she said, “None of us could afford to live on our own at this moment.”
For the first time in her life, she has $800 in savings, a cushion she credits only to the unemployment funds she received during the pandemic. “When you’re living on a budget, there is not a whole lot of wiggle room. If you miss a couple of payments, you’re in trouble.”
It can take time, luck and a break from financial surprises to finally escape the paycheck-to-paycheck lifestyle.
“Although it can feel like a never-ending cycle, the most important thing to remember is that while there are many things you cannot control, how you save and spend is something you can control,” said Alissa Van Volkom, head of consumer deposits, products and payments at TD Bank. “First, look to cut out any non-essentials from your budget.”
Such nonessentials include gym memberships, entertainment subscriptions, eating/ordering out, etc.
“While these might seem like small adjustments, taking these first steps can help put you on the path to financial stability,” she said.
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Andrew Lisa contributed to the reporting for this article.