Living Paycheck to Paycheck

For many individuals – even for those working full-time and earning $100,000 or more each year – living paycheck to paycheck is a way of life. Though living this way is never the greatest idea, when we’re a little younger and a little more adventurous (maybe a year or two out of school), it’s easier to tolerate.

But as we get older and take on additional responsibilities that may include having a family and owning a home, the last thing we want for ourselves and our loved ones is wondering whether we’re going to have enough money left at the end of the month to take care of mounting financial obligations.

Regardless of your age and station in life – if you’re currently living from paycheck to paycheck – you’re not alone. However – you should begin to take steps to remedy your situation. Let’s take a closer look.

A 2017 CareerBuilder survey revealed some startling realities about the percentage of the labor force that lives paycheck to paycheck. Simply put, the majority of U.S. workers – 78% – live from paycheck to paycheck in some form or another!

Breaking it down – 38% of workers sometimes live paycheck to paycheck, 17% usually live paycheck to paycheck, and 23% always live paycheck to paycheck. Meantime, 71% of U.S. workers are in debt, and 56% of those workers who are in debt believe that they will always be in debt. Even for those earning $100,000 or more, 9% live paycheck to paycheck and 59% are in debt.

Finally, more than 25% of all U.S. workers do not set aside any savings each month, and 25% of workers reported experiencing at least one month in the previous year when they did not make ends meet. Clearly, there are issues here in the United States labor force related to living paycheck to paycheck, managing debt, and saving. How can they best be addressed on an individual basis?

The importance of creating and maintaining a clear written monthly budget can not be overstated. According to the CareerBuilder survey, only 32% of U.S. workers have a written monthly budget.

Don’t be among them. Create a written account of all sources of disposable (after-tax) income and expenses. Every expense should have its own individual expense line and approximate monthly amount.

Then heed the 50/30/20 budget, which states that 50% of your disposable income should be allocated to necessary expenses, 30% allocated to “wants” and 20% allocated to debt repayment and savings. Necessary expenses include housing, food, transportation and utility bills. “Wants” include restaurant meals, high-end clothing and entertainment.

Often times, necessary expenses may surpass the 50% threshold, and in these instances, it is important to assign any shortfall to the “wants” category – never to savings and debt repayment. Adherence to the 50/30/20 budget format will ensure that your necessary living expenses are properly allocated for while making certain that your debt gradually gets repaid and your savings account moves in the right direction.

Once you’re living within your means according to a clearly defined and written monthly budget, the next step is to build an emergency fund. Building an emergency fund is important because it prepares you for the unexpected – whether that takes the form of an illness that leads to medical expenses, expensive automobile or home repairs, a sudden job loss – or anything else.

You can start an emergency fund equivalent to as small as one month of expenses and work your way up toward three-to-six months or more. The good news is that budgeting effectively will automatically result in some savings that can initially be allocated toward an emergency fund – ideally in a separate bank account.

An emergency fund will keep you out of trouble when an exogenous event occurs, keeping you from relying on credit cards or any other form of additional debt. Once you have an emergency fund in place, the money you save each month from budgeting effectively can go straight to your savings account.

If you want to save money each month, you’ve got to begin cutting back on spending. This isn’t always easy, but you can make it easier on yourself. In the same way that some people are able to quit smoking “cold turkey,” it isn’t the easiest way for most. Instead, a gradual process over time often works.

Similarly, don’t make yourself get rid of all of your budgeted “wants” at once – or ever! But you can decide that you will spend $50 less this month by shaving ten or twenty dollars off a few different expense lines.

Cutting back on a few overpriced coffees, a trip or two to the bar and a restaurant visit or two can easily do the trick! Then raise the stakes by $10 each successive month until you reach $100 saved every month. If this becomes difficult for any reason, consider picking up a side hustle in the service or retail industries to make a few extra dollars while keeping your full-time professional skills relevant and your network strong.

There’s nothing worse than a pile of high-interest rate credit card debt (or any form of expensive debt) that burdens you with monthly payments that perpetuate a continuous situation of living paycheck to paycheck. However, there are various forms of debt relief available that can make a difference in your life.

For instance, a debt consolidation loan (DCL) consolidates multiple debts into one single loan, typically resulting in a lower interest rate and monthly payment. A DCL provides the dual benefits of streamlining the repayment process while simultaneously lowering interest expense and the total amount repaid over time, getting you out of debt faster.Meantime, a Debt Management Plan (DMP) is a structured program designed and managed by a credit counseling agency that negotiates lower interest rates and monthly payments with your creditors.

Instead of making multiple payments every month to a variety of different creditors, a DMP allows you to make one streamlined payment to your counseling agency, who then disburses funds to your creditors according to the terms in the plan.

Finally, debt settlement involves negotiating a payoff amount for less than the total balance owed on a debt. The lower amount is agreed to by the creditor and gets fully documented in writing. Although creditors are under no legal obligation to accept debt settlement offers, negotiating and paying lower amounts to settle debts is far more common than many people realize.

If you’re living paycheck to paycheck and struggling to get out of debt, contact us today at United Settlement. We’re here to help. Our experienced debt professionals are familiar with the problems you are dealing with and know how to solve them.

Contact us for an initial consultation and together we can devise the appropriate debt relief solution to your specific financial situation. After all, life is too short to live under the stress of heavy debt and living from paycheck to paycheck.

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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