48% of Americans Spend Their Entire Paycheck: How You Can Avoid Making That Mistake

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Do you routinely find yourself with more month than paycheck?

You’re not alone. Nearly half (48 percent) of Americans say their expenses are equal to or greater than their income, according to the latest findings from the Center for Financial Services Innovation (CFSI). For those aged 18 to 25, the number of Americans with expenses equal to or greater than their income jumps to 54 percent.

It can be stressful living paycheck to paycheck. CFSI’s most recent market research on consumer financial health finds that 57 percent of American adults struggle financially. According to the research, “Many are dealing with an unhealthy amount of debt, irregular income, and sporadic savings habits.”

If you’re in that boat, all is not lost. It’s possible to break the paycheck to paycheck cycle. Let’s take a look at how we got here and what you can do to fix your financial situation.

Why are more than half of American adults struggling financially?

Volatile income represents a challenge for many Americans. The CFSI data indicates that 38 percent of those spending more than their income each month have income that varies from month to month.

Those living in rural areas seem to be having a harder time, with only 46 percent of rural Americans spending less than their income. By contrast, 53 percent of city dwellers spend less than they make each month. No matter where you live, though, spending more than you earn results in growing debt — and that’s a problem, too.

“It is clear that income volatility and mounting debt are two of the biggest stressors that work against the financial health of many Americans,” said Jennifer Tescher, the founder and CEO of CFSI, in a press release.

Tescher also pointed to rising cost-of-living expenses and stagnant wages as an issue. “People are spending a shockingly large amount of income on housing,” she told CNN Money. “They have to pay for transportation to get a job. These costs are going up while their wages stay the same.”

Even if you feel like the deck is stacked against you, though, it’s possible to make positive progress with your money.

How to reduce financial stress and stop living paycheck to paycheck

In 2015, the American Psychological Association released data indicating that 72 percent of Americans feel stressed about money. With so many Americans just scraping by, it’s not surprising that there is a lot of financial stress out there.

However, there is hope.

Emily Guy Birken is a financial expert and the author of “End Financial Stress Now: Immediate Steps You Can Take to Improve Your Financial Outlook.” She believes there are practical things you can do to improve how you feel about money while ditching the paycheck to paycheck cycle.

“You need to start by buying yourself some emotional breathing room,” Guy Birken said. “It’s easier said than done, but you need to de-catastrophize the situation. A lot of other people are in this situation, and it is possible to get out. Making a plan can help you move forward.”

Once you’ve taken a step back, said Guy Birken, it’s time to provide some financial breathing room. Here’s how you can create that buffer so you aren’t living paycheck to paycheck.

1. Adjust your tax withholding

“The average tax refund is close to $3,000,” said Guy Birken. “That’s about $250 each month that you’re sending to Uncle Sam for no good reason.”

Guy Birken suggested adjusting your withholding so that you end up with that money over the course of the year. “No you won’t get a big refund in April, but you can buy breathing room right now, in your very next paycheck,” she pointed out.

2. Cut expenses

It can be hard to find expenses to cut, Guy Birken acknowledged. When you live paycheck to paycheck, you already feel like you’re down to the bone. However, Guy Birken said that there are some expenses that you might be able to find.

“Look for the easy recurring expenses that you won’t miss,” she suggested. “Don’t watch much TV? Cut the cable. If you go through your expenses, you might find items that you can cut.”

Some solutions are more difficult. If you can arrange your work schedule with a significant other, it can make sense to cut out daycare one day a week. “It’s not fun, or super-easy, but if you can shift some of that around, you can free up resources,” Guy Birken said.

3. Find ways to make more money

“If you can earn extra money, it’s always going to be helpful,” Guy Birken said. “But at the same time, you don’t want to overwork yourself.”

She suggested that you start by selling unused items for a quick infusion of cash. Other side gigs can help fill in the gaps later. From driving for Lyft to walking dogs to mowing lawns, look for a side hustle that can provide you with extra income.

Start today to improve your financial situation

For many Americans, the road to financial health is likely to be a long one. “Their financial health depends on climbing out of debt, planning for the future, and living within their means when possible,” said Tescher in the press release.

You don’t have to do everything at once, though. Guy Birken said that it’s important to avoid becoming overwhelmed.

“Start with one thing that you can manage and work on that,” she said. “Put aside what you can toward an emergency fund. Put a little extra toward paying down debt. Make a plan to free up cash and use it to move forward.”

Published in News & Policy, Spend Less