The dangers of living paycheck to paycheck, experts say
In modern America, even the wealthy are struggling to get by.
According to a study by Lending Club and PYMNTS, around 61% of the country – 157 million people – now live paycheck to paycheck. Among them are about 36% of high earners who earn more than $250,000 a year.
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Whether you’re spending too much, earning too little, or a combination of the two, spending your life in a pay period of financial disaster is as dangerous as it is stressful.
If a single missed check could turn your life into chaos, now is the time to make a change. Here’s why.
It’s easy to fall into the cycle of debt — it can be impossible to get out of it
Emergencies happen whether you have an emergency fund or not, and when you live paycheck to paycheck, borrowing money to meet unexpected expenses is often the only option. But borrowing out of desperation adds more pressure to an already precarious situation, which often requires even more borrowing to keep yesterday’s lenders at bay.
The end result is an endless cycle of toxic debt.
“In my twenties, I was living on paycheck while working as a cook,” said LGBTQ+ travel writer Lindsey Danis of QueerAdventurers.com. “I was out of money at the end of the month, so every emergency, like a car repair or a vet bill, went to my credit card. A series of disastrous events nearly depleted my credit cards. credit and was the wake-up call I needed to quit cooking as a career and support my income through self-employment.
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Just as the debt cycle is self-perpetuating when you live paycheck to paycheck, so is the weakened credit the cycle creates. The more your finances are overstretched, the more your credit score drops and the harder it becomes to progress by finding a new job or starting your own business.
“When I started my own business, I didn’t have a good credit history,” said Jessica Chase, loan and finance expert at Premier Securities Lending. “I was delaying my student loan payments and sometimes even dodging my credit card payments. This had an immense impact on my credit history, which led to my credit score dropping to less than 670.”
As a student, she didn’t fully understand the ramifications until she tried to start her own business after graduation.
“I went to some banks, and guess what, they all turned down my request for a loan,” Chase said. “The only reason was my poor credit score.”
For those struggling to get by, the impact can be much more immediate than making entrepreneurs’ dreams come true.
A beaten credit score — so common among those who live paycheck to paycheck — can make it difficult to borrow money, disqualify you from all but the worst rates, and increase the likelihood of default. and, in the worst cases, disasters like bankruptcy, foreclosure, eviction and homelessness.
So if you’re living without a financial cushion, where do you start? Experts who spoke with GOBankingRates echoed advice from Charles Schwab and Forbes. First, create a budget and spending plan to identify trouble spots, eliminate waste, and increase savings.
“Take a look at your fixed expenses and see where you can make cuts,” said Simon Courtney, editor of Health Business Technology. “For example, you may be able to save money on your cable bill or by purchasing a more affordable car insurance policy. You can also try saving money on groceries by cooking at home more often and buying generics instead of branded items.
These small adjustments can quickly add up to a cushion of a few hundred dollars. It’s exactly the kind of respite people who live paycheck to paycheck need so that every blown alternator or every child in need of braces doesn’t result in a credit card swipe. or, even worse, a payday loan.
Arvie Narido, writer and gift finder for Rabbit gift, is living proof of what there is to gain by breaking life’s chains from one paycheck to the next. For Narido, the release took the form of a side gig — and she can recount half a dozen ways a financial cushion changed her life.
“From a one-income household, my family became a two-income household because of my jostling, and we got great benefits from it,” Narido said. “I became financially independent from my husband. Before, we depended solely on his income and we lived from salary to salary. We have built up a good emergency fund for at least six months of our living expenses. We were able to allocate “fun money”, where we could buy ourselves non-essentials or dine out more at our favorite restaurants, something we hardly enjoyed when we were just a single income household.
It is important to periodically indulge in certain desires, but many other things are much more consequential.
“I was able to financially support my sick mother, who is recovering from cancer,” Narido said. “I was able to help pay for some hospital expenses and some medications without compromising our family budget. My child and I were able to get our own life and health insurance, which I have lost since quitting my job and becoming a full-time mother.
Living paycheck to paycheck also robs you of the ability to be generous to the people and causes you care about.
“Well, that may sound corny,” Narido said, “but because of my hustle, I’ve also been able to give back to my community by donating a portion of my earnings to a few local non-governmental organizations helping the homeless. shelter and children.”
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