1 in every 3 Americans run out of money between paychecks

Posted: 18 February 2020 3:30 pm
News

Couple worried about money

If you’re 1 of those 3, there are ways you can stretch your hard-earned money.

Common wisdom suggests that the more one makes, the less severe money struggles will be. A recent survey disputes this.

According to a report from Salary Finance, about 1 in 3 Americans run out of money before their next paycheck. This includes 27% of Americans making $85K to $100K, 31% of Americans making $100K to $130K, 33% of Americans making $130K to $160K, 28% of Americans making $160K to $200K and 32% of Americans making more than $200K.

While the largest percentiles of people living paycheck to paycheck are indeed in the lowest income brackets, a significant number of higher-income Americans are unable to meet their regular financial obligations or handle an unexpected expense. Following respondents earning under $25,000, respondents earning $130,000 to $160,000 have the highest rate of not earning enough money to meet basic expenses.

Making the most of your paycheck

While everyone’s situation is different, there are basic strategies to help mitigate the financial strain of living paycheck to paycheck. One is establishing a financial plan. This means carefully documenting all expenses and income sources and adjusting one’s finances accordingly. The goal is to create an emergency fund that can be used to cushion unexpected expenses.

A key part of this financial plan is pruning unnecessary expenses. This can range from cutting back on certain purchases to taking advantage of the current low interest rates and refinancing a high-interest mortgagee. The idea is to save something every paycheck, no matter how big or small the amount.

“A continual feeling of running out of money creates a reduced sense of control and has a negative impact on overall financial wellness,” the report reads. “We found that regularly running out of money was strongly correlated to money worries. What was most interesting is that this was true across all salary bands, demonstrating again that higher income does not protect people from financial stress.”

According to Tom Butch, managing director of retail distribution at TD Ameritrade, the ideal “cushion” is three to six months of living expenses. This should be automatically deposited to a high-yield savings account, which will compound faster than if left in a checking account or traditional savings account. Creating a plan and forming a cushion are essential steps toward preventing financial distress, Butch told CNBC’s Make It.

The survey interviewed over 2,700 employees working with companies that have over 500 employees. For many, the problem with not having enough money lies in the cost of living. Many of a family’s basic expenses, such as healthcare, food, housing and energy rose significantly from 2019 levels. According to the Consumer Price Index, the cost of medical care rose 4.6% year-over-year. Housing rose 3.2% and education rose 2.1%.

This is compared to real wages, which only increased by 0.2% year-over-year, according to PayScale. The median wage adjusted for inflation fell 9% since 2006.

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