Ice Soup?

Why is it that 55-63% of Americans are living paycheck to paycheck? It doesn’t seem that the problem is income, since about 40% of earners above $100k are living paycheck to paycheck. What causes these issues? Anyone earning less than $50K a year would be blessed to have an extra $50k.

Lifestyle Inflation

Not to be confused with regular inflation. Lifestyle inflation is when, for example you get a raise and you celebrate by upgrading your car. Imagine you do this every time you get a raise. Changing apartments to a nicer area, upgrading your tech, changing your eating habits. Slowly your life keeps up with your income and keeps you paycheck to paycheck. Even though you’re comfortable, your bank account is not. This is why you should prioritize saving extra income when you can.

What will you do if you lose this income? This is why having an emergency fund is crucial. Save first spend later.

Living Below Your Means

Living below your means can be a great way to break the cycle. Reducing unnecessary spending, and saving the difference can help you break the cycle. Even starting small with $20 a week can make a huge difference.

Deadly Debt Cycle

What do we do when we run out of money? We run to our credit cards for a quick loan. This just makes the problem worse since we’re borrowing from our future paychecks. Why are we borrowing from our future paychecks if our current one wasn’t enough.

Sometimes the situation is dire and we have no choice. It’s either pay the bills with a credit card or have no utilities. This is why you have to look into your budget and see what unnecessary spending you can cut. Need to prioritize!

Other Factors

These statistics don’t define household size. The 40% can be earning 100k+ but having to support a family of 5 or maybe 6 could be taxing enough to make someone paycheck to paycheck. Single earners earning this amount would easily be able to save extra income.

High Cost of Living areas can also be a factor. Since more than half of an American’s income goes to housing.

Unfortunately these are factors one cannot control, someone might say “Just move!” but you and I both know it’s not that easy.

Bottom Line

If you are fortunate enough to earn a little more money, don’t get ahead of yourself and let lifestyle inflation take over. It’s easy to upgrade your life, but going back to old habits can be very difficult. Keep it below your means and save more than you make. If you’re ever in the debt cycle you can always break out of it by starting small with the savings and re-adjusting your budget.

*Ice soup is a reference to getting paid bi-weekly and using all your money on week one resulting into ice soup for dinner on week 2. Due to extremely bad budgeting. Although sometimes relatable!

Thank you for reading and see you again next Sunday,
– Pablo