People often assume the rising cost of living combined with the low minimum wage are to blame for so many Americans living paycheck to paycheck. This is not always the case. Many people with six-figure incomes are still stuck in this stressful cycle. In my three years of Financial Coaching, I’ve found that people who make six-figures often freely spend their entire paycheck, unmindful of how quickly purchases add up.
The Meaning of “Living Paycheck to Paycheck”
Living paycheck to paycheck is when every dollar you earn in a month goes right back into your bills and spending. This leaves you with no extra money to save, pay down debt, or invest. This can affect anyone who doesn’t have the proper Financial Plan in place. A survey done in 2020 by Willis Towers Watson revealed that 18% of employees making more than $100,000 annually live paycheck to paycheck (Emerman).
When people receive a six-figure paycheck, they are more likely to spend it carelessly, feeling as though it is a never-ending abundance. People are genuinely mind-blown that they are constantly broke, unable to pay down debt. They don’t have any money to put aside even though they make a livable salary. It’s often due to too many mindless purchases that quickly add up.
Just because you can afford the $500,000 house doesn’t mean you should buy above $350,000. Simply possessing the money to pay for something shouldn’t be the only consideration when making a purchase. It would help if you also considered other living costs and how much you should put into savings. The bigger the mortgage payment, the more you should have set aside for emergencies.
The Anxiety Caused by Living Paycheck to Paycheck
The same Willis Towers Watson survey revealed that 32% of employees have financial problems that negatively affect their lives (Emerman). Being unable to pay bills is a terrible feeling, especially if it can put you in a situation where you could lose your house. This can cause severe levels of stress and anxiety. Stress can lead to marital problems, poor physical health, and overall unhappiness.
The disconnect that economic stress causes between partners can be earth-shattering and even end in divorce. People tend to turn on their partners and blame them for poor money management when it’s usually a mutual mistake. Rather than working as a team to solve their financial burdens, they often don’t know how to communicate about money. Communication is one of the first steps in straightening out your finances. Not just with your partner, but also with yourself. You will need clarity and mindfulness of goals and habits, taking you to the beginning of the journey to financial freedom.
The first step to escaping this toxic behavior is determining need versus want. Standard basic needs are usually shelter, food, and clothes. Each family can determine what is truly necessary to them. You don’t have to take everything away; you should be able to enjoy having money but in a controlled, thought-out manner. If your child is truly gifted and you want to continue paying for athletics, you can cut spending on other recreational activities like going out to eat. For some, a fancy gym membership or a trip to the nail salon might seem lavish, but if this is your only means of stress-relief, that bill is worth it.
The whole point of a financial strategy and plan is to find room for the purchases that are important to you. Even a factor like transportation might be unnecessary, depending on your situation. If transportation is a necessity, do you need a brand new car, or will a standard, reliable model be a better choice?
How to Live Free from Financial Stress
Once you establish your needs versus your wants and begin to live within your means, you can start to pay down your debt and save for emergencies. The problem with living paycheck to paycheck is the lack of funds for inevitable crises. Car problems, home repairs, and sudden medical issues are a part of life.
The only way to prepare for emergencies is to have a savings account. When you live paycheck to paycheck, these sudden expenses can be devastating if you don’t have money set aside or if all of your credit cards are maxed out. These are inevitable situations, and you should be situated to live a healthy life with peace of mind. I suggest figuring out the total cost of three to six months of your essential needs. Set this money aside in a separate account. This way, if you ever become unemployed or something like a pandemic hits, you will be prepared, and stress won’t consume your life.
Living paycheck to paycheck can be baffling and frustrating. If you are sick of this lifestyle, I offer a Redesigned Intensive Strategy Session to start you on your path to financial freedom. In this two-hour 1:1 session, we will review your current spending habits and address the categories that need attention. As an experienced, certified Financial coach, I can explain how your purchases affect your overall finances. I will help you to understand how to prevent it from repeating itself. We will discuss your financial goals and make a clear plan to get there by using a financial roadmap to set you up for success. Once you are clear on your goals and have a realistic plan set in place, you will be one step closer to financial freedom.
Schedule your free consultation today to redesign your finances. Build confidence around money and improve your family’s future.