How to budget to stop living paycheck to paycheck.
According to a 2021 Jungle Scout study, 56% of Americans are living paycheck to paycheck. That figure is more pronounced for millennials, where 70% are living paycheck to paycheck, the highest amount of any generation. These numbers are the result of a myriad of factors such as economic realities, stagnant wages, and global pandemics.
Such factors can feel daunting and that’s because, in a lot of ways, they are. We are subject to a wide world and often it feels that we are powerless or lack control in our day to day lives. But just because we can’t always affect these macro problems on our own, doesn’t mean we as individuals can’t take back some measure of control.
The Wyshbox Blog
- What is Paycheck-to-Paycheck living?
- Why are so many millennials living Paycheck-to-Paycheck?
- Ways to take back control
What is Paycheck-to-Paycheck living?
For our purposes, Paycheck-to-Paycheck means that, should you become unemployed, you will be unable to meet your financial obligations. It means that you rely on your checks to cover everything from living expenses, to medical bills, to various financial commitments. And while that, on its face, isn’t terrible, we find ourselves in what feels like increasingly turbulent times.
Waiting for a paycheck to drop could mean that you are unable to care for yourself, or for your family if something were to go wrong. It may mean an inability to pay your rent or mortgage. And should a real emergency happen, waiting on a paycheck may seriously affect your ability to live far beyond the scope of the initial emergency. It’s a precarious way for many people to live, as the last couple of years have shown.
Why are so many millennials living Paycheck-to-Paycheck?
It should come as no surprise to you that the last couple of decades have been…interesting, to say the least. From a couple of economic downturns to a whole global pandemic, millennials have been witness to a number of destabilizing events over the past twenty or so years.
It doesn’t help that during these tumultuous times, worker wages have stagnated while the costs of living continue to rise. Just this year a CPI report revealed that consumer prices have gone up 5.4% in just June alone, the largest single month increase since August 2008. But the wages haven’t risen to match these rising costs. When adjusted for inflation, price increases have eaten any gains wages have made over the last couple of years.
This is especially difficult for millennials who may be starting major shifts in their lives, buying houses or starting families, but find themselves in less advanced positions in their careers when compared to older generations. Taken as a whole, millennials often find themselves at a crossroad between their own expectations and the real world experiences around them. Which can be scary to think about.
That being said, we at Wyshbox believe that while we may not be able to affect the world at large by ourselves, enough small scale actions can have a positive effect.
Ways to take back control
Having some measure of control is an important part of the everyday experience. But when it feels like the world is crashing down around you, it can be hard to feel as though you have any control at all. So while we aren’t suggesting that solely enough people budgeting appropriately can solve these macro problems, we do believe that we all possess some control over our lives. It’s just a matter of finding out where that control is.
Here are just a few suggestions to get you started on your way.
How many of us have swiped our cards at the store and stood in anticipation, not knowing how much money is in our bank accounts? Or how many of us have come back from a night on the town and marveled at our ability to spend? If so, a budget may be a helpful tool for you. Now, it won’t solve all your problems. But a large part of feeling as though you don’t have any control is because we tend to not have an understanding of our situations. Budgeting gives you a birds eye view of what’s going on and where corrections can be applied.
So while we all desire (and need) a nice long vacation in a far off country, maybe skip the cruises and fly outs for the time being and start focusing on what’s right in front of us. There are budgeting apps, such as PocketGuard and Honeydue that will give you a snapshot of your financial situation so that you can plan accordingly.
Rules were meant to be broken so this, too, is more of a suggestion. The 50/30/20 rule is a guideline for how to manage your expenses. It says that 50% of your post-tax income should go to “Needs,” things you should probably pay. This includes bills such as rent, medical expenses, insurance, utilities – if you ‘need’ to pay it, it belongs here.
30% of your paycheck can go to “Wants,” which are more so nonessentials or things you can technically live without. Concert tickets, vacations, sporting events are covered here under wants.
And finally 20% of your post-tax paycheck should go to your Savings, or a fund for future financial goals. This can include emergency spending, rainy day funds, or a set aside amount in the unfortunate event of job loss. We can’t always predict the weather, but we can plan for the prettiest picnic.
Trim the fat
Once you’ve got your budget together, and you understand your financial reality, it never hurts to start trimming the fat. Even if it’s purely a ritual, it can be cathartic to slim down on the unnecessary spendings, even for a time.
Maybe for the Christmas season, focus on handmade gifts for your friends and family? Or perhaps your gathering sets a comfortable price cap on the kinds of gifts you can share?
Instead of booking expensive tickets to an exotic location for spring or summer, maybe you could do a staycation in your area to recharge?
We all have things we need as people to get away from daily life. Whether it’s concerts, sporting events, restaurants, we each have our thing. But sometimes those things eat up our money. Trimming the fat isn’t meant to be a permanent fix – think of it as a temporary exercise to recenter yourself and your finances.
If you’re looking for more help, check out 4 tips on surviving a job loss to get ideas on how to recenter your daily fiscal reality.
Budgeting will not solve all the issues people face in today’s world. But having a budget, having a plan, and then following through with that plan, can allow you to reframe your relationship with your own problems. We all have some measure of control in our lives, even if it doesn’t feel like it sometimes. And yet, with the right help, we can make sure our money works for us and our needs, and not the other way around.