I read in a recent survey by Careerbuilder.com that 40% of Americans live paycheck to paycheck.
Thatâ€™s almost one out of every two people. And thatâ€™s a pretty scary thought, considering the whole mortgage crisis going on in the U.S right now.
Granted, each situation is different and there are probably perfectly valid reasons why some Americans have no choice but to live paycheck to paycheck (huge medical bills from a car accident, multiple dependents, outstanding family debt, etc.), but Iâ€™m pretty sure that comprises of only a small percentage of the 40% statistic in that survey.
This article is geared more toward those in the 40% who make enough money so they shouldnâ€™t live paycheck to paycheck but still do.
So whatâ€™s going on? Why are people living paycheck to paycheck when the income they bring in seems to be more than enough?
The most obvious and easiest answer that comes to mind is that these people donâ€™t make enough money.
They usually say if I made X amount of dollars more per month, I would be fine.
But thatâ€™s a dangerous belief to have â€“ to think that more money is the answer.
Donâ€™t get me wrong. Having more money can indeed help with your financial situation.
BUT, if you cannot properly manage and control the money you have now, what makes you think you will properly manage and control any additional amount of money you get in the future?
It wonâ€™t make any difference if you get more money because you will not properly manage and control that money either; the same thing will repeat itself over and over again.
What will most likely happen is that youâ€™ll probably be at the very least, proportionally in the same situation in terms of your income to debt ratio as you were before.
For example, if your income was $40,000/year and your debt was $10,000, you had an income to debt ratio of 4:1. But letâ€™s say you get a significant boost in income â€“ say twice as much so youâ€™re earning so now your income is $80,000 a year. Your debt will probably increase by the same proportion, in this case to $20,000, if not more.
And you know what? The debt will probably do just that. It will increase significantly.
It doesnâ€™t seem like it will but it does in a lot of cases and itâ€™s because people fall victim to Parkinsonâ€™s law.
Parkinsonâ€™s law: As your income rises, so do your expenses.
With your additional income, you feel like you have more buying power so you get a more expensive car, the monthly payments go up, insurance goes up, if you get in an accident with that car, repair costs go up, you eat out at more expensive restaurants, buy more expensive clothes, etc.
At the very least, the majority of people will be the same off proportionally speaking, but chances are that they will likely incur higher debt as they fall victim to Parkinsonâ€™s law.
Again, all this brings us to the first reason that most people live paycheck to paycheck.
People canâ€™t properly manage and control the money they have now.
Ok then. Whatâ€™s the answer to this? How can we properly manage and control the money we have now?
Hereâ€™s where we get a bunch of advice from personal finance experts.
Make a budget.
Track your expenses.
Save first, then pay your bills after instead of the other way around.
Save your loose change and put it in a jar.
Cash out a certain amount of money per month and only use that for food, going out, entertainment, etc.
Thatâ€™s all great advice but we all know that even though people do these things – even though they make budgets, they track their expenses, they save first, they save all their loose change, etc., they still live paycheck to paycheck.
Again, remember, this article pertains to those who make enough so they shouldnâ€™t live paycheck to paycheck but still do.
So whatâ€™s going on here?
To explain this dilemma, letâ€™s take a look at how different times are today than they were before.
Weâ€™re being exposed to more advertising for products and services now more than ever before. We are literally soaked in it. TV, radio, Internet, billboards. Itâ€™s all around us. And advertisers have done a hell of job at convincing people that they need what they want.
If you think about it, we really donâ€™t need much. Itâ€™s peopleâ€™s wants that are taking a big chunk out of their paycheck as people have become a slave to their wants.
Job security is not as strong as it was before. Advancements in technology and outsourcing have replaced many jobs. People change jobs more frequently now but the problem is that when people get a job, they automatically chose to opt for a lifestyle that fits the income they get from that job, and more often than not, itâ€™s a lifestyle that tends to exceed that income.
Then, with job security being so unstable, itâ€™s not uncommon to see gaps of unemployment where no income is coming in for months at a time, but with this lifestyle made tailored to a certain amount of income, and no income coming in, people have to rely on loans and credit cards to maintain that lifestyle and keep afloat.
Then, if they do get back on their feet, theyâ€™re greeted with a pile of new debt that they incurred during their transition, so it becomes that much harder for them to get back on track because they have to dig themselves out of the financial hole that was recently made, contributing to the seemingly never ending paycheck to paycheck cycle.
Credit card offers bombard us in the mail every week teasing us with features such as 0% APR. Couple that with how instantaneous shopping can be thanks to the Internet and the instantaneous gratification mentality that seems to be prevalent nowadays and it proves to be a deadly combination.
Combine all these factors above with consumerism and materialism and you get the poster child for the person who makes enough so they shouldnâ€™t live paycheck to paycheck, but still do:
The fake rich.
What most people donâ€™t realize is that some people who look like theyâ€™re rich, not all, but some (and more than you think), are just faking it.
They live well beyond their means and rely on credit cards to buy the things they need to keep up the image they portray. Why? Itâ€™s probably because we live in a country where we are predominately conditioned to judge others by what they have, not by who they are.
Of course there are people out there who can afford all the nice things and I would say the old 80/20 rule comes into play. 80% can afford that lifestyle and 20% are just faking it.
Itâ€™s funny because the reverse is true too. The people you least suspect, who live very simply, who drive average cars, who arenâ€™t very flashy are way more financially stable than those who are fake rich.
Again, not all people are like this, but more than you think. If you have a chance, pick up a copy of â€śThe Millionaire Next Doorâ€ť and youâ€™ll see many examples of this in that book.
It reminds me of a verse I remember reading in Proverbs.
7 Some who are poor pretend to be rich;
others who are rich pretend to be poor.
With regard to material possessions, what most people fail to realize is that even if you do buy the big mansion, the fancy cars and clothes, it will result in a temporary spike in pleasure. Over time, youâ€™ll always fall back to the baseline of happiness you had before. Youâ€™ll always adapt to whatever environment youâ€™re in after a period of time has passed, regardless of what it is.
The more people realize this, the more that theyâ€™ll begin to put material things in their proper perspective. Donâ€™t get me wrong, thereâ€™s nothing wrong with living in a mansion, driving nice cars, wearing nice clothes. Itâ€™s just dangerous to think that should be the end game.
People who view that as the end game will climb to the top of the proverbial â€śmaterialismâ€ť mountain and realize that thereâ€™s not much on other side. And theyâ€™ll then proceed to look down the mountain and see other people struggling to get to the top and wonder why they even bother.
So for those who make enough money so they shouldnâ€™t live paycheck to paycheck, but still do, more money is not the answer.
You have to properly manage and control the money you have now FIRST before that can help.
But letâ€™s face it. The odds are stacked against most people nowadays. We live in times of:
Loss of job security.
Ease of shopping.
Credit cards galore.
Materialism and consumerism.
And we get people who are fake rich as a result because itâ€™s really easy to pull it off with the availability of credit cards and itâ€™s really easy to fall into the temptation of doing that when we live in a society where people are conditioned to judge others by what they have, not by who they are.
Itâ€™s really easy to point the fingers at all the reasons listed above, but the hardest thing to do is turn that finger around and point it at one’s own self.