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The expression “living paycheck to paycheck” is thrown around a lot. Most people use it to mean having just enough income to cover the necessities, and research shows it’s an unfortunate reality for millions of Americans. But the definition is far more complicated, according to PYMNTS, a payments industry publication that’s been tracking people who identify themselves as living paycheck to paycheck since 2020. PYMNTS found that a consistent majority of Americans consider themselves needing their next paycheck to meet their monthly obligations. But 25% of them do it predominantly by choice, and another 54% consider it a mix of choice and necessity. Just 21% say they have no other option. And, they’re often high earners. Half of consumers earning $100,000 or more per year reported living paycheck to paycheck as of January, and many said they had no problems paying their bills. Instead, what keeps them feeling stretched — and less able to save — is the cost of their kids, schooling, and discretionary expenses like vacations, social activities, clothes and eating out, they report. Especially those with higher incomes. So what? You don’t have to be struggling financially to be caught in a paycheck-to-paycheck mindset. In addition to income, lifestyle and priorities can drive this cycle, and it’s a natural human tendency to spend what you make. But if you have a choice, know that there are serious tradeoffs to falling into this pattern: On average, people who identify as living paycheck to paycheck have less readily-available savings and are more likely to carry a credit card balance, according to the PYMNTS study. This leaves them especially vulnerable to financial shocks and instability, particularly during economic downturns. A high overhead can make it harder to build a healthy emergency savings and avoid accumulating high-interest credit card debt. But there are some very straightforward steps that can help break the paycheck-to-paycheck habit: Use a debit card instead of a credit card to help keep your spending in check, and split your direct deposit so a portion automatically goes to a savings account.Related Reading
• How Much of Your Paycheck Should You Save? (SoFi)
• Living Paycheck to Paycheck: Definition, Statistics, How to Stop (Investopedia)
• Living Paycheck to Paycheck? Here Are 5 Ways to Break the Cycle (Yahoo Finance)
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