Beyond Living Paycheck-to-Paycheck: Why People Struggle to Budget

Although the numbers vary a bit depending on the sources, you’ll likely be surprised when you find out just how many Americans live paycheck to paycheck. According to a recent 2019 Charles Schwab survey, 59 percent of American adults are living paycheck to paycheck while buried under crippling credit card debt. When you’re used to living paycheck to paycheck, you may feel as if your situation is hopeless and you’ll never get out of the trenches. But, with some sound money management and budgeting, you will begin to see a light at the end of the tunnel.

Living paycheck to paycheck leaves workers particularly vulnerable because the likelihood of struggling or being unable to weather emergencies and other unexpected expenses that may arise is much greater. In fact, only 38 percent of Americans have an emergency fund, finds Charles Schwab’s “Modern Wealth Survey.” Equally alarming, according to the American Payroll Association’s 2019 "Getting Paid in America" survey, is that more than 74 percent of working Americans would find themselves in a financial bind were their checks delayed a week.

When you live paycheck to paycheck, stashing away some money for a rainy day seems like a far-off prospect as you struggle to put food on the table, pay bills, keep a roof over your head and make ends meet. While it may not seem as if you have any money leftover at the end of the month to pay all of your bills, let alone save, you will probably be shocked to find out just how much money is slipping through your fingers every month. Being open and honest with yourself about your finances is the only way you will break the cycle of living paycheck to paycheck and get on the path to sound money management.

Charles Schwab’s “Modern Wealth Survey” revealed that the average American worker spends $483 monthly on non-essential purchases. Without a solid budget in place, the majority of Americans are simply unaware how much they’re spending on non-necessities that drain financial resources and make it harder to save. For instance, your $6 daily Starbucks habit will run you about $42 a week which amounts to a grand total of $168 a month.

A budget or financial plan helps you to become more disciplined with your money and you have several options at your disposal to get you started. Although you can certainly purchase software like Quicken, but you don’t need to spend money to formulate a budget. There is free, online budgeting software like Mint, or you may want to make your budget using a spreadsheet. If you aren’t computer-savvy, then just make your budget the old-fashioned way – with a pen and paper.

Add up all the income you receive monthly from all sources along with all of the expenses you must pay in the same time period. Fixed expenses such as rent, cell phone or a car payment typically don’t change from month-to-month, while variable expenses like groceries or gas for your car often change monthly. Lastly, you have your discretionary spending and these are your non-essential expenditures such as dining out or going to the movies. If you add up all of your monthly obligations – and they total more than the income you’re bringing in – then you need to review your budget to look for ways to cut back on your spending.

You may feel you have a handle on how much money is flowing in and out of your account every month. But, unless you take note of each purchase you make, you are probably under the impression you’re spending a lot less than you really are. Having a budget holds you accountable for your spending habits and will likely cause you to think twice before making those non-essential or impulse purchases that are not helping you achieve your financial goals.

According to the “Modern Wealth Survey”, 78 percent of people with financial plans are able to pay bills and save (compared to only 38 percent for those without a plan), 68 percent have an emergency fund and 74 percent have automated a portion of their monthly income to go directly into savings. This plays into the psychology behind money management. When you have clear financial goals, you’re more aware of what needs to be done to reach them.

In order to succeed, you need to develop a mentality where saving money is a priority. Anxiety surrounding budgeting and financial planning often puts many would-be savers off from even beginning to plan for their futures, and this leads to a vicious cycle. If you want to learn how to stop living paycheck to paycheck, then you need not only make a budget, but actually stick to it and make conscious effort to stash spare cash away instead of spending it.