Disaster warning: Americans have less free income

Disaster warning: Americans have less free income

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Inflation is surging, and as you would expect, this is causing Americans to tighten their budgets. This may or may not be working, as we’re seeing tons of people living paycheck-to-paycheck, even higher earners in many cases.

Household budgets are hurting

According to a LendingClub report, nearly two-thirds of American adults are living paycheck to paycheck. This accounts for approximately 157 million adults. Yes, that’s a lot of people.

Even more surprisingly, 36% of individuals earning more than $250k annually are reporting that they live paycheck-to-paycheck. This may seem completely ridiculous, but remember that many of these people live in super high cost areas such as Silicon Valley, Washington D.C., and New York City. Pair this with the rising interest rates, and you’ve got a recipe for unaffordability.

What this means

I would like to be optimistic and say that there is a chance this is the result of people increasing their retirement contributions, thereby feeling broke and responding that they live paycheck-to-paycheck. But considering only 60 million Americans participated in 401k plans in 2021, I find this unlikely.

With that said, my household definitely lives paycheck-to-paycheck because of savings and investments. I would have responded as such in the survey, so there is the off chance that the numbers are slightly skewed.

What you can do to avoid disaster

There is no doubt that inflation is skyrocketing all around the globe. While this may be alarming, there are some things that you can do to help your own situation.

  • Cut unnecessary expenses. Do you have too many streaming services? Expensive meal delivery services? Eat out too much? Eliminating these things are quick and easy ways to save money.
  • Limit driving. While inflation has impacted nearly everything to some extent, it has sent fuel prices to the moon. Driving is more expensive than ever, and limiting the unnecessary miles could certainly help that budget!
  • Budget. You should already be doing this, but in case you aren’t, give it a shot. You can grab some helpful tricks and tips from one of our previous articles.
  • Change Jobs. This may not be your first choice, but it’s worth noting. According to a survey from The Conference Board, one-third of those who changed jobs make 30% more.
  • Side Hustles. Employers are having a hard time finding reliable labor, so this may be the perfect time to pick up a side hustle.

Outlook for the future

While we’re still awaiting inflation numbers from May of 2022, we can make an educated assumption that they won’t be good.

As you can see on the chart above, courtesy of the New York Times, the U.S. is seeing the highest inflation levels since the 80’s. This isn’t inspiring and certainly won’t help consumer fears subside.

Right now, you the best thing to do is concentrate on getting your own financial house in order. Don’t worry about what everyone else is doing, just keep driving forward and making your own victories.

Author

  • D.C. joined the Marine Corps right out of high school. When he left active duty after 5 years of service, he quickly earned a bachelors degree and an MBA. He got his first private sector job at a modest salary and quickly worked his way up through promotions. Once he started making decent money ($38k at the time), he quickly realized he needed to learn how to save for his future. After nearly ten years of research and application, he wants to share his knowledge and financial best practices so more people can become Wealthy Idiots!