Why We Live Paycheck to Paycheck – Statistics And Solutions

One of the problems many people and families face is making ends meet, relying on their next set of wages, and essentially living payslip to payslip.

First some stats…

A UK survey (by the Independent), stated that 1 in 4 adult have no savings. Per the Evening Standard, 70% of Brits are broke or just getting by.

An analysis, based on an RSA/Populus survey of more than 2,000 workers, found that the vast majority of UK workers don’t have sufficient savings to cope with a financial shock. In fact, the average savings in the UK is around £4k – for people that do actually save.

When it came to savings, 32% of respondents had less than £500 while 41 per cent had under £1,000.

In the US, a September 2018 Fox News survey revealed that 26% of registered voters said they were falling behind (income vs expenses), compared to around half who said they were holding steady and 22% who said they were getting ahead.

In fact, even the fairly moderate to high earners live paycheck to paycheck. One in 10 workers earning $100,000 or more yearly say they live paycheck to paycheck. This graphic by Financial Samurai shows how people making $500k a year can still feel like they’ve saved little in comparison;

So it seems that despite their incomes – many people still feel like they’re trapped in a rat race.

Why?

There are a variety of factors as to why most people are living paycheck to paycheck. Some reasons are external, but a lot of the reasons are to do with mindset and financial discipline.

Little financial education

School teaches us a lot of theory, but there tends to be little, if any emphasis on life lessons and financial education in particular. The basics financial principles are not taught in our schools whether it be primary or higher education institutions. This includes budgeting, seeking value, investments, debt and the financial system. So while people get out of school and earn money, they have little knowledge of how to use it properly.

Living beyond your means

Why do people line up for the latest phone while their current phone is working perfectly? The need for instant gratification can be addictive especially when trying to keep up with the Jones’s. If you continuously buy things you can’t afford, it only leads to seeking more ways to fund the habit, i.e. taking out credit cards and loans (more debt) to keep the habit going.

This kind of borrowing is known as ‘bad debt’, because you’re borrowing to buy things that don’t really appreciate or provide any sort of return (as opposed to taking out a sensible mortgage for a buy-to-let investment property which generates rental and capital appreciation in the long run).

Budgeting and allocation

Many people fail to budget and end up spending more than they earn. You should always have a plan of how you will use your monthly salary. This is helped by knowing what your monthly, regular expenses will be, i.e. mortgage, child-care (nursery, etc), car payment, groceries, phone and amount to be saved. This way you can see what residual amount is left over – for ad-hoc expenditure.

Cost of living?

Let’s assess wage growth compared to the change in the cost of items over time. Could this be an important reason for why many people struggle to meet their expenses? Has wage growth been sufficient to counter the annual inflation? (Using ‘CPIH’ which includes housing costs – which is a more realistic measure considering housing makes up a major chunk of expenses)

You can see that wage growth in the UK largely surpasses inflation (which includes house price growth). Therefore, it’s not entirely conclusive that cost of living has been unmanageable – although certain parts of the UK, i.e. London have had surges in house prices over time which translated to higher mortgage costs for many homeowners.

How to break free

Change your mentality

Do.you really need to buy that thing? There’s absolutely nothing wrong with desiring nice things, but when you’re struggling to save (and maybe knee-deep in debt) you really need consider your spending each time you pull out your card.

You should try and cultivate a feeling of abundance in your life. In other words, that you are grateful for what you have and have everything you need to be happy at this present time.

Start allocating

Take these 3 steps:

1. Make a list of your regular, monthly expenses;
2. Reduce or eliminate any unnecessary expenses, so that your monthly income is greater than your total monthly expenses;
3. Whatever is left, save X% and invest Y%

Save X% of your salary for unexpected expenses or to pay off your debts/loans.

The investment portion should come out of your account automatically and straight away, i.e as soon as your wage goes in. That way its not something you can deliberate about.

The investment itself can be in a dividend reinvestment fund that delivers compounding returns. Consider that a 20yr old who saves and invests £50 per week will accumulate £2,600 per year. If he does this until age 65 and averages a 10% annual return (about the S&P 500 average return over the last 80 years), he will have over £2.1m at age 65!

Look for ways to make more money!

With work and commitments, it may seem unattainable. but if you really want something you make time for it. Ideas for extra income include driing an Uber, freelancing and consulting work, sell your stuff and renting your room out in Air BnB.

Another great option is Affiliate Marketing where you can sell other peoples’ products and services online for a commission. It’s a great form of passive income as you don’t to own a product, seek storage space, undertake fulfillment or hire staff. You just need a laptop and an internet connection!

If you like the idea of affiliate marketing and want to explore how it can provide a great side income, click here to learn more.

Freedom is the goal

Living in a paycheck-to-paycheck cycle is not freedom. It’s enslavement. For alot of people, there’s no money at the end of the month and they wonder why.

It does not have to be that way. You can break the paycheck-to-paycheck cycle and have financial freedom. It won’t happen overnight, but you can do it if you start taking steps today. Click here to learn how I started my journey towards self discovery, earning money online and seeking freedom from the 9-to-5.

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