I’ve written previously about the millions of people living paycheck-to-paycheck. It doesn’t matter how much you earn but rather how much you spend. According to a recent Nielson survey, 25% of American families earning more than $150,000 per year still live paycheck-to-paycheck, so even the wealthy aren’t immune. Apart from poor financial habits, a key reason for this ongoing money stress, for many people, is lifestyle inflation.
It is a gradual, subtle and common problem that’s killing our collective finances. The harmful effects occur over time and in a way that often goes unnoticed.
Like the fable of the boiling frog, who didn’t perceive the danger of the increasingly hot water and was slowly cooked to death, many of us have been unwittingly turning up the financial heat in our own lives by trying to keep up with the Joneses or “upgrading” our lifestyles when we get a payrise.
Most of us have been victims to the silent assassin of lifestyle inflation. Our spending inches up year-on-year, and what was once something you considered a luxury item is now a must have “need”.
Those moments when you convinced yourself that you deserved it because you work hard, or that a “one-off” treat won’t hurt, have added up over time. The aggregate impact of decisions to get a nicer couch, second car or bigger house increase our monthly spend commitments and raise the bar of what we need to earn.
It’s estimated that ~78% of workers are living paycheck-to-paycheck. Scary, but not surprising. People from all walks of life are scraping by and struggling through life – regardless of gender, education or income levels.
49% of all employees say they find it difficult to meet household expense on time each month
Only 31% would be able to meet their basic expenses if they were out of work for an extended period of time
59% consistently carry balances on their credit cards, with 37% finding it difficult to make their minimum payments each month
35% of Millennials and 30% of Gen X employees are using their credit cards to pay for monthly necessities which they could otherwise not afford
Most worryingly of all is that 45% of people surveyed have less than $1,000 saved for unexpected expense. Unfortunately this situation is worse for women, with 51% not having this relatively small amount of money put aside vs. 38% of men.
The situation is dire and getting worse. It’s time to do something about it, because living paycheck-to-paycheck is a disaster not only for your immediate finances but also your general wellbeing, happiness and future living standards.
I’m an aspiring frugal minimalist, working towards Financial Independence. Given that, saving should be second nature and easy for me, right? Well normally we are are pretty good and put money away like clockwork, but this week was a reality check as my monthly budget went up in flames. The budget collapse wasn’t due to any unforeseen disaster, medical emergency, or car problems. I simply overspent and purchased what could be classified as an unnecessary, luxury item.
So what went wrong and how do I avoid overspending in the future?
As a family we LOVE to travel overseas. We get that invigorating feeling of adventure and excitement heading into the unknown. We are also grateful for the opportunity to visit amazing ancient monuments, incredible thriving cities and places of breathtaking natural beauty while experiencing new cultures and languages. Best of all we get concentrated time together as a family in inspiring, interesting and new environments. Exploring the world has resulted in some extraordinary experiences and lasting memories. Needless to say but we have a bad case of wanderlust!
For us, planning and preparation lays the groundwork for a successful holiday. As we’re in the process of working out details of our next trip, I thought it would be useful sharing our top tips for overseas travel preparation.