Do You Live Paycheck to Paycheck? Here’s 10 Reasons You’re Actually Spending More
Books like “Nickel and Dimed: On (Not) Getting By in America and The Cost of Being Poor showcase why those living at the poverty level often pay more than others, in both real costs and intangible ways, such as their health.
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But even if you don’t fall below the government-determined poverty lines, you could feel some of the same consequences. It costs more to live if you don’t have emergency savings or disposable/discretionary income. Even if you manage to pay all your bills from paycheck to paycheck, one unexpected expense can derail your bank account.
More than 60% of U.S. consumers reported living paycheck-to-paycheck in June 2023, according to a LendingClub survey. Surprisingly, 45% of higher-income consumers (those making more than $100,000 annually, according to LendingClub) reported living paycheck-to-paycheck.
The problem is even worse for middle-income Americans, or those earning $50,000 to $100,000. According to LendingClub, 65% of middle-income Americans live paycheck-to-paycheck, up 5% since June 2022.
Living paycheck-to-paycheck doesn’t just add stress to your life if you worry about unexpected expenses cropping up. It can cost more every day.
Here are ten ways it costs more to live paycheck-to-paycheck, regardless of your income level:
1. The Need To Buy Cheaper Items That May Not Last
A CNBC article outlined five things that millionaires never waste money on. “Cheaply made products” reached number two on the list.
Although the cost of heirloom quality furniture or timeless wardrobe pieces can be two or three times more than lower quality items, they will last longer, saving you money in the long run.
2. Paying for Major Home or Auto Repairs
Likewise, wealthier people with emergency savings or money left at the end of the month don’t have to waste money repairing home appliances or older cars that may have little life left in them.
It may cost less, upfront, to fix a vehicle or a dishwasher than to replace it, but if it continues to break down, loses efficiency, or ultimately reaches a stage where it’s beyond repair, you haven’t saved money pouring money into repairs.
That’s not to say you should replace a year-old car or a newer appliance if it has problems. But it may save you money in the long run to replace old appliances and vehicles rather than to continue putting money into repairs.
3. Putting Off Healthcare Expenses That Cost More Money in the Long Run
In the same way, people might put off replacing older items due to a lack of cash. People may put off medical treatments or preventative healthcare. One solution is to budget for doctor visit co-pays. That way, a need for medical treatment won’t catch you off guard or put you into debt.
Remember that the costs of an untreated illness will be much greater than co-pays or missing a day of work for a doctor’s appointment.
4. Lower Quality Foods Cost More in the Long-Term
Are you curious about the #1 thing millionaires don’t waste money on? According to the CNBC study, it is “processed or packaged food.” These meals, loaded with sugar, unhealthy oils and trans-fat, will not do you any financial favors if you start facing higher medical bills due to a poor diet.
Processed foods may help you stretch your grocery budget. But you can also find bargains on fresh produce by shopping at local farmer markets or joining a food co-op for fresh, tasty foods that may help you stay healthier.
5. Can’t Afford To Buy Food in Bulk
On the subject of food, many people love a good Costco deal. But if you are living paycheck-to-paycheck, you may need more money to afford to buy in bulk.
It might fit your budget to purchase 12 Market Pantry coffee pods at Target for $4.49 vs. 120 Kirkland Signature pods for $31.99. That’s a savings of 10 cents per pod when you shop at Costco, not counting the time and gas money it costs to re-stock your supply more frequently. That doesn’t sound like a lot. But the savings stack up in multiple categories, including pricier foods like meat and dairy.
6. Can’t Take Advantage of Sales When They Arise
Have you ever walked into a grocery store or Target to find a really good deal and realize you can’t afford the extra money to stock up this week? That’s another pain of living paycheck-to-paycheck. It affects everything from airline tickets and vacations if you save money for your once-a-year trip to groceries and clothing.
A line item for discretionary purchases in your budget – if you can afford it after meeting all your fixed expenses – can help you save money by taking advantage of sales when you see them.
7. Higher Interest Rates
It might be tempting to put that amazing appliance you found on Amazon Day for 50% off on your credit card. But with the average credit card interest rate at 20.68% for existing accounts and 22.60% for new offers, according to WalletHub, there may be better financial choices.
Using your credit cards for emergency – or not-so-emergency – spending may only be a worthwhile choice if you have a 0% interest card or expect to have the money to pay off your bill at the end of the month.
8. May Not Qualify for Rewards Credit Cards
Along with higher interest rates, credit products tailored for those with a less-than-stellar credit score often need more rewards. According to CNBC, U.S. banks and credit card companies paid out $35 billion in rewards to credit card users.
If you don’t qualify for one of those cards but carry a balance on the cards you have, you are missing out and are helping to fund rewards programs, according to CNBC.
Credit card companies earn money off fees, interest and swipe fees, which are paid for by business owners but sometimes passed on to consumers.
If you are paying interest on your cards, you are contributing to $89.7 billion in revenue for credit card companies, which they pay back (in part) to reward cardholders.
9. Harder to Obtain Credit or a Loan
If you’re living paycheck to paycheck and an emergency arises, you might be tempted to take out a payday or high-interest personal loan if you don’t have good credit.
Then, you’ll find your budget stretched even tighter as you work to make the payments while meeting your other fixed expenses each month. That’s another one of the drawbacks of living paycheck to paycheck.
10. Late Fees and Overdraft Charges
If you’re not extremely careful with your spending, you may not need more money at some point to pay a bill. Or you might pay that bill only to put your checking account into overdraft. You’ll face fees of $29 or more, which can get costly if it happens every month.
How To Break the Paycheck-to-Paycheck Cycle
If you’re in this situation right now, you don’t need to be reminded of how frustrating it can be. But you may not realize how many ways living paycheck-to-paycheck derails your financial dreams. Fortunately, there are ways out.
If you are scraping by, an additional income of even a few hundred dollars can help you build emergency savings and dig out of a financial rut.
Consider taking on a side gig you can do from home or after your regular job. Look around your home and consider items you can sell at a garage sale or on the Facebook marketplace. Take that money and put it in a high-yield online savings account.
Evaluate your budget to see where you can free up money to use an emergency savings account. You can cancel subscriptions you don’t use anymore or negotiate for lower rates on your cell phone or utility bills.
Once you free up or earn extra money, build an emergency buffer for financial security. Even setting aside 5% to 10% can add up quickly at interest rates of 4% in online savings accounts.
Eventually, you will see a sale on New York strip steaks at Costco and can whip out your debit card and Executive Membership for 2% cash back, without worrying if you’ll overdraft your bank account.
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This article originally appeared on GOBankingRates.com: Do You Live Paycheck to Paycheck? Here’s 10 Reasons You’re Actually Spending More
