At the beginning of the New Year, many of us are looking for ways to improve our personal finances. For nearly half of Americans, that means finding a way to stop living from paycheck to paycheck.
Ending that cycle often requires figuring out why you’re living without a financial safety net in the first place. A recent survey by the National Endowment for Financial Education asked over 2,000 Americans why they think people are living paycheck to paycheck. These were the most popular responses:
- Credit card debt (24 percent)
- Employment struggles (22 percent)
- Mortgage or rent (18 percent)
- Healthcare costs (10 percent)
- Taxes (4 percent)
The survey also asked about the major expenses and financial setbacks respondents actually experienced in the last year, which provides another view of the real difficulties people face. The most popular responses were:
- Transportation issues - i.e, car repair (23 percent)
- Housing repairs and maintenance (20 percent)
- Medical care for injury or illness (18 percent)
- Falling behind on bills (16 percent)
- Job loss (11 percent)
A third of Americans surveyed last year by TD Bank said that living paycheck to paycheck was keeping them from reaching their financial goals. “People across all income levels struggle with debt, employment issues, and high housing costs,” says NEFE spokesman Paul Golden.
To free up some money in your monthly budget, Golden recommends tracking your spending over several months to identify areas where you can make changes. Cutting back spending will free up money that you can put toward debt payments or to start an emergency fund. Experts recommend having at least three to six months’ worth of expenses set aside for unexpected expenses.
If that seems like an overwhelming goal, start with a smaller one, NEFE suggests. Even setting aside $500 offers a bit more security and a sense of achievement, which can help reduce stress. Once you’ve set aside $500, aim to double it.