How to Escape Living Paycheck-to-Paycheck

Thanks to a recent push in diversity and economic awareness in the west, many of us are a lot more aware of how people at the bottom of the ladder live in the US and other western countries. That push for increased awareness is great, but taking the focus off of how we can control our financial lives to how others control our financial lives has left many people feeling powerless to change their financial conditions. That’s a huge shame, because the fact is that most people have a great deal of power over their financial situation.

It’s true; some people are stuck living paycheck-to-paycheck because they truly are so poor they can’t make ends meet. People close to me only get by thanks to food stamps. But quite frankly, very few people who live paycheck-to-paycheck are truly needy in this way. LendingClub’s annual paycheck-to-paycheck survey findings were shocking.

• “Seventy-two percent of those who make less than $50,000 per year live paycheck-to-paycheck, with 33 percent struggling to pay their bills.”
• “Fifty-three percent of those who make between $50,000 and $100,000 annually live paycheck-to-paycheck, with 18 percent struggling to pay their bills.”
• “Nearly 40 percent of those with annual incomes over $100,000 live paycheck-to-paycheck, including 12 percent struggling to pay their bills.”

To put those statistics in perspective, the USA federal poverty line is $12,000/yr. for a household of one. People at the poverty line definitely need food stamps and sometimes a little financial assistance to get by. I’ve lived on roughly $20,000/yr. every year for my adult life, and I do not ordinarily need financial assistance to pay for bills, food, or surprise expenses.¹

Statistics show that the great leaps in quality-of-life increases come from doubled incomes, and a mere $40,000 a year salary would literally double my income. So I mean it when I say it is unimaginable to me that anyone who makes $50,000 lives paycheck-to-paycheck. If I made that money, I’d be swimming in it, baby!

Even more incredible, it’s not just overburdened parents who are struggling. The majority of those living paycheck-to-paycheck are Millenials, the demographic least likely to have children, especially the older and more expensive kind.

“The perception that only low-income individuals are living paycheck-to-paycheck simply is not the case today,” said Anuj Nayar, Financial Health Officer at LendingClub. “Half of Americans in this country are not building a reserve or saving for retirement. They are on a treadmill daily deciding whether every dollar they make will help them live or weather a financial storm. On top of that, they are financially vulnerable, and, like we’ve seen for so many over the last year, if there is any disruption to their income-level, they won’t have sufficient savings to absorb the hardship.”

Why People Get Stuck Living Paycheck-to-Paycheck

Anyone with a pulse is familiar with the modern capitalist pressure to spend, spend, spend. Billboards compete for your eyeballs as you drive down the highway, ads interrupt your social media scrolling, and commercials interrupt your videos every day. We are exposed to between 500 and 1600 advertisements a day. Yikes. No wonder we spend so much; our environment is brainwashing us into it every moment of every day.

Many people are ready to blame this pressure to consume on capitalism writ large, but I say it’s a problem with modern capitalism because this pressure to spend is new. Capitalism has been around for a few hundred years, but it’s only in the last seventy that consumer spending has taken off.

An illustrative example is the increasing size of new home builds over the last seven decades. In 1950, the average new home was 983 square feet, it had 1.5 bedrooms and 2.35 bathrooms, and 3.37 people lived in it. Every year, home occupancy decreased, and home size increased. In the 2010s, new homes were 2,392 square feet, with 2.59 occupants and stainless steel appliances.

In decades past, bigger families lived in smaller homes, but they didn’t feel cramped because they owned fewer things. In 1930, the average woman owned nine outfits, compared to the 2015 average of 30. Children didn’t have as many toys, either. I could find no statistics on how many toys children owned back then, but today, the average ten-year-old plays with around 12 toys daily but owns 230. I’m willing to bet 1950’s children owned fewer toys than that.

The cultural signals to spend — direct advertisements, sponsorships, and surrounding brand influence — were also not nearly as powerful in prior decades. Psychology hadn’t yet coalesced into a well-studied branch of science, and research psychologists hadn’t yet started researching the psychology of what drives people to buy.

Our parents (and schools and communities) didn’t teach us the dangers of consumerist spending because when the previous generation was young, consumerist spending wasn’t nearly as much of a danger. They didn’t have to learn how to counteract the powerful psychology behind the constant barrage of ads because they were only exposed to a fraction as many ads. Those ads also weren’t so psychologically sophisticated they could be considered brainwashing.

Their Brainwashing Worked. We Now Spend More Than We Save.

The bad news is, the massive marketing and branding campaigns of the last few decades worked. The corporations successfully trained us to spend all our money on their goods and services. The savings rate of Americans (the proportion of income saved) has been creeping down since 1968, from a high of 15% to a low of 5%.²

Spending resources (money) to get goods and services we need is not bad. Neither is buying a big, beautiful house. But large companies have psychology trained us into a binge-eating attitude toward spending money: Are your feelings hurt? Buy yourself something nice! Want something to do with your friends? Head to a restaurant or mall. Want to live a better life? Look for a better (read: more expensive) place to live. Want to feel better about yourself? Get yourself an adult-looking car.

We can talk amongst ourselves about automated savings contributions and dicker about the best stocks. Still, the reality is that no one, rich or poor, can escape living paycheck-to-paycheck until they deprogram their brains of the consumerist drive to spend that’s been implanted in them until birth.

Spending Money is Never Worth It

Spending money certainly doesn’t make us happy. It feels good in the short term to hold and use the fun new thing we bought, but anyone living paycheck-to-paycheck is deeply familiar with the stress of waiting for one’s next paycheck. Anyone honest with themselves will admit that feeling is worse than any Amazon purchase is worth.

Owning nice things is great. But nice things are never worth your financial stability. Financial instability brings constant stress and misery, no matter how many nice things surround you. Living in a modest house with a hefty savings account feels a hell of a lot better.

How to Break the Cycle

The only way to break the cycle of living paycheck-to-paycheck is to deprogram the cultural messaging in your mind that tells you you need all this stuff.

This programming shows up for different people in different ways depending on how they were raised.

• I was raised in a house with many modern electronics and nice electronic accessories, so it shows up for me as a feeling that I don’t merely want that new computer; I need it. For work, of course. (Even though my previous laptop was doing just fine).
• For many women, it shows up as a feeling that she doesn’t just want a new outfit; she needs it for that upcoming interview/event/wedding. She can’t show up in her drab worn clothes, after all. (She can show up in an outfit she’s worn 1000 times before, and no one will notice).
• For gamers, it shows up as a desire to buy whatever game is being discounted that week. He can’t keep having fun with the same old games he’s put 1000 hours into already. (He can, which is how he got to 1000 hours in the first place).

One thing is for sure: this cultural programming always shows up as defensiveness. “Hey, you can’t tell me I should spend less on X! I need X!” Whatever it is, you probably don’t need it the way you think. It’s fine to want, but letting your wants rule you is how you got yourself in the bind of living paycheck-to-paycheck.

How to Figure Out What You Overspend On

To begin the process of confronting your spending, look at a chart of your monthly expenses. No, thinking about it in your head or looking at individual line-item transactions on your bank statement is not enough. That is like trying to decide whether to move into an apartment based on two blurry photos of the bathroom. That doesn’t give you the whole picture; only a full tour of the apartment can give you that.

The full tour of your financial apartment is summary charts. These are charts that tell you how much you spend on various expenses for an entire month. Sign up for Mint by Intuit, and you can get these for free.

Look at each category and ask yourself: “Do I really need this? Is it worth the money I’m not able to save? Is it worth the stress of living paycheck-to-paycheck?”

Common Things People Think They Need

Everyone’s expenses look different, so I can’t say for sure, “You are spending too much money on X!” What I can do is present to you a list of things people commonly overspend on without realizing. Ask yourself if you recognize yourself in these stories.

• Housing. People think they need to live in the safest neighborhood, in the biggest house, in the house with the biggest kitchen, the house with the biggest backyard, the apartment with the best landowners, the apartment with the best neighbors, the building with the gym, so on and so forth. The reality is, you don’t need any of that. You need a reasonably safe location, a kitchen with functioning appliances, and a heater and A/C that work. You can live with linoleum countertops.
• Cars. The purpose of a car is to get you from point A to point B. Everything else is for fun. If your car is consistently doing that, you have a reliable car and don’t need a new one. If your car is not consistently doing that, you need a reliable car. A reliable car is surprisingly affordable. I bought a car in 2018 for $5000 that was in great mechanical shape. It would have run for six years if I hadn’t totaled it. (Still mad at myself for that). It didn’t have leather seats, a touchscreen, or Bluetooth connectivity, but those things are not a need for anyone. If your car is over $20,000 and you’re still making payments, you have more car than you need.
• Food. People tell themselves they don’t have the time to prepare food, and if it weren’t for takeout, they wouldn’t eat, but that’s not true. Plenty of people get up earlier or do the meal-prep necessary to make affordable and delicious meals. You can even host dinners at your home if you want to socialize. Eating out occasionally can make sense, but never at expensive restaurants; an affordable taco place is often just as delicious as a restaurant three times as expensive and still gives you the experience of eating out. You don’t need to eat out all the time, and you definitely don’t need to eat out anywhere more expensive than a taco place.
• Clothing. As long as your clothes are not so old and worn that people look at you and think, “Wow, they look rumpled,” you do not need new clothes. You can own the same winter coat for five years, the same boots for five years, and even the same shirts and jeans for two or three years. If you buy clothes more than once a year, you do not need clothes.

You may have the gut feeling these guidelines are harsh. They do feel harsh compared to the consumerist spend-spend-spend culture that tells you it is perfectly natural to want these kinds of things, and you should just let yourself. Remember, those messages came from corporations that will do anything to convince you to give them your money.

The brilliant part is, once you accept that all these messages to spend your money are for a company’s benefit, not yours, you will automatically spend less money without even trying. Every time you feel an urge to buy something, you will think, “There goes another company, trying to trick me into spending my money,” and the money will remain safely in your pocket.

Get in the habit of doing this, and all the other personal finance advice on the internet will suddenly seem easy. It’s easy to schedule a monthly $100 deposit to your savings when you haven’t spent it at Target. It’s easy to pay off credit card debt when you aren’t watching your debt climb every week.

I cannot count the number of things I haven’t bought in the last few years. I haven’t been slavishly obeying the “rules” of my “budget.” I’ve just realized what’s true: most things are not worth it, do not bring happiness, and are not worth my time. The feeling of not being in debt is worth it.

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1: That’s not to say that life on $20,000 a year is all fine. If it weren’t for my state’s Medicaid program, I would have no health insurance because Obamacare is too expensive for people making a little above the poverty line. Big oversight on the government’s part.

2: After COVID, there was a big spike because many stimulus check recipients put that money in their savings accounts. Whether this will mark a permanent rise in the trend or merely an abnormal spike remains to be seen.