Half of Americans Are Spending Beyond Their Means

Half of Americans are spending beyond their means. Roughly 50 percent of Americans spend all or more than all of their paycheck, with nothing left over for savings. The figure climbs to 54 percent in the 18- to 25-year-old age group.

One primary reason is the large percentage of income many households spend on housing. Housing costs have risen, while wages have remained the same.

Financial Insecurity for Many

Irregular income was also cited as a contributing factor. Of the people who spent all or more than all of their paychecks, 40 percent had an unsteady monthly income. Freelance or contractor work is a source of irregular income. Not only is the income of this 40 percent unsteady, but it is irregular by a significant amount, with swings of up to 25 percent every month.

All is not completely bleak. Some households have managed to save for an emergency. 20 percent of people aged 18 to 64 have saved $8,000 for a cash cushion. Those in older age groups are even more prepared. Forty-eight percent of those 65 or older had an $8,000 cash cushion.

Still, many do not have a fallback cushion. As a result, debt levels are rising. The New York Federal Reserve projects total consumer debt will reach $12.68 trillion this year. The figure is a return to a previous peak. The total number fell during the Great Recession.

25 percent of Americans feel they have too much debt, with 96 percent feeling the stress of the situation.

These recent figures are consistent with an earlier report indicating that more than 30 percent of Americans don’t have $500 to spend on an emergency should one arise. In other words, a trip to the hospital for the uninsured or those with a high deductible is financially difficult. So is a major car repair.

19 percent of Americans have nothing at all saved for an unexpected emergency.

One Response: Financial Wellness Programs

As a result, some corporations have started adding a new employee benefit recognized as financial wellness programs.

One program, started by SunTrust Bank, encourages employees to focus on financial wellness.

One benefit from the program will specifically help their cash cushion. If employees establish a budget and agree to save $40 per month, the company matches their savings, up to $1,000.

The program also allows employees to take a day off to dedicate to financial wellness. It gives employees time to do financial-related tasks, such as reviewing their health plans or retirement accounts.

Part of the program is teaching employees financial concepts. There are modules on calculating net worth, eliminating debt and improving one’s credit score.

There are also programs on the advantages of buying real estate versus being a renter and on organizing a financial life with software and spreadsheets.

The programs are expected to become more popular. Roughly one-third of employers say they plan to institute a financial wellness program as a benefit.

Part of the reason for the programs is increased employee stress about finances on the job. Roughly one-third of employees say they think about financial stress while working. This kind of stress has major impacts on productivity and well-being.

How to Start Your Own Financial Wellness Program

So what do you do if you are spending beyond your means? Here are three steps to fixing it.

Monitor your expenditures

While structural issues like percentage of income spent on housing can definitely set you back, many people spend beyond their means because they have a blind spot where knowledge of their expenditures should be. They simply don’t pay much attention to what they are spending. 

As an antidote to that, log in every expenditure. Hit a drive-by fast food restaurant for iced tea? Log it in.

At the end of a month, divide your spending into categories. Take a cold, hard look at what you spend.

Create a budget

After you have a record of your spending, create a budget. Include necessary spending, like utilities and housing. But also include categories such as entertainment, vacations and savings. Make sure all categories are accounted for.

Do you just meet or exceed your income? If so, you have to make a plan to get your expenses down.

Reduce Your Expenses

One tried-and-true budget plan is to reduce all non-fixed categories of your budget by 10 percent to start. If you’re spending $200 on eating out in a month, you start by trimming $20. If entertainment is $100, you start by trimming $10. Yes, these are small amounts. By themselves, they may not fully balance your budget. But deeper cuts are not likely to be sustainable.

You also need to examine your fixed costs. If your housing is far too much for your salary, consider how you can cut it. Could you take in a roommate? Offer to be a weekend handyperson in exchange for a rent reduction? Move to a less expensive area? Reduction of high recurring costs in your budget is key to living within your means.

Half of all Americans live paycheck to paycheck. More than 30 percent don’t have $500 saved for a major emergency. As a result, debt levels are rising. Many corporations are instituting financial wellness programs. It’s a good idea to institute a financial wellness program of your own by monitoring your expenses, establishing a budget and reducing expenses.