Tuesday, June 21, 2022

Can't Live on a Quarter Million

 It has become standard advice to people looking to increase their savings: “Bank your raise.”  In other words, when you receive a raise at work, don’t just add the extra money to your budget to be spent; instead, have it deposited each pay day directly into a savings account for a potential future emergency or into a 401(k) or Individual Retirement Account for your retirement.

That might be harder to do these days with inflation running amok.  Raises are not keeping up with inflation for most American workers.  Still, if you can trim expenses and even put half of a raise away in savings, it is progress.  And it might help you stay out of the situation faced by 61.3% of consumers: living paycheck to paycheck.

Yes, I was surprised by that large percentage, too.  But the survey cited by Bloomberg indicated that the number is rising and is already 9 percentage points higher than a year ago.  Now this doesn’t mean these individuals/families cannot pay their bills (although about 1 in 9 could not cover a $400 emergency expense by any means, including using a credit card), but it does mean that if even a single paycheck is missed, they could not meet all their expenses on time.

But the most surprising stat from this survey: 36% of households earning at least $250,000 annually (approximately the top 5% of earners nationally) report living paycheck to paycheck.  I’ve never come close to making that much money in a year.  I’ve learned to live on much less.  But I can envision these households ramping up their standard of living with each raise in salary.  I believe most people making that much money think that their income will only continue to grow; that they can afford to keep raising their standard of living and keep up with peers.  But in a teetering economy as we have now and with some large firms starting to lay people off, that is dangerous thinking.  They could have benefited from the “bank the raise” advice as much or more than someone earning $35,000.

But there is one telling caveat to this survey.  Those of the millennial generation (born between 1981 and 2000) who are in the quarter-million-dollar club comprise an outsized percentage of those living paycheck to paycheck (55.4%).  I imagine this is due to their being trapped in a high-priced housing market where even a starter home’s price can break the bank, and being in the middle of rearing children, always an expensive proposition.  Nonetheless, they would be wise to follow some simple steps to cut out some of the extravagances they may have become accustomed to, start tracking their expenses more carefully, and save a bigger portion of their income.

That’s always good advice, for any of us.

Until next time,


“Whoever loves money never has enough; whoever loves wealth is never satisfied with their income.” Ecclesiastes 5:10 NIV*

*Scripture quotations taken from the Holy Bible, New International Version® NIV® Copyright © 1973,   1978, 1984, 2011 by Biblica, Inc.™  Used by permission.  All rights reserved worldwide.