The percentage of Americans living paycheck to paycheck skyrocketed in 2022
Buyers in San Francisco on December 21, 2022.
David Paul Morris | Bloomberg | Getty Images
Months of high inflation have weighed heavily on budgets.
According to a recent study, as of December, 64% of Americans were living from paycheck to paycheck LendingClub Report – an increase of 61% on the previous year and in line with the historical high first reached in March 2020.
Also, for the first time, more than half of all six-figure earners said they were too thin, a jump from 42% a year ago.
“The effects of inflation are eating away at every American’s wallet, and while the Fed’s efforts to curb inflation are driving up the cost of debt, we are seeing near record numbers of Americans living paycheck to paycheck,” said Anuj Nayar, Financial Health Officer of LendingClub.
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For its part, the Federal Reserve is widely expected to announce its eighth straight rate hike this week political session.
Wage growth, while high by historical standards, has not kept pace with the rise in the cost of living, which rose 6.5% year-on-year in December.
That leaves many Americans in a bind as inflation and higher prices force more people to draw on their cash reserves or lean on credit even as interest rates are rising at the fastest rates they have been in decades.
Other reports also show that overall financial well-being is deteriorating.
How to get your budget back on track
Certified Financial Planner Ted Jenkin, CEO and Founder of oXYGen Financial in Atlanta and a member of CNBC’s Financial Advisor Council offers its best advice on how to spend less and get a better return on your savings.
1. Cut spending
Jenkin said some simple financial tricks, like going to the grocery store less and limiting online shopping, can help.
“Grocery stores are just like Las Vegas; they are there to separate you from your wallet,” he said. Meal planning is a way to narrow down your grocery list to the essentials of the week and save money.
Disabling one-click ordering or deleting saved credit card information can also help. “Anybody who’s shopping on Amazon and has a credit card on file is basically pouring lighter fluid on their budget,” Jenkin said.
Jenkin recommends waiting 24 hours before making an online purchase, and then using a price-tracking browser extension like CamelCamelCamel or Keepa to find the best price.
Finally, tap a savings tool like Cently that will automatically apply a coupon code to your online order and pay with a Cash back card like the Citi Double Cash Card that earns you 2%.
“You really need to be disciplined or you’re going to exceed your income,” he said.
2. Increase savings
The money you put away should also work in your favor, he said.
Although deposit rates are rising, even a high-yielding savings account is not enough to keep up with the rising cost of living.
Jenkin recommends buying it short-term, relatively risk-free government bonds and tiering them to ensure you get the best yields, a strategy of holding bonds to maturity.
“It’s not a huge return, but you won’t lose your money,” he said.
Another option is to buy Federal I-bonds, which are inflation-linked and nearly risk-free assets.
I-Bonds currently pay 6.89% annualized interest on new purchases through April, compared to the 9.62% annualized rate offered from May through October 2022.
Still, this will work well as an inflation hedge for long-term savers. The downside is that if you redeem I-Bonds five years ago, you can’t redeem them for a year, and you’ll pay interest for the last three months.
The LendingClub paycheck-to-paycheck report is based on a December survey of nearly 4,000 American adults.
https://www.cnbc.com/2023/01/31/share-of-americans-living-paycheck-to-paycheck-jumped-in-2022.html The percentage of Americans living paycheck to paycheck skyrocketed in 2022
