I read an interesting article this morning on CBS MarketWatch about how most Americans are within one paycheck of disaster. The stats were supplied by bankrate.com and while not clear to me were the result of a poll I think... Here is the story http://finance.yahoo.com/news/most-americans-one-paycheck-away-104458295.html 62% of the people asked still state they feel unsure of finances, and things as simple as a doctors visit could make or break a living standard. Of these people polled most seem to also keep to a household budget. I bring this story up because I can't help but wonder how many of these people are truly just living beyond their means. I feel and have felt for a long time that there is a tendency in Americas population today to push for extra's in life that greatly impact the future life one could have. All the newest and greatest things are fine, but not if you are compromising your future. I never felt like I needed apps for everything under the sun or half of the other technology that costs a fortune. It's scary to me that education is plummeting and debt is rising at astronomical rates. Seems like a sure fire recipe for disaster. So- living paycheck to paycheck? Is this just poor budgeting or living beyond ones means?
You can probably blame the consumer credit boom that started back in the 1970's. Once you had plastic in your wallet, you could afford a lifestyle well beyond your income. Hence, the current reality is the offspring of readily available credit and unrestrained spending by the American consumer. We made Japan, Germany and anyone else with a products to sell very rich. The solution is to develop a culture that glorifies saving as much as we do shopping and spending.
I think it depends. When someone claims to be broke but has a new car, fancy clothes and the latest gadgets, then it's a clear case of poor budgeting. Some people really don't have much at all though - maybe because of unemployment, redundancy, sickness or just stuck in a low paid job. The rising cost of basic living does make it harder to make the ends meet, especially when wages are not increasing in proportion to this.
That's an important consideration in this lower gas price and low interest rate environment. Some people are going to get suck into assuming that this is the new normal, when actually this is just a blip (certainly so from an interest rate scenario). When we do see mean reversion on interest rates and a possible rebound in gas prices, a lot of people will feel the pain.
I think the results are quite accurate. In the states a lot of people really do spend everything they have and more. As Sam Clemens put it: with a credit card you can live a much more luxurious life than your income permits... for a short while. People want all these new things and us telling them that you should have an emergency fund of at least 3 months worth of expenses is the last thing they think about.
That is the main issue, when we are spending more than we have we are getting stuck for life with credit issues, so many never recover from that. We should never spend more than we earn.
Too much borrowing, living too high, keeping up with the Joneses, etc. And when there's an economic downturn and jobs are lost, paycuts taken, businesses, closed, etc, forget about it. Another problem with borrowing is that when rates go up, it's generally more expensive to service your debt. Also, retired people living on fixed incomes (bonds, etc) are finding it hard to make much money on their investments due to this long period of near zero interest rates. This is another thing pumping the stock markets up - retired folks and others are putting the bond money into dividend paying stocks. We're already seeing some of those stocks either get hit hard (energy) or have to cut or eliminate the dividend due to them otherwise not making enough money.
Read this as well and it kind of hit close to home about how much of a reality this is for a lot of people. I'm not living pay-check to paycheck, but I imagine most Americans are who don't really need to be. I also wonder if the 62% of people actually do budget their income properly or just say they do. I know it's a small sample size of people, but most people around my age don't budget nearly with same vigour as I do and they're always waiting to get that next paycheck. For most people though, I think living above your means is the biggest deterrent to having a good savings. Avoiding buying the newest gadget or eating out at fast-food all the time really makes a big difference in a monthly budget.
Funny thing is some people think Americans are obsessed with being frugal because they love money. But as the article indicates the writers of those articles have all their facts wrong. I think it's both. Unnecessary expenses like getting the newest tech, spending a lot of money on entertainment and so on is what makes people spend more [money] than they intend to. So even if one was to budget, since they are used to impulse buying, budget constraints won't stop them from spending money they weren't supposed to spend.
I think it really depends on the income bracket. Low wage workers can't make enough to really save well especially if they have a family. And when you make more, you end losing all of your government benefits so there's no easy way out.