Recently, a COUNTRY Financial survey found that 87% of Americans believe that another recession is on the way. However, only 51% of Americans think that they are ready for another recession. And, in addition to that, one in four Americans are living paycheck to paycheck right now.
Are you one of those who are living paycheck to paycheck?
Downsides of Living Paycheck to Paycheck
There are a number of downsides to living paycheck to paycheck. Sure, you might not be going into debt (or adding to debt that you already have), but living paycheck to paycheck can take a toll on your finances — and on your home life:
- Financial insecurity: When you live paycheck to paycheck, you don’t actually have any sort of safety net. The idea of living paycheck to paycheck is not one associated with an allocated spending plan, in which you plan how to spend each of your dollars, including putting money in a retirement account, deciding what to use to pay down debt, and building an emergency fund. When you live paycheck to paycheck, it means that you paycheck is just enough to cover your needs. That means that one setback, such as losing your job, can cause financial havoc. The financial insecurity that comes with living paycheck to paycheck means that you are always on the verge of a financial catastrophe.
- Emotional stress: Naturally, living in such a state can cause emotional stress, and wear you down. You might have difficulties getting along with friends and family. You might end up with anxiety, always worrying that you won’t have enough money to cover an unexpected expense — or that a little extra spending could mean overdrawing your account. This type of stress can be bad for your physical health, as well as for your emotional health and for your relationships.
Stop Living Paycheck to Paycheck
With many Americans fearing that a recession is on the way, it is clear that there might be other problems in the future. Indeed, mass perception has a way of coming true in matters of the economy. A recession could very easily overset your finances, and cause serious problems in your personal economy. It’s not easy to stop living paycheck to paycheck, but getting your finances in order is one of the best ways to prepare for a recession. When you have a safety net, you are able to withstand economic downturns a little better.
One way to stop living paycheck to paycheck is to cultivate income diversity. At first, you may have to look for a part-time job, or try to find a side hustle. The idea is to get another stream of income coming in so that you can start building up an emergency fund. If you have debt, you should also begin paying that down. When you have fewer debt obligations, more of your money is free to be of use to you. Eventually, when you are on more stable financial footing, you can start to develop other sources of income through investing, affiliate marketing, or through a home business.
Eventually, in order to stop living paycheck to paycheck you need to find a larger source of income — or cut back on your spending. Either way, the goal is to find a way to see more disposable income so that you can build a financial safety net.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.