A report by Payroll.org revealed that 78% of Americans live from paycheck to paycheck. That’s a 6% increase from the previous year, showing that many more Americans struggle financially and cannot save or invest after paying their monthly expenses.
While certain conspicuous signs indicate that you may be financially in trouble, some are subtle and easy to ignore.
Read on to learn more about signs you’re financially worse off than the average American.
You’re Spending a Lot of Money Paying off Debts
If most of your income goes towards paying off debts, you are financially unstable. Financial experts suggest using 20% of your income towards savings and debt repayment. If you’re spending more than 50% on debt repayment, you must find ways to cut expenses or get a side gig to earn extra income to pay off the debt.
You Have No Savings
You’re financially worse than the average American if you have no savings or save less than 5% of your gross income. A lack of savings exposes you to a financial disaster, as you risk getting into debt in case of a health problem, job loss, or an emergency.
You Constantly Dip Into Your Savings to Pay for Things
If your bills are spiraling out of control and you have to dip into your savings to pay, you may be worse off financially than the average American. You need to reevaluate your daily expenses, cut unnecessary purchases, and focus only on the essentials. That will allow you to have enough to cover your bills and save.
You Have No Retirement Savings
Having little to no retirement savings can spell financial distress, especially with the rising cost of living and longer life expectancy. Federal Reserve research discovered that one in four Americans has retirement savings. If you’ve fallen behind on your retirement savings goal, you need to start contributing to an IRA or 401(k).
You’re Occasionally Living Paycheck to Paycheck
Research by CareerBuilder discovered that 78% of U.S. workers live from paycheck to paycheck. Depending fully on your paycheck means you might not have enough to put into savings. You could also be living beyond your means, and you need to take on credit to cover some of your living expenses.
You Rely on Cash Advances and Payday Loans to Cover Expenses
Constantly relying on cash advances and payday loans to cover your daily expenses is a sign of financial distress. It also shows that you’re living beyond your means and need to work with a budget to cut down on unnecessary expenses. Although cash advances and payday loans are convenient, they often come with exorbitant interest rates and fees, which can leave you trapped in a cycle of debt.
More Than 30% Of Your Income Goes Toward Housing
Are you spending more than 30% of your income on mortgage payments, house insurance, or property taxes? That could leave you struggling to cover other expenses in your home. Furthermore, spending much of your income on housing strains your budget, leaving little room for savings or investments.
You Lack Some Type of Insurance Coverage
Going without significant insurance coverage is a sign that you’re doing worse off than the average American. Paying cash for car repair or medical expenses can be expensive over time and can set you up for disaster in the future as you may be forced to take on credit to cover these expenses.
You Don’t Have an Emergency Fund or Sinking Funds
You may be in financial distress if you have exhausted your emergency fund or don’t have any emergency or sinking funds. Exhausting your emergency fund means you’ll have to look for cash to pay for unexpected emergencies, such as a sudden medical emergency, or unplanned expenses, like a damaged phone or broken car.
You Struggle to Pay Your Bills on Time
Are you constantly struggling to pay your bills despite having a stable income? That is a sign that you are financially unstable. You must evaluate your spending, determine where your money is going, and adjust your budget accordingly.
You’re Highly Dependent on Credit Cards
If you’re constantly reaching out for your credit card to pay for essential purchases or pay off certain bills, you may be doing worse off than the average American. Credit cards make it easy to get sucked into an endless cycle of debt, which interferes with your financial stability as you have to keep paying off the high-interest rate and balance.
You Have No Investments.
If you have no investments, you’re doing financially worse than the average American. Failing to have some form of investment, whether it’s in real estate or stocks, means you’re missing out on opportunities to grow your money and achieve financial security.
A common reason people do not invest is the lack of funds. Interestingly, you can invest as little as $1 in fractional shares. Apps like Acorns and Stash allow you to start investing with at least $3 a month.
Your Credit Score Is Low
Your credit score not only reflects your creditworthiness but also shows your financial health. A low credit score can result from accumulating high debt, making late payments, having a reduced credit limit, or having insufficient credit history.
Unfortunately, a low credit score limits your access to loans. You may also have to deal with high interest rates as lenders consider you high risk.
Work With a Budget
Does any of these signs sound familiar? You may be financially worse off than the average American. Fortunately, it’s never too late to redeem yourself. By recognizing these signs of financial distress, you can work around a budget to evaluate your spending and cut unnecessary expenses.
If you’re stuck in debt and don’t know how to recover, you can work with a financial expert to determine your options.
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