Among many things, the federal government shutdown shone a spotlight on how many Americans live paycheck to paycheck, and how for many people – regardless of their employer — missing a pay period may lead to dire consequences.
The week of February 25 is America Saves Week. The national initiative is aimed at motivating and encouraging consumers to save money and reduce debt.
What might that mean for your credit?
According to a 2017 survey from the job site CareerBuilder.com, nearly 8 out of 10 workers, or 78 percent, say they live paycheck to paycheck. That means nearly 4 in 5 U.S. workers live paycheck to paycheck – including nearly 10 percent of those making $100,000 or more.
Living paycheck to paycheck may mean you don’t have money set aside for emergencies. Some 4 in 10 adults don’t have enough in savings to cover an unexpected $400 expense, according to the Federal Reserve’s Economic Well-Being of U.S. Households Report, released in May 2018.
Without an emergency fund, unexpected expenses like car repairs or an event like a furlough or job loss can lead you to rely heavily on credit and credit cards. That, in turn, may indirectly impact your credit scores, as it may affect your debt to credit ratio – the amount of credit you’re using compared to the total amount available to you.
If you do have money put away, you may be more prepared for whatever comes – and you may be in a position to rely less on credit and credit cards in these situations. If you’re living paycheck to paycheck, starting conservatively is better than not starting at all.
Here are some suggestions for how to start working on your rainy day and emergency funds:
— Make it automatic. Saying you’ll put away “whatever’s left over” from your paycheck could mean you wind up not putting anything away. Consider taking the amount you want to save out of your paycheck first, before you spend money on anything else. For example, you could set up a transfer on payday for money to go into a savings account from your checking account. You can start small and gradually increase the amount you’re sending to savings.
— Make it inaccessible. Consider making your savings less accessible: Use a savings account at a different financial institution from your checking account, for instance. If you can’t conveniently access it, it may be easier to resist the temptation to dip into your savings for a not-so-emergency reason.
— Look at must-haves vs. want-to-haves. Necessary expenses generally include food, housing, insurance, etc. But what about your gym membership, your cable package or the number of times you go out for a meal? Evaluate whether you can reduce or eliminate those costs. Also, consider whether there may be room to reduce the necessary expenses as well: Could you ride your bike to work more instead of drive, for instance, or could you consider moving to a less expensive home?
— Sock away extra. It’s hard when you want to buy something fun with extra money that may come your way, but commit to putting bonus money of any kind into your savings instead. The long-term reward may be better than the short-term spending spree.
— Find your motivation. If you have a goal in mind – saving for a first home, for example – you may find it easier to put money away.
— Monitor your spending. Designate one credit card or debit card for your purchases, and check the balance at least daily. Keeping close tabs on what you spend may help you realize how quickly small purchases add up.
More information about America Saves Week and suggestions for what you should consider when saving can be found at the America Saves Twitter account, or @AmericaSaves.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.