If it feels like your hard-earned paycheck vanishes as soon as it hits your bank account, you’re not alone. A LendingClub report from September 2023 reveals that over 60 percent of Americans are living paycheck to paycheck, including a surprising number of those with six-figure incomes. More than half of Americans earning over $100,000 a year find themselves in this precarious financial position.
One culprit behind this financial struggle is known as “lifestyle inflation” or “lifestyle creep.” It’s a phenomenon where individuals tend to spend more as their income increases. Many people set certain benchmarks in their minds, such as reaching a particular job position, earning a promotion, or hitting a certain age, at which point they feel entitled to enjoy a more luxurious lifestyle.
“I think people hold these benchmarks in their mind [of], if I reach this position or I get this promotion or I make it to this age, then I can live this life, or then I deserve to have these things,” Sabrina Romanoff, a clinical psychologist who works with clients struggling with financial stress, told CNBC. “Then they kind of go a little crazy or go a little wild on it, and then it becomes like a trade-off, like they only can enjoy their present happiness and they’re not able to save or plan for the future.”
However, this increased spending often comes at a cost. People become so focused on enjoying the present that they fail to save for the future, leading to a challenging financial situation, Market Watch reported.
“The goal here is to find balance,” Romanoff said. “It’s about enjoying your life, but not being so focused in a future that hasn’t come yet or too much focus on the present. The idea is having your cake and eating it too. You can have bites of your cake right now and then save some cake for later.”
Also, rising living costs have outpaced income growth for many individuals.
Living on the edge of financial stability makes individuals vulnerable to accumulating high-interest credit card debt, as many cannot afford unforeseen expenses. Almost half of Americans, 46%, have admitted to carrying credit card balances due to emergency expenses, according to a CreditCards.com survey from September 2022.
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