Did you see the news that 1/3 of Americans making $250K are living paycheck-to-paycheck?
Semi fake news alert.
If you read the text, it not what most low income earners would consider “paycheck-to-paycheck”, where you are one paycheck away from sinking underwater. In this case, the 1/3rd are relying on credit to pay for everything each month… and they are carrying balances on those cards. However, many have assets they could sell before going into underwater status.
How is this possible?
Well, if you have been with me for a while you will know that I am a firm advocate for setting yourself up with automatic processes early in your financial journey so you do not have to think about it as your income increases.
My guess is that many of those affected started buying more as they started earning more. That works as long as inflation is very low. But, as soon as inflation starts to increase or you have a significant financial expense (like a new roof or major medical bills), you have nothing available in your savings account to dip into.
Also noted in the article is that many of those affected were Millennials. I can see where earning a high paycheck early in your career would make those status symbols- nice house in the right neighborhood, luxury car, new toys, etc- extremely enticing. If you did not have a long-term plan they could easily get you in trouble before you knew it.
This is exactly why I advocate the Income Allocation method. If you have a plan for every dollar that comes into your life you would have savings, investing, education, play, and giving balances in a good ratio, regardless of your income. You would be ready when the financial storms hit.
The good news is that it is never too late to start. I have written extensively about this method in the past. Please look those posts up or email me to discuss.
The CEO of JP Morgan Chase is predicting a “financial hurricane” in the near future. I have heard the same from other financial giants. Some are predicting a worldwide financial storm.
I do not want to scare you, but when you hear that, what are your initial thoughts? Will you be ready? If not, what do you need to do to be ready?