How to break the cycle of living paycheck to paycheck even as prices are rising

Between gas and groceries, everyone’s wallet is getting stretched these days.

In a survey released in February, Lending Club found that 61% of Americans say they’re now living paycheck to paycheck. That’s a 7% increase from last June.

“Wages are not keeping up with prices,” explained Boston University professor of economics Laurence Kotlikoff. “So, this makes the situation even worse in terms of what people need to be able to pay for the basics.”

Professor Kotlikoff just wrote “Money Magic: An economist’s secrets to more money, less risk, and a better life.”

He’s concerned about the number of Americans standing on the edge of an economic cliff. “The threat is you start charging things with your credit card and then you can’t make the credit card payments.”

Kotlikoff says the first step to getting into financial shape is simple. “Everybody should be doing a budget to figure out how much they should be spending so they don’t run into more debt.”

The goal is to become more thoughtful about all spending, even things that are routine. “Starbucks is too expensive for too many of us,” said Kotlikoff.

Ditto the price of buying lunch every day. Think about brown-bagging it.

“For a family who spends just a few minutes tackling these various moves, I think you can free up a couple of hundred dollars a month,” said financial writer Andrea Woroch.

She says to start by breaking passive habits like leaving appliances plugged in 24-7. “You want to get in the habit of unplugging all your gadgets, even your computer, your laptop . . . that energy consumption can account for almost 10% of your energy bills.”

Woroch suggests bundling homeowner and auto insurance. “Even increasing your deductible can help you save. Last year, I saved $1,100 on my annual premium and that’s big bucks!”

She also says to think about entertainment costs. “I think a lot of people took on new subscription entertainment services during the pandemic to stay entertained, but now that we’re going back out you have to re-evaluate, are you actually using these services?”

Kotlikoff believes workers can flex some muscle in a tight job market. “You need to say, look I can get a better salary over here and my real wages are declining, what are you going to do about it? Do you want me to leave or not? People have to be aggressive.”

Even wealthier households are feeling the pinch of higher prices. According to Lending Club’s survey, 42% of Americans making more than $100,000 a year reported they’re living paycheck to paycheck.