Consumer Crimes: How to Stop Living Paycheck to Paycheck

20 and 30-somethings are in serious financial trouble according to the 2014 Wells Fargo Millennial Study. 56 percent of Generation Y consumers are living paycheck to paycheck. The study also revealed that 84 percent cannot afford to plan for the future or save for retirement.

What happened to financial stability in the U.S.? Is the economy to blame, or is it hyperactive consumerism? Whatever the reason, understanding where your money goes is imperative to making positive changes. Review the Millennial Study’s spending breakdown below and absorb our tips for improvement. What you learn will help you gain monetary strength and avoid a risky lifestyle.

Credit card debt (16 percent). Credit card debt is an epidemic in our country. In fact, 28 percent of all U.S. consumers carry more debt than savings. The bad news: Credit cards have the power to overwhelm your budget and damage your credit. The good news: Credit card debt is usually optional. Avoid revolving costs by:

  • Paying your balances in full at the end of the month
  • Building an emergency fund to cover at least three months of expenses
  • Limiting credit card charges to specific items, e.g., Visa pays for food, MasterCard pays for entertainment expenses, etc.

Allow credit to act as a tool, not a vice. Diminish your dependence by sticking to a budget and changing your spendthrift ways.

Mortgage debt (15 percent). For many, buying a home is an important part of the proverbial American Dream, and now seems like the perfect opportunity. Interest rates are low and property is abundant. Think twice before jumping into the real estate pool, however. Self-education is essential. For example:

Schuyler earns $100,000 per year. After learning the basics of personal finance, she decides to buy a home that costs no more than three times her gross annual income. She caps her property value search at $300,000. Schuyler is thrilled when she finds a three-bedroom home in the country priced at $245,000. A rough estimate reveals the potential effect on her budget:

Price ($245,000)-Down-payment ($49,000)=Mortgage Amount ($196,000)

Estimated monthly paymentwith a fixed interest rate of 4.5 percent (excluding homeowner’s insurance and taxes)=$882

Mortgage Payment ($882)/Schuyler’s Net Monthly Income ($6,000)=Percentage of MonthlyBudget (14.7)

Take a lesson from Schuyler and adopt the same strategy during the home-buying process. Determine what you can afford based on income and available interest rates. In Schuyler’s case, it may be necessary to find a cheaper home in that will allow her to safely afford the cost of homeowner’s insurance and property taxes. The bottom line: Don’t allow the real estate market to overwhelm common sense. Empower yourself by calculating the benefits and risks of every property.

Student loan debt (12 percent). Higher education is difficult to achieve without scholarships or family help, but that doesn’t mean you should sign up for years of college debt. There are several ways to reduce your burdens while attending school, including:

  • Living at home minimize expenses
  • Enrolling in a work-study or Resident Adviser program that subsidizes tuition costs
  • Taking core classes at an affordable community college before transferring to a four-year institution
  • Working part-time to cover living expenses, books and food

Learn more about the misconceptions of student debt here. Advancement should never threaten financial security.

Auto debt (9 percent). Like credit card debt, the amount you spend on an auto loan is usually flexible. While you may crave the speed of a sports car, you probably don’t crave the monthly payment.  Cut back on spending by:

  • Selling your current car for the Kelley Blue Book value, allowing you to bring cash to the table
  • Negotiating prices with several dealerships before choosing a winner
  • Establishing a car budget before test-driving expensive models

Don’t let a need for speed cloud your judgment. Keep your finances in working order by making a responsible decision.

Medical debt (5 percent). It’s difficult to avoid this money-sucker when your health is at stake, but there are a few ways to minimize medical debts immediately. Review our guide to prepare for routine and emergency visits. What you learn will help you avoid unnecessary expenses.