It no longer matters where you look -- the ability to successfully save for retirement eludes even upper middle-income and the highest-wage earners.
A number of studies have come out over the past two years highlighting the fact that even though many American households have a budget few have been able to successfully stick to their budgets and sock away enough in savings to cover financial emergencies. This probably goes without saying, but far too many are also not on track to meet their retirement needs.
A Bankrate survey in January noted that just 38% of surveyed Americans had enough extra money to pay for emergencies that could arise, ranging from medical bills to things as common as car or home repairs. This means more than three in five Americans would be in serious trouble if an emergency were to surface.
Bankrate reported similar findings in 2013, when half of those surveyed noted that they had either no savings at all or less than three months' worth. In 2013 roughly one-quarter of Americans polled had what Bankrate believed was a sufficient amount of cash (six months' or more) saved up to handle unexpected expenses.
I bet you didn't see this coming
But few of these surveys have offered income bracket breakdowns. From perception alone, you would probably assume that this is a low-income and middle-class problem, and that few upper-income earners were struggling to save money for emergencies and their retirement. But how wrong that perception would be!
According to a study released by SunTrust Banks earlier this month, nearly one out of three households earning $75,000 or more per year lives paycheck to paycheck at some point during the year. Slightly more than 25% of households taking home $100,000 per year also claimed to live paycheck to paycheck sometime during the year. In other words, the inability to properly save for retirement and emergencies isn't a low-income or middle-class issue, it's a systemic problem throughout the United States that gives little regard to age, profession, or annual household income.
Additional findings from SunTrust's report indicated that just 53% of higher income earners between the ages of 35 and 44 believe they're saving enough for retirement -- this dropped to only 37% for high-income earners between the ages of 45 and 54 -- while a good portion of respondents owned up to the fact that their poor spending habits are what drive them to live paycheck-to-paycheck. Of respondents who said they weren't saving as much as they could, 44% noted they spent too much money on leisure. For millennials this figure was a staggering 71%, and is especially concerning since time is the greatest ally of any investor.
Further broken down, 68% of higher-income earners said they spent too much going out for food, 37% said they shop too much, and 35% noted they spend far too much on entertainment.
As a side note, it's worth pointing out that this study included only 519 adults, so it may not be wholly representative of the U.S. population, and it didn't factor in aspects of family size, health care needs, or whether student loans were present, which can certainly have an effect on whether $75,000 per household is enough.
How can this be fixed?
Long story short, this is a problem that isn't going to fix itself. Here are a couple of plans of action to consider that could help millions upon millions of Americans break the cycle of living paycheck to paycheck.
Obviously making a budget doesn't seem to be the issue, based on SunTrust's survey. The real issue appears to be in the follow-through. Therefore the first step is to not only set measurable budgetary goals for you and your family, but to actually follow through at the end of the month and see if you're sticking to your budget.
This means potentially micro-managing your money so each major category gets a dollar amount. If you've budgeted $500 for groceries, assume that your checking account has no more than $500 in it and handle your grocery shopping for the month based solely on that $500. The key to success in micro-managing your budget is in disassociating your broad checking account from the smaller denominations you've apportioned for other areas, such as gas, groceries, and entertainment.
Secondly, review your budget from time-to-time, and I don't mean in the sense of "did you reach your goals?" I'm talking about changes, including changes to your income and spending needs. The addition of a new family member, perhaps a new love interest, or an emergency bill popping into the picture can all affect your budget. In other words, if you're working with a budget that's not been changed in three to five years it may no longer be optimal, and you may be able to find ways to save additional money.
Third, as you begin to accumulate savings, consider funneling this extra cash into paying off high interest debts, such as credit card debts and car loans, and begin building your emergency fund. You get no tax benefits by carrying around a balance on a credit card accruing 20%-plus interest each year, so it's in your best benefit to rid yourself of these monthly cash hogs. A mortgage, on the other hand, can come with taxable benefits on the interest paid, so choose what you want to pay down first among your bills wisely.
Finally, budgeting is a team effort. When you're single your only accountability is to yourself, but as a family everyone in the household needs to be accountable -- even your teenagers! Make sure everyone is on the same page when it comes to monthly spending habits and consider having regular family meetings to discuss the progress being made. It probably goes without saying, but getting your children involved in this process is also a great early lesson that could keep them from following the same path of living paycheck to paycheck when they grow up.