Did you know that 59 percent of Americans are a paycheck away from being homeless, according to a survey by Charles Schwab?
Recently, I interviewed a woman who was once homeless and took advantage of a government program to help her and her daughter get back on their feet.
Her story is the kind that you think always happens to others — but it could happen to any of us.
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In a nutshell, prior to being homeless, she thought she was doing pretty well. She had a job, was going to school, had her own apartment, and had a car. Then, one day her car broke down and she couldn't afford the repairs. Because she was unable to get to work or school without a car (no public transportation), she lost her job.
Since she lost her job, she was unable to pay rent, and eventually, she became homeless, with no family or friends to help.
It only takes one event to cause a domino effect that ends in poverty.
When I asked her if it would have helped to learn about budgeting when things first started going downhill, she simply laughed and said no. She then explained that even when she had a job, she kept a tight budget. But there was not enough money to save for emergencies.
How Many Americans Are One Paycheck Away From Being Homeless? The Stats
More than two-thirds of Americans keep a budget, according to a survey by Debt.com. But only 38 percent have an emergency fund, according to research from Charles Schwab.
This demonstrates one of the many financial pitfalls American workers face: Employees are able to stretch their money to cover monthly expenses, but seemingly unable to put any away in the event of an emergency.
“It’s not surprising that so many Americans are living paycheck to paycheck despite budgeting,” says personal finance coach Debbi King. “Budgeting is a vital tool for building wealth, but if you don’t change how you handle your money, all the budgets in the world won’t help you.”
“In order to find the money in your budget to build an emergency fund, it’s necessary to lower your expenses, stop buying stuff, increase your income if possible, and pay off debt.”
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Most Americans are budgeting to stay afloat, not to get ahead.
Solving the Problem
So how do we solve the problem of, as Dave Ramsey would say, “Too much month at the end of our money?” Ramsey would advise scaling back our expenses even more, and to sell everything.
This advice is a good introductory step in ensuring one doesn’t live paycheck to paycheck—after all, the issue boils down to spending more than one earns. But establishing even, lasting financial footing requires a more hands-on approach—which necessitates building good money habits rather than scrambling to adjust situations as they come up.
“The most common theme that I see repeated in people is that those who get in trouble financially are generally more reactive than proactive,” says financial analyst and tax consultant Manuel Vetti. “Setting a budget is proactive, but I have seen that most people rarely follow their budget closely, and don’t understand their finances well enough when setting the budget, underestimating their expenses or overlooking them.”
In short, being proactive — and honest — about your money goes a long way in building a safety net. But what if you are already at the very bottom of the ladder? Is this where we turn our backs and tell our neighbors that they should have made better decisions early in life?
Are You a Paycheck Away From Being Homeless? Assessing Risk
Ideally, we want to view all situations as ones that could have or … should have, been avoided. The reality is that, for many people, these scenarios were and are unavoidable.
I began to think about my own personal financial situation. I feel solidly that I will never be homeless. How can I say that? How would I even know that?
I’m sure there are numerous homeless women and men that thought the exact same thing. So maybe my saying this is a little presumptuous.
I feel so strongly about it for one reason and one reason only; that reason being family. I have a lot of family — the supportive kind of family. The kind that would welcome me with open arms and the kind I would not even fix my mouth to ask.
My definition of family also includes close friends that I’ve known my entire life. The woman I interviewed had a support system of family or friends to turn to, but after living for a short while with her parents, their relationship became strained, with her eventually moving out.
The definition of being homeless is “without a home.” So as long as I have friends and family that would be willing to put me up, I will never be homeless. This knowledge brings me peace.
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It’s the type of peace that allows me to launch a business without any reserve. The type of peace that allows me to sleep at night when it’s the 15th of the month and I still have not paid the rent for the month.
If I cannot bring any more money than I have into the household, then my only other option is to choose peace.