Shoppers in San Francisco on December 21, 2022.
David Paul Morris | Bloomberg | Getty Images
Months of high inflation weighed heavily on households.
As of December, 64 percent of Americans were living paycheck to paycheck, according to a recent LendingClub report — up from 61 percent a year earlier and in line with the all-time high first reached in March 2020.
For the first time, more than half of all six-figure earners also said they were too thin, up from 42% a year ago.
“The effects of inflation are eating away at every American’s wallet, and as the Federal Reserve’s efforts to curb inflation drive up the cost of debt, we’re seeing a near-record number of Americans living paycheck to paycheck,” said Anuj Nayar, LendingClub’s chief financial health officer.
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For its part, the Federal Reserve is expected to announce its eighth straight rate hike at this week’s policy meeting.
While wage growth is high by historical standards, it has not kept pace with the increased cost of living, which rose 6.5% in December from a year earlier.
That puts many Americans in a tight spot as inflation and higher prices force more people to tap into their cash reserves or rely on credit just as interest rates are rising at their fastest pace in decades.
Other reports also show that financial well-being is generally deteriorating.
How to get your budget back on track
Certified financial planner Ted Jenkin, CEO and founder of oXYGen Financial in Atlanta and a member of CNBC’s Board of Financial Advisors, offers his top tips for spending less and finding a better return on your savings.
1. Cut costs
Jenkin said some simple financial hacks can help, such as going to the grocery store less and cutting back on online shopping.
“Grocery stores are just like Las Vegas; they are there to separate you from your wallet,” he said. Meal planning is one way to edit your shopping list down to weekly essentials and save money.
Deactivating a one-click order or deleting stored credit card information can also help. “Anyone who shops on Amazon and has a credit card stored, you’re effectively putting lighter fluid in your budget,” Jenkin said.
Jenkin recommends waiting 24 hours before making an online purchase and then using a price tracking browser extension like CamelCamelCamel or Keepa to find the best price.
Finally, tap into a savings tool like Cently, which automatically applies a coupon code to your online order, and pay with a cash-back card like the Citi Double Cash Card, which will earn you 2%.
“You really have to discipline yourself or you’re going to outperform your income,” he said.
2. Increase savings
The money you put aside should also work in your favor, he said.
Even though deposit rates are rising, even a high-yield savings account won’t pay enough to keep up with the rising cost of living.
Jenkin recommends buying short-term, relatively risk-free Treasuries and stacking them to make sure you’re earning the best rates, a strategy that includes holding bonds until they expire.
“It’s not a huge return, but you won’t lose your money,” he said.
Another option is to buy federal I-bonds, which are inflation-protected and nearly risk-free assets.
I bonds currently pay 6.89% annual interest on new purchases through April, down from the 9.62% annual rate offered from May to October 2022.
Still, it will work well as an inflation hedge for long-term savers. The downside is that you can’t redeem I bonds in one year, and you’ll pay the last three months of interest if you redeem them before five years.
LendingClub’s paycheck-to-paycheck report is based on a survey of nearly 4,000 U.S. adults in December.
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