For most people, budgeting is about allocating resources to reach financial goals. But for lower-class families, it’s a constant battle to stretch a limited income to cover basic necessities. This article explores 11 unique challenges low-income households face with budgeting.
Living Paycheck to Paycheck
A 2023 survey conducted by Payroll.org highlighted that 78% of Americans live from paycheck to paycheck, a 6% increase from the previous year. People from these low-income households stretch every dollar meticulously to cover basic necessities like food and rent. The constant pressure of survival makes budgeting incredibly difficult. Long-term goals like saving for a child’s education or a car repair become distant dreams, as every penny is dedicated to simply making it to the next paycheck.
Essential Expenses Take Priority
For lower-class families, every dollar must go towards immediate needs like food and rent, leaving little room for saving or long-term goals. Helping loved ones, even in small ways, can strain the budget and force difficult choices between immediate needs and future security. This constant pressure to cover essential expenses and support family makes building a financial safety net even harder.
Irregular Income
Unlike budgeting for a fixed income, budgeting for an irregular income makes it difficult to predict what expenses can be covered and forces tough choices when income falls short. This can lead to falling behind on bills, increased reliance on debt, and difficulty affording necessities. Building a buffer or emergency fund is even more challenging with unpredictable income, making even minor emergencies financially stressful.
Neglecting Variable Expenses
Many people tend to focus on specific fixed expenses like rent and utilities. They neglect variable expenses like groceries, entertainment, and transportation. Variable expenses, unlike fixed costs like rent, can sneak up and disrupt your budgeting plans. By diligently tracking these expenses and utilizing budgeting tools, you can identify areas to cut back without sacrificing necessities, keeping your budget on track.
Poor Financial Literacy
Financial literacy isn’t a luxury – it’s a necessity. However, the percentage of US adults with poor financial literacy increased from 20% in 2017 to 25% in 2023. Without a basic understanding of budgeting, investing, and other economic concepts, many lower-class individuals lack the tools to make informed decisions.
Only 28% of Americans earning less than $25,000 per year are financially literate. This lack of financial knowledge can lead to chronic cash flow problems and make climbing out of debt and budgeting an even greater challenge.
No Emergency Savings
People with lower incomes face a tough challenge when it comes to emergency savings. While unexpected expenses can derail anyone’s budget, limited income and the constant pressure of meeting basic needs make saving for emergencies even tougher for low-income earners. This can trap them into a cycle of debt, as they’re forced to rely on loans or credit cards to cover unexpected costs.
Cycle Of Debt
Debt can be a double-edged sword for lower-class people. While it might offer temporary relief for emergencies or basic needs, high debt levels quickly become a burden. People with higher incomes use debt strategically, but lower-income earners often accumulate it out of necessity. This can trap them in a cycle of high-interest payments on credit cards, medical bills, and loans. These payments significantly limit their ability to save for emergencies or even budget effectively, as a large chunk of their income goes toward staying afloat.
Limited Access To Banking Services
Limited access to traditional banking services creates a significant hurdle for low-income individuals trying to manage their finances. Without affordable checking and savings accounts, they’re forced to rely on alternatives like check-cashing services or payday loans, which often come with high fees and predatory interest rates.
According to Pew Charitable Trusts, around 12 million Americans take out payday loans yearly, spending $9 billion on loan fees. This lack of accessible financial tools makes budgeting much more challenging, as every transaction incurs additional costs, further straining their limited resources.
Lack Of Affordable Healthcare
For low-income individuals, even minor health issues can become major financial setbacks. In 2022, nearly a quarter of those earning less than 100% of the Federal Poverty Level didn’t have health coverage. Without affordable healthcare or adequate insurance, medical bills can quickly drain their limited resources. This forces them to make tough choices, like skipping preventative care or medications, which can worsen health issues in the long run and further strain their finances. The lack of affordable healthcare options creates a constant undercurrent of worry and can quickly derail even the most carefully planned budget.
No Access To Cheap Healthy Food
Living in a “food desert” compounds the budgeting struggles of lower-income individuals. Fresh fruits, green vegetables, and other healthy food options are often more expensive and less accessible in these areas. This creates a difficult choice: rely on processed, unhealthy fast food or stretch the already thin budget to afford a nutritious diet. Unfortunately, both options have negative consequences, impacting health and finances.
No Social Security For All
The absence of social safety nets, like food stamps or housing assistance, creates a constant state of financial precariousness for low-income individuals. Every unexpected expense becomes a potential crisis, as there’s no reliable safety net to fall back on during economic hardships. This forces them to prioritize immediate needs over long-term planning, making saving for emergencies or investing in their future difficult. This constant pressure to stay afloat makes budgeting a particularly challenging task.