The Monthly Cash Crunch
If you feel like your monthly finances are increasingly unpredictable, you aren’t alone, said Nick Timiraos in The Wall Street Journal. A detailed analysis by JPMorgan Chase of 100,000 customers’ account data found that U.S. households across the wealth spectrum “face sharp swings in monthly income and spending.” Two in 5 households have income that fluctuates up or down by 30 percent each month. Spending is “even more volatile,” with 3 in 5 households showing a 30 percent monthly swing. Perhaps more troubling: The ups and downs of income and spending “don’t generally move in the same direction,” which can leave families in trouble if they don’t have a savings buffer. The lower 80 percent of households in the study don’t have enough saved to “handle a shock” to both earnings and expenses in the same month. But the volatility may be here to stay: As more people “piece together income from multiple sources and face unpredictable hours,” financial insecurity has become “a normal part” of many people’s lives.
If you feel like your monthly finances are increasingly unpredictable, you aren’t alone, said Nick Timiraos in The Wall Street Journal. A detailed analysis by JPMorgan Chase of 100,000 customers’ account data found that U.S. households across the wealth spectrum “face sharp swings in monthly income and spending.” Two in 5 households have income that fluctuates up or down by 30 percent each month. Spending is “even more volatile,” with 3 in 5 households showing a 30 percent monthly swing. Perhaps more troubling: The ups and downs of income and spending “don’t generally move in the same direction,” which can leave families in trouble if they don’t have a savings buffer. The lower 80 percent of households in the study don’t have enough saved to “handle a shock” to both earnings and expenses in the same month. But the volatility may be here to stay: As more people “piece together income from multiple sources and face unpredictable hours,” financial insecurity has become “a normal part” of many people’s lives. This study shows that it’s no longer just lower-income families who have to worry about the “threat of random car repairs, reduced work hours, or an emergency hospital visit,” said Victoria Stilwell in Bloomberg.com. It’s middle-class families, too. Households making between $23,301 and $40,500 need about $2,800 on hand to weather an unpredictable month. According to the report, they have only about $1,400. Middle-income earners making from $40,501 to $63,100 need about $4,800. They average just $3,000. “It is hardly news that many Americans lack adequate savings,” said Binyamin Appelbaum in The New York Times. But now we have “a precise accounting of the shortfall.” Indeed, it’s well short of the recommended rainy-day fund that’s supposed to last for three to six months. But some of the financial volatility that wreaks havoc on Americans’ budgets can be planned for. Taxes are in April. Consumer spending peaks during the holidays. Some months include an extra pay period. What this study suggests is that households should be thinking about their monthly cash flow “as varying within a range,” rather than as a set average. If you do know where all your dollars go, “you’re a rare specimen,” said Paula Pant in USNews.com. But don’t think you need an excruciatingly detailed budget to get a handle on your finances. “The purpose of a budget is to make sure we’re adequately saving,” so pull that off the top with each paycheck. Then allocate money for “fixed and essential bills.” If you’re doing that, “you can spend the remainder guilt-free.” This study shows that it’s no longer just lower-income families who have to worry about the “threat of random car repairs, reduced work hours, or an emergency hospital visit,” said Victoria Stilwell in Bloomberg.com. It’s middle-class families, too. Households making between $23,301 and $40,500 need about $2,800 on hand to weather an unpredictable month. According to the report, they have only about $1,400. Middle-income earners making from $40,501 to $63,100 need about $4,800. They average just $3,000.
“It is hardly news that many Americans lack adequate savings,” said Binyamin Appelbaum in The New York Times. But now we have “a precise accounting of the shortfall.” Indeed, it’s well short of the recommended rainy-day fund that’s supposed to last for three to six months. But some of the financial volatility that wreaks havoc on Americans’ budgets can be planned for. Taxes are in April. Consumer spending peaks during the holidays. Some months include an extra pay period. What this study suggests is that households should be thinking about their monthly cash flow “as varying within a range,” rather than as a set average.
If you do know where all your dollars go, “you’re a rare specimen,” said Paula Pant in USNews.com. But don’t think you need an excruciatingly detailed budget to get a handle on your finances. “The purpose of a budget is to make sure we’re adequately saving,” so pull that off the top with each paycheck. Then allocate money for “fixed and essential bills.” If you’re doing that, “you can spend the remainder guilt-free.”
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