Credit Sesame highlights new survey findings that show a clear gap between how Americans feel about their finances and how many are living beyond their means.
Think you’re doing fine financially? The Fed’s new survey says maybe not
Many Americans believe their finances are in good shape, but new data from the Federal Reserve suggests that confidence may be misplaced.
A closer look at the survey results offers a valuable reality check. It might prompt you to reassess how secure your finances really are and what steps you can take to improve them.
Only 51% of Americans are living within their means
One of the most striking findings from the survey is that only 51 percent of U.S. households reported spending less money than they earned in the past month. Another 30 percent said their spending matched their income. That leaves 19 percent who spent more than they brought in.
As concerning as that sounds, the 51 percent figure is an improvement from the previous year, when just 48 percent of households lived within their means. But even with that modest progress, the bigger picture remains troubling.
Spending exactly what you earn leaves no margin for error. One unexpected expense could push you into debt or force you to dip into savings. And for the 19 percent spending beyond their income, the situation is even more serious. They are either using up savings or relying on debt. Neither approach is sustainable over time.
Income plays a major role. While 66 percent of households earning over $100,000 said they were spending less than they earned, the national average is pulled down by those below that threshold. For households making under $50,000, fewer than 40 percent are living within their means.
How to close the gap
If your budget has no cushion for emergencies or future needs, it may be time for some tough decisions.
- Reevaluate your expenses. Somewhere along the way, spending has outpaced income. It is better to make changes now than to wait until circumstances force your hand.
- Find ways to earn more. Asking for a raise, switching jobs, or picking up extra work can be difficult, but the effort may provide the financial breathing room you need.
Perception versus reality
The Federal Reserve also found a disconnect between how people feel about their finances and what the numbers suggest.
According to the survey, 39 percent of respondents said they were “doing okay” financially. Another 34 percent said they were “living comfortably.”
That adds up to 73 percent who think they are in reasonably good shape. But if only 51 percent spend less than they earn, a significant portion may overestimate their financial health.
Access to credit can create the illusion of stability. As long as bills are being paid, some people assume they are managing, even if they are relying on borrowing. However, continued use of credit to cover basic expenses can lead to rising debt and declining credit scores. A weaker credit profile may limit access to affordable loans, housing, and other financial opportunities. This may help explain why household debt has continued to rise in recent years.
Time for a financial reality check
The risks are clear. Debt must eventually be repaid. As balances grow, interest costs rise, placing an even tighter squeeze on future budgets. To get a clearer picture of where you stand, consider asking yourself:
- When will you be able to stop borrowing?
- How will you repay the debt you already have?
- Can you afford future milestones such as buying a home, covering college costs, or retiring?
Answering these questions honestly may be uncomfortable, but it is a crucial first step toward getting back on track.
How households are falling short
The survey also uncovered other warning signs among U.S. households:
- Retirement savings are falling behind. Only 35 percent of respondents said they were on track with retirement savings. That means nearly two-thirds may be headed toward a reduced lifestyle later in life. Reviewing your retirement plan once a year and increasing contributions when possible can help you stay on track.
- Emergency savings are lacking. Just 55 percent of households said they had enough savings to cover three months of expenses. Among those earning less than $50,000, that number drops below 40 percent. Having emergency savings can protect you from needing to borrow in a crisis and can reduce the long-term financial impact of unexpected setbacks.
- Some homeowners are uninsured. Seven percent of homeowners reported having no homeowner’s insurance. This puts their most valuable asset at risk. If insurance feels unaffordable, it may be worth reassessing your housing situation to ensure it aligns with your financial reality.
Taking the first step toward stability
Stepping away from financial risk often requires difficult choices. But those choices are likely to be far easier than facing a future filled with mounting debt and uncertainty.
If you are struggling to find a way forward, consider reaching out for help. Nonprofit credit counselors, financial advisors, or trusted digital tools can help you assess your options and make a plan.
It is never too early to act, and recognizing the problem is often the most important step toward solving it.
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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice
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