Here’s how living paycheck to paycheck can take a toll on your financial peace of mind.
5 min read
Financial fragility can be a very real challenge, especially when it turns into a seemingly endless cycle of keeping your bank account barely afloat. Living paycheck to paycheck can also take a toll on both your present self and your financial future.Thankfully, an unplanned cost doesn’t have to lead to a serious setback. It’s absolutely possible to turn things around, and once you do, you’ll have more headspace for the things you care about. So, wherever you’re at now, here are a few things to consider to get to more stable financial ground.
Getting back on track
Financial fragility means you can't easily get back on track financially if you have an unexpected expense, like a medical emergency, car repair, or pet bill. As of 2024, nearly 18 million people in Germany are at risk of poverty. 36 percent of working adults in the United States would struggle to cover the cost of a midsize budget shock. And in the U.K., 8.9 million adults rely on overdrafts to cover everyday expenses like groceries. Financial fragility affects certain groups more than others — notably women, minorities, and people with disabilities, lower education, or low incomes. Because of systemic disadvantages and less access to resources, these groups are more at risk of financial setbacks. And when these identity factors overlap, the risk is even higher. For example, there are over 10 million single-parent households in the United States, with more than 80% headed by single mothers. Over the past several years, the average income for single mothers has declined, pushing nearly half of these households below the poverty line.
A challenging cycle
Living close to the edge can trap households in a cycle of instability, where even relatively small income shocks can be a huge setback. Unexpected costs can take away money that could be saved for retirement or other future needs. This makes it almost impossible to build a financial safety net, and the relentless focus on urgent financial issues keeps these households vulnerable.
Budgeting made simple
N26 Spaces sub-accounts make it easy to set money aside for your goals in just a few taps.
Even though average annual wages have increased slightly, they still lag behind soaring inflation rates. For people who earn minimum wage, this makes it even harder to make ends meet. Rising prices have pushed nearly a third of Europeans into precarious financial situations, forcing many to make tough choices — like skipping meals or not buying things they need. Likewise, young adults, especially those aged 27 to 34, are facing a unique set of financial hurdles. Many are trying to save up to buy a home, but interest rates are rising. At the same time, rents have shot up nearly nine percent yearly. Then there are concerns about how to save for retirement, since public pension systems aren’t looking as strong these days. When you add it all up, it’s clearly a tricky equation.
The rise of medical crowdfunding in the U.S.
In the U.S., GoFundMe has evolved from a platform for funding dreams and ideas into a crucial lifeline for people facing medical emergencies without the funds to support themselves. In 2020, around 200,000 campaigns were launched for medical causes — 25 times more than in 2011. Some patient advocates and hospital financial aid officers even recommend crowdfunding as an alternative to debt collection. Medical expenses are now the most common reason for fundraisers on GoFundMe.For Europeans, universal healthcare acts as a buffer against the biggest medical bills. Still, those systems don’t typically cover experimental treatments or alternative therapies, and there's usually a co-pay amount that patients have to pay for themselves. People without any financial wiggle room might find it difficult to cover even a nominal co-pay fee for a treatment or prescription medication.
Attaining financial stability
In contrast, being financially stable means feeling secure and confident with your finances. It’s a good feeling to know that your income covers your expenses, with some extra for savings or unexpected crises. Even if you aren’t rich, you’ll have a lot more focus and energy for other parts of your life when money isn’t a constant worry.Financial stability isn't an unattainable dream, regardless of income level. It might take longer if you don’t make much money, but with focus and determination, it’s possible to get there. Here are some suggestions to help build a more financially stable future:
1. Getting back to basics
Understanding financial concepts can significantly lower your risk of becoming financially fragile. When you have the knowledge to make smarter financial choices, you’ll feel more in control of your financial future.
2. Getting to grips with budgeting
Crafting a budget is like giving yourself a financial roadmap. It helps you stay organized and stable. One popular way to save is the 50/30/20 rule: spend 50% of your income on things you need (like housing and groceries), 30% on things you want (like eating out and entertainment), and 20% on savings and paying off debt. This way, you can manage your money effectively and ensure you’re prepared for present and future expenses.
3. Getting out of debt
Paying down debt is a major milestone on the road to financial security. The less debt you have, the more your money is truly yours, which means less financial stress. Freeing yourself from debt lightens your financial load and opens up more opportunities for saving and investing in your future.
4. Building an emergency fund
Life throws a lot of curveballs, but an emergency fund is your financial safety net. It protects you from unexpected expenses, helps you avoid taking on debt, and gives you peace of mind. This cushion means you’re ready for anything, from a broken-down washing machine to a dental emergency.
Managing your money at N26
With an N26 account, saving for your emergency and rainy day funds couldn’t be easier. Thanks to Spaces, you can create sub-accounts that show you how close you are to achieving your goals no matter how big or small. And with Statistics giving you a better overview of your monthly income and expenditure, budgeting can become even easier, helping you create better financial habits.
