Are you living beyond your means?
For most consumers receiving a steady paycheck and not struggling with financial difficulties like unemployment or crippling debt, the answer is likely to be no.
The reality is almost half of America -- 127.5 million people -- are liquid-asset poor and may not even realize it, according to The Huffington Post.
One Paycheck Away from Poverty
Being liquid-asset poor means you're living with a decent income yet with little savings or an emergency fund, so one major financial blow such as a medical emergency or layoff would leave you financially devastated and, in a matter of months, joining the 46 million Americans living at or below the poverty line.
At the same time, the average consumer credit score nationwide hit a low of 659 according to CreditKarma.com, a website that provides free credit scores. Credit scores are considered a barometer of the financial health of consumers, and since 659 is considered poor to fair credit, it indicates that many nationwide are struggling with their debts and credit lines.
Yet surprisingly, at a time when half of us are just one paycheck away from financial devastation, we're also spending more on luxuries.
Living the Near-Rich Life
Everywhere, there are signs of Americans' increasing taste for luxury spending: Luxury malls are thriving while discount retailers like Sears and Kmart close down; more consumers are planning to spend for luxury cars this year; tummy tuck requests have skyrocketed 86 percent since 2000; and average spenders -- those who fall outside the top 10 percent of spenders -- are the ones fueling growth in all fashion categories and premium luxury spending.
"That's not to say that everyone who is liquid-asset poor spends all their time fretting," writes Alexander Eichler of The Huffington Post. "On the contrary, because many have regular paychecks coming in, they may not grasp the precariousness of their situation."
Luxury spending isn't a rampant trend across all of middle-class America, but it is symptomatic of the widening wealth gap. While the top one percent of American households saw their incomes increase 275 percent between 1979 and 2007, reports the Congressional Budget Office, the bottom 20 percent of Americans have seen their incomes grow just 18 percent. In the years after the recession, the wealth gap has widened tremendously. We're living in the era of luxury flash sale websites and Occupy Wall Street.
It's a "schizophrenic economy," as coined by Devin Leonard of Bloomberg Businessweek, a time when "Americans are broke and depressed -- and also swilling $3 lattes and waiting in line for iPhones."
With an uptick in consumer confidence and a stabilizing economy, it's no wonder that consumers are starting to loosen their pursestrings. Many of us have climbed out of bankruptcies and foreclosures, found jobs, and seen our salaries climb again.
But while wealthier Americans are returning to splurging on $80,000 high-tech bikes and $525,000 watches, what will the rest of us return to? The same pre-recession spending and credit-borrowing that burst the housing market bubble and devastatingly disrupted many of our financial lives?
Finding a Balance Without Finding Yourself Broke
With many of us returning to a state of normalcy in our jobs and finances, how have we really adjusted since coming back from the edge?
Let's revisit the tip of the iceberg of a complex social and economical issue: with little savings or an emergency fund, nearly half of us are at risk of falling below the poverty line. If setting up an emergency fund sounds hard, consider this: Let's say you spend about 80 percent of your monthly paycheck on necessary expenses; if you can save 10 percent of your paycheck each month, you'll have a three month emergency fund set up in 24 months. If you can't afford to put away 10 percent, how about $100 a month?
If you can afford your $3 latte or even a $300 discount Kate Spade purse, you can also afford to change your financial habits right now. What you cannot afford is a financial emergency down the line.
Originally published in Forbes.
Justine Rivero is the Credit Advisor for CreditKarma.com, a free credit management website that helps more than 5 million consumers access their truly free credit score.