When Kassie McVay made the decision to distance herself from her alcoholic mother, that meant moving her and her son to another state. She had no car, no housing and no money — but she knew it was the best decision for her and her child.

For the next seven years, Kassie and her son would bounce around between Arizona, Missouri and Illinois, finding friends or other family members to live with. One year, they lived in a friend’s basement; the next, with her grandfather.

With each move, McVay had to find new employment. Oftentimes, the jobs she found just weren’t enough.

“I would find a job and then spend all the money I made on cabs just to get there,” McVay recalls. “I basically had nothing.”

Survey finds that low-income Americans less likely to set financial goals

A recent Bankrate survey reveals that low-income Americans were least likely of the various income brackets to report their working on their finances this year. In fact, almost one in five respondents (18 percent) who make under $30,000 per year reported having no financial goals in 2019. That compared with 10 percent of respondents who make $75,000 or more having no goals; 7 percent of those make $50,000-$74,999; and 8 percent of those in $30,000 to $49,999 bracket.

McVay was, and still is, one of the almost 80 percent of Americans living paycheck to paycheck. Today, she’s 33 years old and makes $10.25 an hour as a loan officer and underwriter in Roxana, Illinois.

Her situation has recently improved, but McVay recalls a time in her life where she wasn’t focusing on the future; she was just doing everything she could to give her son what he needed, and to keep a roof over their heads.

In the survey, respondents could identify their goals for the year: pay debt debt, save more money for emergencies or retirement, invest more, budget better, get a higher paying job or buy a home. They could also say they had no goals at all.

It can seem almost counterintuitive for people who are struggling to get by to set no goals. But research shows that people who are in tough financial circumstances experience obstacles, including psychological ones, that can make planning for their futures nearly out of reach.

The mindset of scarcity

You can’t build a recommended six-month emergency savings account without setting a savings goal each month. Down payments for homes don’t fall from the sky. A comfortable retirement doesn’t magically appear once you turn 60; all of these financial milestones require planning, goal-setting and execution.

But people who are struggling financially may develop a psychological barrier that keeps them from planning.

The psychology of scarcity, a phenomenon studied by Princeton University psychology professor Eldar Shafir and Harvard University economist Sendhil Mullainathan, highlights the ways financial distress affects the way people think.

In an interview with the American Psychological Association, Shafir explained how being without sufficient financial means mentally affects people.

“When you focus heavily on one thing, there is just less mind to devote to other things,” says Shafir. “We call it tunneling — as you devote more and more to dealing with scarcity you have less and less for other things in your life, some of which are very important for dealing with scarcity.”

In other words, Shafir and Mullainathan found that Americans worrying about paying the rent are less able to focus on anything else.

How scarcity can lead to poor decision-making

In their research, Shafir and Mullainathan found that scarcity can create a cycle of poor decision-making. Those who are unable to see outside of the “tunnel” often knee-jerk react to immediate situations.

For example, they’re susceptible to high-interest payday loans, which in the short-term can ease their at-hand problem (paying a bill) but in the long-term are costly and often fall short of being fully repaid on time (payday loans can charge as much as 400 percent in interest and almost 70 percent of payday loan borrowers take out a second loan).

How to work toward financial health when your income is low

Having a clear understanding what financial health is can help.

Being financially stable stretches beyond having money in the bank; it’s also defined by resilience to “economic shocks,” like income drops or unexpected expenses, according to Urban Institute. Being able to pursue the opportunity to move forward is also a measure of someone being in a good financial place.

McVay is currently looking for another job. She plans on putting a deposit down on an apartment with her tax return, and once she and her son get settled, she plans to go back to school.

“You can make it work,” McVay says. “Sometimes, the situation isn’t ideal. But it’s possible. Eventually it’ll work out.”

There are ways consumers can work toward their future, even when they’re on tight budgets. If you’re living paycheck to paycheck, consider these small steps to financial health:

Automate your savings

Signe-Mary McKernan, a researcher and economist at Urban Institute, says building savings can provide a safety net to low-income individuals.

Through research, McKernan and her colleagues found that a household with as little as $250 in savings can better meet financial emergencies, like missing a bill or being evicted, after a large income drop, job loss or health issue.

And even if individuals are only able to put small amounts into a savings account each money, it’s worth doing so. “Even if it’s just saving 2 percent of income, it can make a difference,” McKernan says.

Break large goals into smaller ones

Even though money is tight for Shanna Battle, she plans to reduce her debt this year.

The 36-year-old content creator and recreation instructor in Richmond, Virginia, makes around $31,000 a year and lives paycheck to paycheck.

Battle has over $40,000 in debt, from student loans, medical bills for her son and a credit card. But this year, in 2019, she wants to pay off $11,000  of the debt — and she has an entire plan to make it happen.

“I think a big misconception about us people living paycheck to paycheck is that we don’t know how to better ourselves or set these goals,” Battle says. “But if you break the big goals down, and find even as much as $20 a month to work toward them, they’re going to happen.”

Aside from cutting back on groceries, Battle plans on jump-starting her debt payoff with her tax return, which she expects to be around $1,500. The other $9,500 will be supplemented with funds earned from freelancing.

Consider safer options for borrowing

A common misconception about payday loans is that low-income individuals reach out for them because they don’t know any better. Research shows that in financial emergencies, however, consumers across many different income ranges would choose a payday loan.

Because of their high interest and fees, payday loans are known to create cycles of struggle with repayment. For those living paycheck to paycheck, the high cost of these loans put them at a heightened risk of inability to repay them fully.

There are alternative forms of borrowing that can be better options than payday loans. For example, installment loans are less expensive with more affordable monthly payments. They come with their own risks, like confusing lending terms and unnecessary add-ons.

For consumers who desire more income, taking on small side jobs can help. A recent Bankrate survey found that nearly 40 percent of Americans have a second job, and they generate an additional $700 a month in income, on average. Great and viable side jobs can include being a customer service representative, dog walker or tutor.

Another resource is the Earned Income Tax Credit (EITC). Under this federal tax credit, qualified low-income individuals will have their overall tax bill lowered, which could set them up for a bigger refund, or even a payment if they owe no taxes.

For more information on how to qualify for the EITC, click here.