The Harris Poll surveyed a couple thousand Americans and found that more than half stated they frequently live paycheck to paycheck. Some of those surveyed even made six figures, but still admitted that there was too much month at the end of their money.
Let me preface this post by saying that many people do live in dire straits and are a very small accident or bill away from bankruptcy. This is a serious matter that affects people not only in the U.S. but around the world. Even so, a lot of Americans say they live paycheck to paycheck when that truly isn’t the case. To be living paycheck to paycheck, you must fit into all these four categories. Here’s what living paycheck to paycheck really means.
1. You have absolutely no savings.
We hear a lot of people talk about the importance of savings, a rainy-day fund, an emergency fund, yada, yada, yada. These are all the same thing, and their primary purpose is to provide you with a cushion in case something unexpected happens that you must pay for. Think medical bills, car accidents, or an unexpected and unavoidable bill from the good ole’ IRS.
One of the key characteristics of living paycheck to paycheck is that you don’t have extra cash on hand. This means no investments and no savings account. Now, if you contribute to a retirement account through your job, you could still be living paycheck to paycheck because this money is not easily accessible before retirement, so that is one little exception. You may also have equity in your home or vehicle but, again, this is not money you can just pull out of the ATM during an emergency, so it doesn’t count as savings.
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2. You don’t have discretionary spending money.
Number two is the place where most people get confused when describing the paycheck-to-paycheck lifestyle. Most of us – me included – are guilty of saying something like, “I don’t have the cash for that” or “I can’t afford that.” This isn’t talking about buying a new Tesla or a Gucci bag, but about that $20 sweatshirt you see on sale at the mall. Thinking back to when we said that phrase, though, was it really true? Or did you have the $20 but simply wanted to allocate it to something else, like drinks with friends or that weekend trip you have planned three months out?
Here’s a little test for you. If you’ve bought yourself coffee outside of your house in the last two weeks or made any spontaneous purchase that costs more than $5 – yes, even those two bags of chips you picked up on a whim at the grocery store – then you have discretionary spending money. I’m guilty of this with a recent dinner I had with friends… that should have definitely gone to pay my credit card instead. Oops!
Let me know what your last discretionary purchase was in the comments!
Also, to clarify, if you’re buying things on a whim and putting them on your credit card with no cash to back it up, then you do not have discretionary spending money. Note the difference.
3. Once the bills are paid, you’re out of cash.
Living paycheck to paycheck means that your money goes towards your necessities and not much else. You get paid and have to pay for housing, transportation, food, utilities, and debt, so your money makes like a magician and goes “Poof!” Gone. You then end up with a straight zero or even a negative red balance. Hence the expression, “Too much month at the end of my money.”
Do you find yourself eating ramen Cup-O-Noodles the week before every paycheck? If so, you are likely living paycheck to paycheck.
4. A $100 emergency bill would push you over the edge.
Let’s imagine one of the most common oh-no-are-you-serious scenarios. You’re driving to work or home, and your car makes this unsettling sound, almost like it’s coughing at you. Maybe you’ve been ignoring the shaking for a while or maybe it’s out of the blue, but this is going to cost you – big time. The worst part? You don’t have any way to pay for it unless you put it on your credit card. That emergency bill stands between you and mental peace because you literally cannot.
It’s not about how big the bill is, but how much it impacts you. An emergency bill should be disappointing, but it should not make you want to curl into a ball and cry. If your budget is hanging on by such a thin thread, it’s time to break out of your paycheck-to-paycheck cycle.
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Conclusion:
If you have no savings or discretionary spending money, run out of cash once the necessities are covered, and would be highly impacted by a $100 or higher emergency bill, you may just be stuck in the paycheck-to-paycheck hamster wheel. The good news is that there are always ways to get out of it, even if they’re tough. Trust me, I’ve been there myself. Start with your budget and add on additional shifts or a side gig until you can build yourself a little safety net, and then you’ll be guaranteed to breathe easier next time your bill is higher than anticipated. I wish that for all of us! Best of luck guys and, as always, thanks for watching.