Living Paycheck to Paycheck

Over the past year, I’ve become addicted to reading about personal finance. Especially blogs. I love reading real life stories about how others have succeeded, or how others are making progress on their financial journey. I’m constantly searching for something new, which is weird, because there isn’t really anything “new” in personal finance; good advice stands the test of time, and doesn’t really change. Maybe I’m just looking for new voices to encourage me on my journey.

I’ve taken to reading a lot from Trent @ The Simple Dollar. I like his writing style, and overall feel like I’m getting something out of what I read there. The other day I was reading his answer to a Reader Mailbag question, where someone asked the question:

What does it mean to live “paycheck to paycheck”? You say 72% of America does this but what does it mean and where does that number come from?

Trent answered that he had recently updated that number to 76%, which means that “76% of Americans have less than six months of living expenses in savings. That excludes credit, retirement accounts, and homes.” That information was taken from an article he linked to at CNN Money, that cited a survey saying:

Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.

I was shocked by the 76% statistic, until I read how living paycheck to paycheck was being defined. By that definition, you could have a 3 month emergency fund, and a million dollars in retirement savings, and still be living “paycheck to paycheck”. To me, that isn’t living paycheck to paycheck. But maybe my definition is wrong? I mean, what does it really mean to live paycheck to paycheck? So, I did what any modern American would do: I Googled it. Investopedia defines living paycheck to paycheck as:

An expression used to describe an individual who would be unable to meet financial obligations if unemployed because his or her salary is predominantly devoted to expenses. Persons subsisting paycheck-to-paycheck have limited or no savings, and are at greater financial risk if suddenly unemployed than individuals who have amassed a cushion of savings.

I’ve lived paycheck to paycheck before. To me, living paycheck to paycheck is when you have nothing to fall back on, and need the next paycheck just to get by. Or maybe you aren’t even getting by on what you make. Living paycheck to paycheck means you depend on every check to survive. That you couldn’t afford to skip even one payday. That’s living paycheck to paycheck.

According to the 76% statistic, I’m living paycheck to paycheck. Do I feel that way? Of course not! And it isn’t being in denial. I make enough each pay period to cover my expenses, and put some away for the future. I have enough in an emergency fund that I could cover all of my expenses for about 2 months, without any other funds coming in. If I dipped into my house stash, I’d be just below the 6 month mark. While I wouldn’t want to lose a paycheck, I wouldn’t be in a dire situation if I did.

Emergency funds are also a very personal thing. Look at any blog post about emergency funds and you’re going to find a wide discrepancy on what people consider necessary to keep liquid. Six months? Three months? A year? Some people prefer to have most of their money in investments, and use credit to smooth over life’s little ups and downs. Are those people living paycheck to paycheck?

What does it mean to live paycheck to paycheck? Are you part of the 76%? Do you agree with that definition?

– Cindy W.

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