I know it sounds like a dumb-dumb question, but I am really serious here. I don't really know what is meant by the phrase "living paycheck to paycheck." I hear it used all over the place, in huge numbers. More than half of Americans live paycheck to paycheck, so I hear.
So what is the definition? Is it the situation where if you suddenly lost your job and there was no paycheck coming next week, you would be evicted from your house/apartment and you would have to declare bank ruptcy? Is it that you can't pay your bills and do your grocery shopping if that paycheck didn't come in?
Or, is it that you would have to dip into your savings if you suddenly lost your job?
I used to think I knew, but the more I hear stories of people actually LIVING "paycheck to paycheck" the more I realize that either the definition is vague and ambiguous, or I just am not undstanding it.
What brought this on was listening to the story of a woman on a personal finance show tonight who said she was living Paycheck to Paycheck, but also said she had $10k in savings. I have always been under the impression that I am not living paycheck to paycheck because if my paycheck stopped coming for maybe 2 or three pay periods, I would be able to get by. Am I mistaken? I do wait for my paycheck to come in to allocate savings, but generally I don't worry about WHEN to pay my bills because I know I have enough money in my account at any given time.
Thanks for any input!
All your examples are good. I look at it this way. Ask yourself a few questions: If my car's engine blew up tomorrow, would I be able to purchase a reasonable (a few thousand dollars or so) car with cash right away to replace it? If I had an unexpected emergency medical bill of $2,000, would I easily be able to pay it out of my emergency fund? If I lost my job and had no paycheck for 5 months, would my emergency fund cover my expenses for that amount of time? Am I able to adequately save each month for targeted savings items like cars, vacations, furniture, college tuition, etc., or am I just paying my monthly bills and maybe tossing $150 each month into a 401(k)? Am I financing anything besides my primary residence? Does my primary contigency plan involve a little card with the word "VISA" on it or perhaps dipping into my retirment account? Personally, I have broken through the ignorant thought processes that many people live with..for example, I know my car WILL break down, I know I WILL have an "unexpected" medical bill, I know my kids WILL possibly want to go to college, I know I WILL probably have a daughter who will want a nice wedding and I WILL want to help pay for it......so many people just act like money will magically "be there" when they need it, almost like people stumble through life half-asleep when it comes to finances. THE MONEY WON'T BE THERE WHEN YOU NEED IT UNLESS YOU SAVE IT UP!!! If you don't save for your next car, you WILL take out a loan on your next car, if you don't save for your daughter's wedding, you WILL either get a loan that you can't afford or you WILL feel guilty for not being able to help like you wanted to.
To me, living paycheck-to-paycheck, means exactly that. If the paycheck is gone, or if an unexpected bill arises, then a person living paycheck-to-paycheck would be screwed and would have to resort to credit to make it through the month. Since the day I established a 6 month emergency fund, my financial stress levels have become almost nil.
For a prime example of someone who fits the paycheck-to-paycheck, just listen for the guy or girl you work with that acts like their world is coming to an end just because of a $400 car repair. You could probably get a pretty good description of the paycheck-to-paycheck lifestyle from them.
Sorry for the emotion and yelling, it's not directed at you.