A tremendous number of people these days are living paycheck to paycheck. What exactly does that mean? It means they use all of their paycheck for expenses and are unable (or unwilling) to save up for an emergency, a goal, or retirement. That’s a scary place to be because a temporary job loss or emergency expense would throw them into debt or more likely, further into debt than they already are.
According to a survey by Bankrate.com, only 38% of Americans have emergency savings for expenses like an emergency room visit or car repair. So you might assume that those with the lowest earnings would be living on the edge. But nearly a third of households making $75,000 or more sometimes lives paycheck to paycheck, according to a recent survey by SunTrust. Exactly how much money do you need to earn to be able to save some for a rainy day? A lot less than most people think. Certainly, there are situations when people need to live paycheck to paycheck because their expenses have been cut to a true bare minimum and they are unable to increase their income. But I suspect the majority are actually choosing to live without a safety net.
I’d like to tell you about a woman I know, we’ll call her Lindsey. She’s in her early 40’s and married, no children. Lindsey makes a decent living as a hair stylist and is paid as an independent contractor (via 1099). Her husband Greg works part-time in retail and has been unable to find a steady full-time job. For the last several years, they have been living with family members and paying no rent or utilities. You might think that they’ve been saving quite the nest egg, but Lindsey recently told me they’re living paycheck to paycheck and they have no real retirement savings.
Now we live in an expensive part of the country and their income isn’t exactly impressive, but what stunned me is that Lindsey and her husband are choosing to live paycheck to paycheck. Last year they went on vacation and they are already talking about taking another trip. In addition to cable television, internet service, and a mobile phone plan, they pay for Netflix and monthly video game subscriptions. When they shop for groceries, they sometimes get what’s on sale, but they don’t limit themselves from buying expensive ingredients as well. They’re both regular smokers, a habit with both direct and indirect costs. They’ve recently moved into an apartment (one with a basement to fit all their belongings from a storage space) and one of the first things they’re planning to do is to adopt pets. They didn’t file their tax returns on time and now will owe interest and possibly penalties.
Their parents have been helping them out when needed, but there is a limit to what they can do. Lindsey and Greg feel entitled to a certain lifestyle, but without living within their means and saving money, they’re headed toward a lifestyle that’s going to be very uncomfortable.
Somehow they don’t realize it’s a choice they’re making. They blame it on a lack of income, without realizing that they’re in control of their income and more importantly, their expenses. Somehow they’re getting confused between wants and needs. Taking a vacation is a want, not a need. Spending money on video game subscriptions is a want, not a need. Taking on new pets is a want, not a need. Being able to take care of your emergencies and your retirement is a need, not a want. By deciding there’s nothing they can do to change their situation, they absolve themselves of the work and self control it takes, and allow themselves to continue living the life they think they want, filled with stuff instead of security.
If you see some of yourself in this story, then it’s time to wake up and smell reality. Living under your means so you can save for emergencies and retirement is critical to living a financially secure and independent life. Maybe this means making some changes in the way you spend money, eliminating some of the wants so you can keep the needs. Maybe this means increasing your income, whether that’s a new job, a promotion, or simply taking on a side hustle to augment your earnings. Probably it means doing some of each. But burying your head in the sand, living paycheck to paycheck, and keeping up with “the Joneses” is a sure road to ruin. If you can’t think ahead to help future you, at least help yourself for the sake of your family and friends who shouldn’t have to support your lifestyle when a crisis hits.
If you’ve been choosing to live paycheck to paycheck, it’s not too late to turn it around. Start by tracking your expenses so you know where your money goes, and then reduce or eliminate those unnecessary wants. Take the savings and put it away….first in an emergency fund, next to pay down any consumer debt, and finally to start that all-important retirement fund. It may be a slow process, but knowing you can handle what life throws at you is priceless.
Do you know someone who is choosing to live paycheck to paycheck? Or are you making that choice?
Image courtesy of scottchan on freedigitalphotos.net (with changes)