Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Paycheck-to-Paycheck

What it is:

Paycheck-to-paycheck means a lifestyle in which a person does not save money and would incur significant financial stress if he or she does not receive his or her next paycheck.

How it works (Example):

For example, let's say John Doe's paycheck is $1,450 every two weeks, or $2,900 a month. His expenses are the following:

Rent: $1,300
Car payment: $450
Student loan payment: $450
Credit card payment: $300
Groceries: $250
Utilities: $75
Cell phone: $75
Gas: $100
Total expenses: $3,000

In this example, not only is John living above his means (his expenses are higher than his income), he is also living paycheck-to-paycheck. If he gets fired, has an emergency or his company closes in two weeks, he would have little backup.

Why it Matters:

It is not good to live paycheck-to-paycheck. Not only is it financially risky, it creates unnecessary stress. To avoid living paycheck-to-paycheck, John must reduce his expenses so that they are less than his income, and he should make regular, disciplined deposits into a savings and/or investment vehicle.