Paycheck to Paycheck Definition - Investopedia

Those living paycheck to paycheck predominantly devote their salaries to expenses. Living paycheck to paycheck may also mean living with limited or no savings ... TableofContents Expand TableofContents WhatIsPaychecktoPaycheck? UnderstandingPaychecktoPaycheck PaychecktoPaycheckandthePandemic PaychecktoPaycheckTrendEscalates FrequentlyAskedQuestions Budgeting&Savings Budgeting WhatIsPaychecktoPaycheck? Paychecktopaycheckisanexpressiondescribinganindividualwhowouldbeunabletomeetfinancialobligationsifunemployed.Thoselivingpaychecktopaycheckpredominantlydevotetheirsalariestoexpenses.Livingpaychecktopaycheckmayalsomeanlivingwithlimitedornosavingsandrefertopeopleatgreaterfinancialriskifsuddenlyunemployedthanindividualswhohaveamassedacushionofsavings. KeyTakeaways Paychecktopaycheckisaninformalexpressiondescribingone'sinabilitytopayforlivingexpensesduetothelossofincomeorinabilitytobudget.Peoplelivingpaychecktopaycheckaresometimesreferredtoastheworkingpoor.Livingpaychecktopaycheckcanoccuratalldifferentincomelevels.Theworkingpoorareoftenlow-wageearnerswithlimitedskillsbutcanincludethosewithadvanceddegreesandskills.ManyAmericanslivepaychecktopaycheckbecausethecostoflivinghasnotincreasedinproportiontosalaries. UnderstandingPaychecktoPaycheck Personslivingpaychecktopaycheckareoftenreferredtoastheworkingpoor;however,thatmaynotaccuratelydescribethefullscopeofthisphenomenonasitcutsacrossmultipleincomelevels. Theproverbial"workingpoor"havebeendescribedastypicallyhavinglimitedskillsandarepaidlowwages.Despitethisperception,individualslivingpaychecktopaycheckcanhaveadvanceddegreesinhighlytechnicalfields.However,mitigatingfactors,suchasindustrydownturns,andlimitedsuccessinsecuringregularemploymentcommensurate withtheirskills,contributetolivingpaychecktopaycheck.  Individualswholivepaychecktopaycheck aremorelikelytoworkmultiplejobstogenerateenoughincometomeettheirregularlivingexpenses.Individualswithhigh-payingjobswhoarepartoftheupper-middleandmiddleclassmayalsobeinasimilarsituationifoutgoingexpensesequal(orevenexceed)theirincomingsalary. MoreAmericansarelivingpaychecktopaycheckthanbeforethepandemic,andthenumberkeepsrising.InJanuary2022,abouttwo-thirds(64%)ofconsumersreportedlivingpaychecktopaycheck. PaychecktoPaycheckandthePandemic InFebruary2021,41.5%ofthoseunemployedhadbeenwithoutjobsforoverhalfayear,andlong-termunemploymenttotaled4.1millionAmericans,accordingtoaPewResearchCenteranalysisofgovernmentdata.And63%ofAmericansreportedthattheywerelivingpaychecktopaychecksincethepandemic,accordingtoHighlandSolution,aninformationtechnologycompany.Theworstnews?Slightlyhalfofthesurvey'srespondentswerenotlivingpaychecktopaycheckuntilthepandemichit. ThepandemicthrewlightontheeconomicstrugglesandinequitiesintheU.S.thatforcedmillionsofAmericans,includingmiddleandupper-middle-classworkers,tolivepaychecktopaycheckwithoutadequatesavings. However,thestruggleoflivingpaychecktopaycheckwasaproblemformillionsofAmericansevenbeforethepandemic.In2019,59%ofadultsintheU.S.werelivingpaychecktopaycheck,accordingtoCharlesSchwab's 2019ModernWealthIndexSurvey. PaychecktoPaycheckTrendEscalates Duetovariouscontributingfactors,agrowingnumberoffull-timeworkersintheUnitedStateshaveindicatedtheylivepaychecktopaycheck,andthetrendcontinuestoescalate.Onefactorcontributingtothistrendisthatwhilesalarieshavenotincreasedenoughovertheyearstokeepupwiththecostofliving.Infact,datashowthat"real"wageshavebeenalmostflatforover40yearsnow. Furthermore,personaldebtlevelsincurredbystudentloans,risingchildcarecosts,andcreditcardscontinuetoincrease,evenforindividualsearningsalariesover$100,000.Hence,moreAmericansareaddingpart-timeworkand"sidehustles"inadditiontotheirfull-timejobstoincreasetheirincome—orbecomeeffectivelyfull-timeworkersinthegigeconomyiftheyareabletomakemoremoneythatway.Whileindividualsareoftenadvisedtotracktheirexpensestocontroltheirspendingbetterandtosetbudgetlimits,thisaccountsfortherateofinflation asitaffectsthecostofnecessitiesandshelterversustheincomeopportunitiesavailabletoworkers. AccordingtodatafromExperian,inthethirdquarterof2021,U.S.consumerdebtbalancesincreasedby5.4%,to $15.31trillion—a$772billionincreasefrom2020.That’smorethandoublethe2.7%increasefrom2019through2020.Onereasonforincreasingdebtloads:mortgagesandautoloansexperiencedthefastestyear-over-yeargrowthofanydebtcategory.Consumerswhopurchasedhomesandautoshadtotakeoutmuchlargerloanstofinancethem.Thisgrowthofdebt,stagnantwages,thepandemic,andearly2021'sfoodinflation(causedinpartbythepandemic)maymeanhigherbillsfordailyfoodnecessities,likemilkandmeat.Allofthesefactors,unfortunately,contributetomoreAmericanslivingpaychecktopaycheck. Ifyouaretryingtostoplivingpaychecktopaycheck,trytrackingallyourexpenses(largeandsmall)onaspreadsheetorfreeapptofindwaystocutcostsandsavemoney. SpecialConsiderations Personalaccountabilitycanplayaroleinbalancingone'sbudgettoavoidlivingpaychecktopaycheck, anditallowsforthepossibilityofsavings.Regularexpensescanincludeservicesanditemsbasedonone'slifestyle,ratherthanjustfornecessities.Suchlifestyle-drivenexpensesmaybeperceivedasluxuries,whichcallsintoquestionthebudgetingpracticesoftheindividual.Ifpersonalspendinghabitsescalateinadditiontoongoingpriceinflation,thenthepossibilityfortheindividualtobreakthepaycheck-to-paycheckcyclediminishesifnotbecomesunattainable.Evenwithsubstantialincreasesinincome,ifpersonalspendingrises,thepatternmaycontinue. Ofcourse,formillionsofAmericans,avoidinglivingpaychecktopaycheckisnotassimpleasbalancingabudgetorforgoingluxuries.Consumerdebt,lowandstagnantwages,studentloans,anincreaseinthecostoffood,andthehighcostofchildcarearejustsomeofthefactorsthatcontributetolivingwithoutafinancialcushion.TheeconomicimpactofthepandemicincreasedthenumberofAmericansgettingbypaychecktopaycheck.Still,astheeconomyrecoversfromit,theremaybemoreopportunitiesforAmericanstobreakthepaycheck-to-paycheckcycle. HowManyAmericansLivePaychecktoPaycheck? Itmaybeimpossibletoknowtheexactnumber,butthepercentageofconsumerslivingpaychecktopaycheckhasrisensteadilysinceApril2021,hitting64%inJanuary2022.Thatis12percentagepointshigherthanthepreviousApril. HowCanIStopLivingPaychecktoPaycheck? Makingandkeepingabudget,payingdownyourdebt,anduseanywindfallslikeataxrefund,inheritance,orbonusforasavingscushion.Gettingajobwithahighersalaryorworkingextrahoursorasidegigcouldalsohelp. HowMuchofYourPaycheckShouldGotoRent? Theconventionalruleisnomorethan30%ofyourpaycheck,butthatrulemaybeoutdated.Ifyouaretryingtosavemoney,youmaywanttospendlessthan30%orbasethepercentageonyournetincome(take-homepay)ratherthanyourgrossincome.Howmuchrentyoucanalsoaffordoftendependsonwhereyouliveandhowmuchmoneyyouearn. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. LendingClub.“48PercentofAmericanswithAnnualIncomesover$100,000LivePaychecktoPaycheck,9percentagepointshigherthanfirstreportedinJune2021.” PewResearchCenter."Long-TermUnemploymentHasRisenSharplyintheU.S.AmidthePandemic,EspeciallyAmongAsianAmericans." PewResearchCenter.“COVID-19PandemicPinchesFinancesofAmerica’sLower-andMiddle-IncomeFamilies.” HighlandTechnologies."SurveyRevealsSpendingHabitsDuring COVID-19." NPR."Paycheck-To-PaycheckNation:WhyEvenAmericansWithHigherIncomeStruggleWithBills."AccessedMay5,2021. CharlesSchwab.“2019ModernWealthSurvey,”AccessedMay5,2021. PewResearchCenter."ForMostU.S.WorkersRealWagesHaveBarelyBudgedforDecades." NPR."Paycheck-To-PaycheckNation:WhyEvenAmericansWithHigherIncomeStruggleWithBills." Experian.“ConsumerDebtContinuedtoGrowin2021AmidEconomicUncertainty.” NBCNews."GetReadyforaHigherGroceryBillsfortheRestoftheYear." CNBC."AYearAfterthePandemicStruck,theU.S.EconomyisStillStrugglingbutComingAroundQuickly." U.S.HousingandUrbanDevelopment/HudUser/PD&REdge."RentalBurdens:RethinkingAffordabilityMeasures." RelatedTerms WhatIsFinancialLiteracy,andWhyIsItSoImportant? Financialliteracyistheabilitytounderstandandusevariousfinancialskills,includingpersonalfinancialmanagement,budgeting,andinvesting. more MiddleClass:DefinitionandCharacteristics Themiddleclassreferstoindividualswhofallbetweentheworkingclassandtheupperclass.Thoseinthemiddleclassoftenareemployedasprofessionals,managers,andcivilservants. more PersonalFinance Personalfinanceisaboutmanagingyourbudgetandhowbesttoputyourmoneytoworktorealizeyourfinancialindependenceandgoals. more WhatIsaBudget?Plus10BudgetingMythsHoldingYouBack Abudgetisanestimationofrevenueandexpensesoveraspecifiedfutureperiodoftimeandisusuallycompiledandre-evaluatedonaperiodicbasis. more Millennials:Finances,Investing,andRetirement Learnthebasicsofwhatmillennialneedtoknowaboutfinances,investing,andretirement. more LifestyleInflationDefinition Lifestyleinflationreferstoanincreaseinspendingwhenanindividual'sincomegoesup. more PartnerLinks RelatedArticles Budgeting WhatIsDiscretionaryIncome?HowtoCalculate,WithExample Budgeting WhyUpper-MiddleEarnersAreLivingPaycheck-to-Paycheck Government&Policy JoeBiden'sEconomicPlanExplained BehavioralEconomics WhatIsMiddleClassIncome?TheLatestNumbersAvailable TaxLaws What'sWrongWiththeAmericanTaxSystem Budgeting&Savings 5RulestoImproveYourFinancialHealth DialogHeading NoThanks