What It Means to Live Paycheck to Paycheck
Does all your money tend to come in each month only to go right back out? If so, you have a lot of company. According to the New York Times, nearly two-thirds of adults in the U.S. — about 157 million — live paycheck to paycheck. Other studies show a smaller number but still indicate about half of us will have little cash left at the end of the month. But, if living paycheck to paycheck is so common, why does it matter?
Most people would agree that a regular paycheck is generally a good thing. That paystub indicates there is a steady stream of income, and receiving it on a predictable schedule that indicates some financial stability. The issue is how much of that money immediately must go toward paying rent, utilities, car payments and other expenses that are just as demanding as your boss. If any of this describes your situation, it’s worth considering what it means to live paycheck to paycheck, what the potential risks are, and how to start building a layer of security for your future.
Financial Security Depends on Your Ability to Pay for Sudden, Unexpected Expenses
Many people these days work multiple jobs to earn enough dollars just to meet their regular living expenses. If there is a medical emergency or a sudden need for even a small expense like a car repair, not to mention an unexpected loss of income, that person could be in trouble.
The thing about unexpected expenses is that it’s impossible to predict how much they will end up costing you, even if you have (medical, auto, home, and /or renters) insurance to foot part of the bill. Would you be able to pay the cost upfront, possibly in cash, and still make your other bill payments on time? The Federal Reserve’s annual survey asks people how they would pay for an unexpected $400 expense, and a majority of respondents said they would pay in cash.
Being unable to cover a minimal auto repair or medical bill can force people to use credit cards to cover unexpected costs, creating a cycle of building interest and debt that can be hard to end. Credit card debt, home mortgages, and unexpected medical bills are among the top causes of debt in the country. Therefore, accepting you’re living a paycheck-to-paycheck existence can be the first step to becoming more financially stable.
How to Become More Financially Stable
Even some wealthier folks exist paycheck to paycheck because they also spend more money on larger mortgages, college tuition and other expenses. But everyone should consider how they would handle the unexpected, since not everything in life can be controlled. Many people will eventually experience an injury or other incident that leads to a loss of income at some point. And even if you’re lucky, having a little padding in your budget can help you cover the cost of the better things in life, like a wedding, a vacation or a gift for a loved one.
For many people, the solution starts with setting aside money each month. Some experts recommend aiming to save 20% of your after-tax income, but even a few dollars is better than none. Keep a record of how much money you take out of each paycheck so you become aware of what’s in your emergency fund and how much it’s growing. It will be helpful to know whether you have one month’s or three month’s pay set aside, so you can feel more confident about your spending choices and less anxious overall about the unknown.
Let Currency Exchange Help You Manage Your Finances
Financial services provided by Community Currency Exchanges (CCEAs) throughout the Midwest can help you get your finances under control so you can start setting aside more dollars. Many neighborhood CCEAs offer numerous, convenient services to help people stay on top of their expenditures, such as:
- Electronic Bill Pay
- Prepaid Debit Cards
- Check Cashing
- Money Transfers
Want to learn more about how to become financially educated and independent? Check us out online – then stop by your nearest location to find out what else we offer!
With over 350 locations, many open nights, weekends, and holidays (and several stores with 24/7 availability), you can rest easy knowing your financial needs can be taken care of when you need them most. We’re in the heart of every community. Don’t believe us? See for yourself.