July 11, 2008

defining “paycheck-to-paycheck”

Posted in money, saving, spending tagged , at 4:27 pm by weiszguy

There has been much written on the concept of living paycheck-to-paycheck, and the noble cause of trying to escape that rat race.  Here’s a good article, in case you want to read up.

My question is, what does “paycheck-to-paycheck” mean?  Is there anybody who doesn’t live paycheck-to-paycheck?  If a person’s checking account is low on the day before payday, is he living paycheck-to-paycheck?  How large would his checking account balance have to be on the day before payday to NOT be living paycheck-to-paycheck?

I suppose I’m only talking about people who hold down jobs to pay their bills.  Someone who lives on a trust fund or endowment, for example, doesn’t depend on a paycheck to pay their bills.  On the other hand, such a person still cannot spend without regard to their checking account balance.  It’s just that deposits into their checking account come from a different source.  Maybe I’m talking about them, after all.  So does a trust fund baby also live paycheck-to-paycheck?

bucket o' money

bucket o' money

I use a bucket system for managing my money.  Every time I get paid, I put a predetermined amount of money in each bucket.  My buckets are labled, “Auto Insurance”, “Household”, and “Medical”, for example.  After distributing to these buckets, any leftover money goes into a bucket called “Available” to be used for other expenses, like food and gas.  Every time I have to spend some money, I look for an appropriate bucket, and if none can be found, I use the “Available” bucket.

My “Available” bucket is usually pretty empty.  So empty that we often put off buying food until the next payday.  Sometimes we forgo car trips because we only have enough gas for a couple errands.  Occasionally, I even pay the cell phone bill a little late, for lack of funds.  And when the next paycheck arrives, we breath a big sigh of relief, because now we have more money to do things with.

That last paragraph sounds exactly like someone who is living paycheck-to-paycheck, if I understand the term correctly.  At the risk of puffing up with pride (and please don’t take this as pridefull), I can tell you that our checking account has thousands of dollars in it, even at times when we put off purchase decisions due to lack of funds.  Most of that money is sitting safely in other buckets, waiting patiently for the day we’ll need it.  It’s just that there isn’t much in the “Available” bucket.

All in all I think this is a good system – voluntary deprivity, I call it.  (Not to be confused with depravity, which is a very, very different thing.)  I even wrote a newspaper article about it. By creating individual buckets for individual goals, I’m meeting those goals on a limited income, but also tricking myself into not spending much because it always seems like I don’t have much left.

So, what do you think?  Is that paycheck-to-paycheck?  If so, is paycheck-to-paycheck bad?


1 Comment »

  1. Tim said,

    Paycheck-to-paycheck means if you don’t receive your next check, you immediately go delinquent on all your debts and bills, and you start to get very hungry. You’re not paycheck-to-paycheck because you have a little something to fall back on. If you don’t receive a check for one or two pay cycles, it sounds like you would have enough money to make ends meet until you came up with some other way to make money.

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