Living paycheck to paycheck refers to a situation where you must have that next paycheck in order to pay your bills. As long as all of your income arrives in your bank account every month, you can make ends meet. But there is no extra leftover if there is ever a break or a gap in that income.
In America, this is how most people live. Some studies have put this number as high as 63%. There are those who would say that the reason for this is that people certainly aren’t earning enough money, and that can be true for many individuals. But it’s worth noting that about half of people who earn six figures every year are also living paycheck to paycheck, so it’s not just about earning levels or tax brackets.
One expense away from catastrophe
The problem with living this way is not that it doesn’t always work. It certainly can, and it works for years for many people. They get comfortable with it and they believe that this is a good financial decision.
However, these individuals are often just one major expense or surprising bill away from a financial catastrophe. If you’re counting on every cent from every paycheck, what do you do if you get sick and miss a month at work? If all of your money is accounted for in your budget, what do you do when the car breaks down or when a child breaks their leg? Sure, you may have insurance for some of these costs, but most insurance plans still come with a deductible, and some things are not covered.
When these unexpected expenses arrive, you may have to consider all of your legal and financial options to try to make things work. One thing to consider could be bankruptcy to reorganize the debt that you’re carrying. Be sure to carefully consider the steps you’ll need to take and the options you have available to you.