What does 'Paycheck to Paycheck' mean

Paycheck to paycheck is an expression used to describe an individual who would be unable to meet financial obligations if unemployed because his or her salary is predominantly devoted to expenses. Persons subsisting paycheck to paycheck have limited or no savings and are at greater financial risk if suddenly unemployed than individuals who have amassed a cushion of savings.

BREAKING DOWN 'Paycheck to Paycheck'

Persons living paycheck to paycheck are often referred to as the working poor, however that may not accurately describe the full scope of this phenomenon as it cuts across multiple income levels. The proverbial "working poor" have been described as typically having limited skills and are paid low wages.

Despite this perception, individuals living paycheck to paycheck can in fact have advanced degrees in highly technical fields, but because of mitigating factors such as industry downturns and  have had limited success in securing regular employment commensurate with their skills. Individuals who live paycheck to paycheck are more likely to work multiple jobs in order to generate enough income to meet their regular living expenses. Individuals with high paying jobs may also be in a similar situation if outgoing expenses equal (or even exceed) their incoming salary.

Paycheck-to-Paycheck Trend Affects Large Portion of Populace

Due to a variety of contributing factors, a growing number of of fulltime workers in the United States have indicated they live paycheck to paycheck and the trend continues to escalate. One factor contributing to this trend is that while salaries have increased over the years, the cost of living has accelerated even faster outpacing elevations in pay.

Furthermore, personal debt levels continue to increase, even for individuals earning salaries in excess of $100,000. While individuals are often advised to track their expenses to better control their spending and to set budget limits, this does account for rate of inflation as it affects the cost of necessities and shelter versus the income opportunities available to workers.

Personal accountability does play a role in balancing a budget to avoid living paycheck-to-paycheck and allow the possibility for savings. Regular expenses can include services and items based on one's lifestyle rather than absolute necessity. Such lifestyle-driven expenses may be perceived as luxuries by others rather than necessities, which calls into question the budgeting practices of the individual. If personal spending habits escalate in addition to ongoing price inflation, then the possibility for the individual to break the paycheck to paycheck cycle diminishes if not becomes unattainable. Even with substantial increases in income, if personal spending rises, the pattern may continue.

RELATED TERMS
  1. Withholding Allowance

    Withholding allowance refers to an exemption that reduces how ...
  2. Pay Yourself First

    "Pay yourself first" means to automatically route a specified ...
  3. CMG Plan

    A CMG plan is a mortgage plan in which a mortgage is structured ...
  4. Personal Spending Plan

    A personal spending plan, similar to a budget, helps outline ...
  5. Pay As You Go Pension Plan

    A retirement scheme where the plan beneficiaries decide how much ...
  6. Intaxification

    The feeling of satisfaction and joy that a tax refund creates ...
Related Articles
  1. Personal Finance

    Paycheck to Paycheck? Start Saving This Way

    Five ways to stop living paycheck to paycheck and start saving.
  2. Personal Finance

    5 Financial Mistakes New Graduates Must Avoid

    College doesn't prepare grads for handling their personal finances. Find out what you need to know here.
  3. Taxes

    How to Owe Nothing on Your Federal Tax Return

    You have the control to determine whether you owe in April. Learn how to owe nothing on your federal tax return.
  4. Managing Wealth

    7 Financial Lessons to Master by the Time You're 30

    Once you hit your 30s, it is time to get serious about your finances and money skills. Here are the top money lessons you need to master this decade.
  5. Personal Finance

    The Best Way to Budget: Automate Your Finances

    Budgeting is the best way to keep your finances on track, but it can be time-consuming and frustrating. Here's how to painlessly stay on track.
  6. Personal Finance

    Save More Money to Reduce Financial Stress

    Feeling stressed out about money? Make changes in your spending habits.
  7. Personal Finance

    Preparing for a Personal Finance Crisis

    These are the things that you can change to prepare for a financial crisis before it happens.
  8. Retirement

    Are You Ready for Retirement?

    Managing your wealth and taxes in retirement can help make your nest egg last.
  9. Personal Finance

    Are You Financially Ready for 2017?

    Save on your 2016 taxes and prepare to be financially strong in 2017 with these tips.
Trading Center