Living Paycheck to Paycheck
Why my definition flips the script
The story about 36% of those earning over $250,000 annually living paycheck to paycheck made the rounds this week.
The culprit, as you could probably imagine, was inflation. But similar to the “don’t buy lattes if you want to retire comfortably” camp, I’m not buying that inflation alone is the be-all-end-all budget buster. The true culprit is we just love stuff. We love spending.
After all, many of us are actively choosing to still buy things we know are under inflationary pressures (hand up).
Back to the paycheck to paycheck story - I’m here to make a case for why it’s just fine to live this way. In order to make this case, I’ll introduce you to my definition of what it means to live paycheck to paycheck and why I’m a proponent.
I’ve mentioned before that money directly deposited from work stays in my checking account for about a day or two tops.
Before it even arrives in my checking account, let’s review the accounts dollars go to (in order of largest to smallest dollar amounts):
Roth 401k
Traditional 401k
Health Savings Account (HSA)
Once the net amount arrives in my checking account, here are the next places dollar's fire off to automatically:
High Yield Savings Account
Brokerage Account
Individual Retirement Account (IRA)
Once all of these boxes have been checked (again, all in the background with no conscious effort), my stance is you’ve earned the right to live paycheck to paycheck and spend on whatever you want. Just like your parents saying no dessert if you don’t finish your dinner.
You can tinker with the amounts or the order of importance here based upon what goals you have on the horizon, but you get the point.
A few important things happen here:
You can spend on wants guilt free knowing your bases are covered.
You’ve established your new normal. Have you ever noticed how the busiest times of your life are also when you’ve got to be your best with time management? The same can go for money. If you have slightly less of it, you’re better at managing it.
Saving and investing begin to feel much more effortless.
Starting small is the key. You can’t train to run a marathon without taking a step.