Okay, so my fuel budget is officially blown this pay period… and I’m not even a week in.
I drove to my parent’s house out of province over the weekend (1500+ kms). I left my lemon car up there to be sold, and drove my dad’s truck back to my place.
Two things to note:
- Trucks eat more.
- I’m really out of practice driving standard.
Anyway, my boot refund came in from work. Now instead of going on my credit card (initial plan), it has gone to fuel. Le sigh. This is incentive for me to find a different vehicle a lot faster.
Anyway, I got thinking last week about what it means to live pay check to pay check. I know we’re all completely familiar with the term, it gets thrown around a lot, but what does it actually mean? I know some weeks I feel like I’m living that way, but I don’t know if that’s just the stress talking. Consider these scenarios:
- Are you living P2P if you’re saving a little bit, but spending everything that’s left over?
- What percentage of your income do you have to be spending in order to be considered living P2P?
- Are you living P2P if you’re spending your entire paycheck, but you have enough savings to cover one pay check?
- Are you living P2P if you’re spending your entire paycheck, but have a 6 month emergency fund?
- Are you living P2P if you’re spending your entire paycheck, but you have some short term investments (ie. stocks) sitting in an account?
- Are you living P2P if you’re spending your entire paycheck, but you have some long term investments (ie. GICs) sitting in an account?
- Are you living P2P if you’re spending your entire paycheck, but you’re still putting money way for retirement?
- Are you living P2P if you’re not spending everything you make, but have large amounts of debt?
- Are you living P2P if you’re spending your entire paycheck, but could easily cut WAY back?
- Are you living P2P the moment you have to touch your credit cards? (if you don’t use them normally)
Basically, at what point is a person no longer considered to be living paycheck to paycheck? What do you think?
Recommended Reading: A Garden Grows In The City
Bummer on the fuel costs! They’re horrible!
My opinion on living P2P is that you’re living P2P if:
1. You’re carrying consumer debt that’s not paid off in full every month.
2. You have NO savings.
If all your bills are paid, you have clothes on your back, and food in your tummy, you’re living. Extra material goods are just that, “extras”, a luxury. Nice to have, but not necessary in life.
I think you’re paycheck to paycheck if you are forced to work in order to survive. If you could quit your job and live somewhat comfortably without working for a few months, I think you’re P2P free.
I also believe it’s if you have no savings. No back up, really, and aren’t putting anything into savings or long term investment.
I often feel like I’m living paycheck to paycheck too, but then I look at where all of my money is going, and am reminded that some is going to retirement and savings, and some is sitting there for an emergency, and a lot going to debt repayment. So we’re using up all our money, but at least we’re using it efficiently. But we could always do better.
You are living P2P if you have no savings, and are in debt. You are living P2P if you have no debt and no savings. You are NOT living P2P if you can pay all your bills on time, have no consumer debt, I don’t count a reasonable house payment or a reasonable car payment debt. But you must be contributing to long term savings, (retirement) and also have an emergency account that you contribute to regularly. This is where dreams come true!
I think P2P is when you only have enough money to cover your expenses.
I agree that if you have no savings and your expenses equal your paycheck, that would be P2P, with or without debt.
Having that savings (retirement, emergency, whatever) is the key to getting out of P2P mode.
I think that if you are living paycheck to paycheck you have no savings and you only (and barely) have enough money to pay for your expenses.
I like to think of it this way — what would I do if someone in Accounting messed up my payroll and my paycheck didn’t arrive?
For a while I was living without an emergency fund (I had no idea what it was at the time) and living P2P was an awful feeling. My rent check could bounce if Accounting forgot to pay me. Now that I have an e-fund to cover mishaps like that, I still can’t shake that P2P feeling from me. I don’t know when I’ll ever feel at ease.
ahhhh the availability of credit has messed up what should be a simple calculation! For me, living P2P entails have a negative networth plus having a monthly netpay that just covers the expenses (i.e. no $ leftover to tackle that debt). I actually have a few friends that live this way, but they don’t see themselves as living P2P because of credit cards, which allow them to live not only P2P but a payment cycle ahead of the actual pay.
Living paycheck to paycheck if:
- You cannot pay off your consumer debt (secured / unsecured loans, and revolving credit), in full each month (excluding mortgage). So you fail this if you carry a CC balance from month to month, have student loans, or have a car loan, personal loan, etc… You can exclude debt if the interest rate is exactly 0% and will remain so for the life of the loan.
- You have less than 6 months savings.
Ideally where you should be:
- You have no consumer debt (except for mortgage). If you use CCs, you pay them in full each month.
- Put away at least 10% of your net each paycheck into a non-retirement / taxable account unless your non-retirement savings exceeds $3 million.
- 6 months to 1 year emergency fund in a FDIC (for those in the US) covered account. I’d recommend a MM account.
- Maxing out all possible retirement accounts. For those in the US this would mean maxing out your 401k (or equivalent) which is $16,500 / year. Also maxing out your Roth IRA which is $5,000 / year. So $21,500 / year in tax-deferred retirement plans.
If you can meet the ideal scenario and manage to stay with it for 30 years – you’re set and can retire and live quite comfortably for the rest of your life with no financial worries.
Quick question target10mil. I’m familiar with all of the benchmarks you’ve mentioned with the exception of the $3 million in non-retirement savings. Where does that number come from/what does it do, and is this investments as opposed to emergency fund cash?
Wow, this got a much larger response than I was expecting, but I’m grateful for all of your responses.
Basically what I’ve gotten out of this is that I AM living P2P because I’m still carrying comsumer debt, which sucks, but it helps to explain why I feel stretched and stressed much of the time. Thanks everyone for your interpretations.
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