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What It Means to Live Paycheck to Paycheck

A staggering 64% of Americans live paycheck to paycheck, making this precarious financial lifestyle the most common in the United States. Because it is so common, many individuals do not realize there are alternatives to this lifestyle. Living paycheck to paycheck means an individual spends all of the money from one paycheck before receiving the next paycheck. This leaves little or no leeway for financial emergencies and unexpected expenses.

While the paycheck to paycheck lifestyle used to be associated with the “working poor”, it is now so widespread it afflicts employees across the income spectrum. Low income and six-figure earners alike have expenses to match their income. This means they rely on their next paycheck before they even receive it. Earning more money is not necessarily the solution to breaking out of the paycheck to paycheck lifestyle. The real solution is taking control through financial education.

What It Means to Live Paycheck to Paycheck

Employees who live paycheck to paycheck have expenses that match–and sometimes exceed–their income. This means these employees have no income left over between paychecks for savings, investing, or paying off debt. The resulting situation is very precarious because a single unexpected expense could be detrimental to the employee’s financial health. Unexpected expenses are the most common cause of bankruptcy. Additionally, employees living paycheck to paycheck are more likely than anyone else to exhibit unhealthy financial behaviors, such as taking out a payday loan with exorbitant interest rates. 

This precarious lifestyle isn’t just limited to those with low income. Investopedia says, “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 have advanced degrees in highly technical fields. However, mitigating factors, such as industry downturns, and limited success in securing regular employment commensurate with their skills, contribute to living paycheck to paycheck.” For example, a doctor who lives in a big house might have a mortgage so high there is no income left each month to put into savings.

The paycheck to paycheck lifestyle is highly stressful. Employees in this situation struggle to make ends meet on a weekly or monthly basis. They have insufficient emergency savings and no way to build savings when their entire paycheck is spent before the next. Pymnts says, “Living paycheck to paycheck can be stressful and make it difficult to save for the future or make long-term financial plans. It can also make it harder to weather financial setbacks, such as job loss or a reduction in income.” The good news is it’s possible to escape this method of money management and take control of one’s financial picture.

Better Methods

The most important element of a healthy financial picture is a robust emergency fund. This single factor can help an employee break free of the paycheck to paycheck lifestyle by giving them a financial cushion for unexpected expenses. An emergency fund can help an employee navigate a loss of income or financial emergency. More importantly, it can prevent them from declaring bankruptcy in the event of unexpected expenses. Building an emergency fund requires the employee to diligently contribute to savings.

Living below one’s means is also an important factor in getting out of the paycheck to paycheck cycle. Employees can do this by reducing expenses and increasing income wherever possible. This enables them to have a positive cash balance after each paycheck.

Most often, personal financial planners will recommend cutting out as many little expenses as possible. The most common recommendation is to cut out “the daily latte”. However, in her book All the Money in the World, Laura Vanderkam points out the little expenses are often the ones that bring happiness. In contrast, the big expenses will make the most difference in one’s budget. “Food and entertainment expenses may be easy to trim, but the hours we spend eating, doing leisure activities, and socializing are often the most pleasant of our days. That’s a problem for the scrimping mindset because, to add insult to injury, not only is lowering the guillotine on these little luxuries unpleasant, it doesn’t free up as much money in most families’ budgets as you’d imagine, given the pain you’re inflicting.” Instead, she recommends reducing the major expenses such as housing and transportation. Freeing up significant money in the major expenses allows much more freedom in the smaller expenses, and allows the income earner to build savings much faster.

How to Break Free of the Paycheck to Paycheck Lifestyle

The key to breaking free of the paycheck to paycheck lifestyle is to become financially educated. Through financial education, employees can learn not only to track their spending and identify their habits, but to navigate the increasing cost of living and take advantage of the financial tools available to them.

Two of the main reasons for the prevalence of the paycheck to paycheck lifestyle are: 
(1) lack of personal financial literacy
(2) increasing costs of living outpacing wages 
Financial education can help with both of these. When employees are educated in personal finance and can take control of their money, they are better able to take advantage of financial tools that can help them adequately build savings and budget effectively. This is useful even when inflation takes its toll on households. Investopedia says, “Of course, for millions of Americans, avoiding living paycheck to paycheck is not as simple as balancing a budget or forgoing luxuries. Consumer debt, low and stagnant wages, student loans, an increase in the cost of food, and the high cost of childcare are just some of the factors that contribute to living without a financial cushion.” Many of these factors are out of the employee’s control. But every employee can take control of his or her own personal finances through financial education.


Living paycheck to paycheck is a stressful and risky position to be in, yet the majority of Americans are in that very situation. Simply building adequate savings can save families and individuals from the stress, heartache, and even bankruptcy caused by unexpected expenses. A high proportion of employees say they haven’t built an emergency fund or created a budget merely because they don’t know how. The clear solution is financial education. 

Find out how 101 Financial’s Workplace Wellness program helps employees build adequate savings and break free of the paycheck to paycheck lifestyle.