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Living “paycheck to paycheck” can mean different things to different people.
Most think of it as scraping by — having just enough income to cover the bare necessities. But it can also mean choosing to live without any breathing room in your budget, regardless of how big that budget is.
Both scenarios involve needing your next paycheck to cover all of your obligations. But the first is about subsisting while the second reflects a lifestyle and mindset.
To understand why this distinction is so important, here's some broader context: A consistent majority of U.S. adults consider themselves living paycheck to paycheck, according to PYMNTS Intelligence, a payments industry researcher that's been tracking this for years.
But what's really interesting are the reasons why. When PYMNTS looks at their income, debt, and spending habits, it assigns them a status. And as of July, only 30% of those people had no alternative. Another 37% were in the category by choice, and for 32%, it was a mix of both.
In fact, the percentage living paycheck to paycheck by choice has grown from 28% in January, while the percentage without a choice has shrunk from 38%.
“A consumer living paycheck to paycheck by choice has agency. … They're making trade-offs, but how they do it is under their control,” PYMNTS CEO Karen Webster wrote on Jan. 21. “A consumer living paycheck to paycheck by necessity has no such degrees of freedom.”
So what?
You don't have to be struggling financially to be caught in a paycheck-to-paycheck mindset. In addition to income, your lifestyle and priorities can drive this cycle, and it's a natural human tendency to spend what you make.
If what keeps you feeling stretched to the max is the cost of your kids, schooling, vacations, or social activities, know that there are serious tradeoffs to falling into this pattern: A high overhead can leave you more vulnerable if the economy sours or you lose your job, making it harder to avoid accumulating credit-card debt.
Related Reading
Paycheck Boost Gives Low-Income Workers a Breather (The Wall Street Journal)
Rising Health Insurance Costs May Take A Bite Out Of Your Paycheck (Minnesota Public Radio)
The American Affordability Tracker (Urban Institute)
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