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What is meant by paycheck-to-paycheck? If a worker has HSA/401k/ESPP/401k MBR deductions, they have artificially made their paycheck small. The net amount remai

What is meant by paycheck-to-paycheck? If a worker has HSA/401k/ESPP/401k MBR deductions, they have artificially made their paycheck small. The net amount remaining goes covers living expenses, and whatever is left might be swept into after-tax investments. Money in is money out. It is paycheck to paycheck: with a great deal of investing taking up the cashflow. If there is no technical definition, and you simply ask people if they live paycheck-to-paycheck, you could have quite different interpretations-- and the underlying financial health might differ demonstrably between survey respondents.

deleted 4y ago
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jldugger 4y ago
> The net amount remaining goes covers living expenses, and whatever is left might be swept into after-tax investments. It me. Was literally thinking of taking on a margin loan to cover the time between when I pay quarterly estimated taxes and the next ESPP vest date.
- AYBABTME 4y ago
  We do that at home - automatically wire a fixed amount, weekly, off of the margin account. All incomes get deposited in the margin account and invested. During the first half of the year, I max out most contributions that I can at work and end up with many 0$ take-home paychecks. The margin loans help us smooth out that period while keeping a steady, stable and frugal weekly "paycheck" to ourselves. As the year progresses, the margin loan gets paid back and then we grow our investments. I used to do this automated wire transfer twice a month, but switched it to weekly as it's harder to run out of money this way. And the amount we wire to ourselves is just enough to do groceries, pay bills, eat out every now and then, be happy, but not decadent.
swatcoder 4y ago
It would be extremely odd for anyone making after-tax investments to say they live paycheck-to-paycheck. To most people, it means that you have little to no surplus after usual monthly expenses. That means no elective investment contributions and — more importantly — no contributions to liquid savings. Failure to maintain liquid savings can turn an unexpected event into a catastrophic tailspin. EDIT: That said, the other comments here are elucidating. I wonder if there is an unnoticed shift in the language used among young professionals and that this survey is accidentally measuring that instead of real financial change.
- purple_ferret 4y ago
  Don't underestimate the ability of people who make 500k+ to believe they're the struggling middle class.
  - diogenes_of_ak 4y ago
    This is extremely common.
- SilasX 4y ago
  But it’s the same in some key respects. Most of those elective deductions are hard to get the money back out of. So, for practical purposes — like if you lose that job — it’s just as if you had been living paycheck-to-paycheck, assuming you hadn’t built up liquid savings.
- kcplate 4y ago
  > Failure to maintain liquid savings can turn an unexpected event into a catastrophic tailspin Been there, done that, took 10 years to recover. Even with a healthy income there was at least 3-4 years that I was living paycheck to paycheck.
thiscatis 4y ago
Yeah, I do something similar which I call "save yourself poor". Artificially live paycheck to paycheck but this is because I immediately deduct investments, savings, tax portion (my country / visa status just makes you pay at the end of the tax year without employee income witholding) and then have to get through the month on what's left. I know it's a privileged position to be in but it works and never makes me forget that nothing is guaranteed.
- SoftTalker 4y ago
  I do the same thing. I max my retirement savings, and HSA contributions, have some cash savings for emergencies, and live on what's left.
- bpye 4y ago
  Yeah I’ve set myself up in a similar position. I’ve worked out how much I want to save, maxed employer matching etc and so what’s left at the end of the month is my ‘free’ spending.
vlunkr 4y ago
It’s still wise IMO to have some liquid cash on hand. In the event that you lose your job or have some unexpected big expenses come up.
- rajup 4y ago
  In such cases wouldn’t a credit card suffice to tide you over till you can liquidate assets (or cash flow from paycheck)?
  - vlunkr 4y ago
    To be pedantic, you probably can’t pay your mortgage on credit, or cash flow from paychecks if you lose your job. Maybe I just come from an old school financial philosophy, but I don’t understand this aversion to being financially independent. The idea of someone making 6 figures but being completely reliant on the credit card company in an emergency is pretty wack.
    - hiq 4y ago
      The idea might be to maximize your expected wealth, e.g. if you consider this kind of emergencies as relatively unlikely and that even then you'd just have to pay interests on a credit card while you're recovering for a few months, it could be worth it to invest some of the money you currently have as an emergency fund into something other than cash.
rco8786 4y ago
Then what it would it mean to not be paycheck to paycheck? If investing counts as spending, doesn’t that mean that 100% of people are living “paycheck to paycheck”? You’re either spending it or you’re investing it, there’s nothing else to do with money.
- orev 4y ago
  Most people would define “investing” as putting money into illiquid assets, like stocks, etfs, real estate, etc. where the money cannot be used to buy things. Money sitting in a checking or savings account (even one that earns a meager interest rate) is not considered “invested”.
  - rco8786 4y ago
    ok so someone who puts money in a savings account is not living paycheck-to-paycheck, but someone who puts that money into the stock market is? it makes no sense.
Rebelgecko 4y ago
If they used the same setup as the LendingClub survey mentioned in the article, it was self-reported. The other notable thing I saw with the LendingClub survey (other than it being sponsored by a business that probably benefits from people living paycheck to paycheck, or the perception that lots of people live that way) was that the majority of the people who self-reported as living paycheck to paycheck also said that they had enough money on hand to cover a $1,000 emergency without having to borrow money or carry a balance on their credit card... So I'm kinda skeptical of the results. Edit: it looks like the full Willis Towers Watson report defines paycheck to paycheck as "using most or all of their monthly income for expenses".
legitster 4y ago
Pretty much this for us. If asked I would say we live paycheck to paycheck because I still worry about bouncing a check. But long-term we are pretty wealthy. It doesn't make financial sense to keep a ton of cash around.
inlood 4y ago
Paycheck to paycheck means you have almost no liquid money left until your next pay. insurance and taxes don't count (they'reexpenses just like rent, and you can't live if don't pay your rent right?!). Since i started in my current job, gas has gone from $1 to $2.5+. And every commodity has followed that trend. My pay? Virtually the same I suppose those with multi 100Ks feel the same. Its not the same money you had last year.... and the year before

deleted 4y ago

[deleted]

jldugger 4y ago

> The net amount remaining goes covers living expenses, and whatever is left might be swept into after-tax investments. It me. Was literally thinking of taking on a margin loan to cover the time between when I pay quarterly estimated taxes and the next ESPP vest date.

AYBABTME 4y ago
We do that at home - automatically wire a fixed amount, weekly, off of the margin account. All incomes get deposited in the margin account and invested. During the first half of the year, I max out most contributions that I can at work and end up with many 0$ take-home paychecks. The margin loans help us smooth out that period while keeping a steady, stable and frugal weekly "paycheck" to ourselves. As the year progresses, the margin loan gets paid back and then we grow our investments. I used to do this automated wire transfer twice a month, but switched it to weekly as it's harder to run out of money this way. And the amount we wire to ourselves is just enough to do groceries, pay bills, eat out every now and then, be happy, but not decadent.

swatcoder 4y ago

It would be extremely odd for anyone making after-tax investments to say they live paycheck-to-paycheck. To most people, it means that you have little to no surplus after usual monthly expenses. That means no elective investment contributions and — more importantly — no contributions to liquid savings. Failure to maintain liquid savings can turn an unexpected event into a catastrophic tailspin. EDIT: That said, the other comments here are elucidating. I wonder if there is an unnoticed shift in the language used among young professionals and that this survey is accidentally measuring that instead of real financial change.

purple_ferret 4y ago
Don't underestimate the ability of people who make 500k+ to believe they're the struggling middle class.
- diogenes_of_ak 4y ago
  This is extremely common.
SilasX 4y ago
But it’s the same in some key respects. Most of those elective deductions are hard to get the money back out of. So, for practical purposes — like if you lose that job — it’s just as if you had been living paycheck-to-paycheck, assuming you hadn’t built up liquid savings.
kcplate 4y ago
> Failure to maintain liquid savings can turn an unexpected event into a catastrophic tailspin Been there, done that, took 10 years to recover. Even with a healthy income there was at least 3-4 years that I was living paycheck to paycheck.

thiscatis 4y ago

Yeah, I do something similar which I call "save yourself poor". Artificially live paycheck to paycheck but this is because I immediately deduct investments, savings, tax portion (my country / visa status just makes you pay at the end of the tax year without employee income witholding) and then have to get through the month on what's left. I know it's a privileged position to be in but it works and never makes me forget that nothing is guaranteed.

SoftTalker 4y ago
I do the same thing. I max my retirement savings, and HSA contributions, have some cash savings for emergencies, and live on what's left.
bpye 4y ago
Yeah I’ve set myself up in a similar position. I’ve worked out how much I want to save, maxed employer matching etc and so what’s left at the end of the month is my ‘free’ spending.

vlunkr 4y ago

It’s still wise IMO to have some liquid cash on hand. In the event that you lose your job or have some unexpected big expenses come up.

rajup 4y ago
In such cases wouldn’t a credit card suffice to tide you over till you can liquidate assets (or cash flow from paycheck)?
- vlunkr 4y ago
  To be pedantic, you probably can’t pay your mortgage on credit, or cash flow from paychecks if you lose your job. Maybe I just come from an old school financial philosophy, but I don’t understand this aversion to being financially independent. The idea of someone making 6 figures but being completely reliant on the credit card company in an emergency is pretty wack.
  - hiq 4y ago
    The idea might be to maximize your expected wealth, e.g. if you consider this kind of emergencies as relatively unlikely and that even then you'd just have to pay interests on a credit card while you're recovering for a few months, it could be worth it to invest some of the money you currently have as an emergency fund into something other than cash.

rco8786 4y ago

Then what it would it mean to not be paycheck to paycheck? If investing counts as spending, doesn’t that mean that 100% of people are living “paycheck to paycheck”? You’re either spending it or you’re investing it, there’s nothing else to do with money.

orev 4y ago
Most people would define “investing” as putting money into illiquid assets, like stocks, etfs, real estate, etc. where the money cannot be used to buy things. Money sitting in a checking or savings account (even one that earns a meager interest rate) is not considered “invested”.
- rco8786 4y ago
  ok so someone who puts money in a savings account is not living paycheck-to-paycheck, but someone who puts that money into the stock market is? it makes no sense.

Rebelgecko 4y ago

If they used the same setup as the LendingClub survey mentioned in the article, it was self-reported. The other notable thing I saw with the LendingClub survey (other than it being sponsored by a business that probably benefits from people living paycheck to paycheck, or the perception that lots of people live that way) was that the majority of the people who self-reported as living paycheck to paycheck also said that they had enough money on hand to cover a $1,000 emergency without having to borrow money or carry a balance on their credit card... So I'm kinda skeptical of the results. Edit: it looks like the full Willis Towers Watson report defines paycheck to paycheck as "using most or all of their monthly income for expenses".

legitster 4y ago

Pretty much this for us. If asked I would say we live paycheck to paycheck because I still worry about bouncing a check. But long-term we are pretty wealthy. It doesn't make financial sense to keep a ton of cash around.

inlood 4y ago

Paycheck to paycheck means you have almost no liquid money left until your next pay. insurance and taxes don't count (they'reexpenses just like rent, and you can't live if don't pay your rent right?!). Since i started in my current job, gas has gone from $1 to $2.5+. And every commodity has followed that trend. My pay? Virtually the same I suppose those with multi 100Ks feel the same. Its not the same money you had last year.... and the year before