The Ideal Way to Live Paycheck to Paycheck

By Karen Whaley

August 20, 2018

The real question is not, “Do you live paycheck to paycheck?” The real question is “Do you know the ideal way to live paycheck to paycheck?”

Everyone lives paycheck to paycheck. Yes, everyone lives paycheck to paycheck.

In all the classes I have taught, ranging from doctors to auto mechanics, I have noticed this one consistent theme. No matter who is in the audience, they claim to live paycheck to paycheck.

Clearly, all paycheck to paycheck living is not created equal.

Could you pay your bills long-term without a paycheck? If not, then you live paycheck to paycheck too.

How a person lives paycheck to paycheck varies dramatically. And there is definitely an ideal way to live paycheck to paycheck. 

Defining Living Paycheck to Paycheck

Living paycheck to paycheck is an expression that is tossed about quite frequently. We often hear news sources reporting that [insert large number here]% of the American population lives paycheck to paycheck.

So what do people mean when they use the expression “living paycheck to paycheck”?

Investopedia has a fairly clear definition of paycheck to paycheck living. They define it as “an individual who would be unable to meet financial obligations if unemployed because his or her salary is predominantly devoted to expenses.” They further define the expression by telling us these individuals also have “limited or no savings.”

A quick perusal of internet discussion boards defines paycheck to paycheck living as everything from spending money before it’s earned to actively accruing debt each month to pay bills.

However, I see flaws in these definitions. You should too unless you could live long-term without a paycheck.

The first definition implies that if an individual has an emergency fund and saves every month, they do not live paycheck to paycheck. Yet, without that regular paycheck, they wouldn’t be able to live anywhere from three to six months (typical emergency fund amounts) after not having a job. And most individuals I have met regularly “spend” money before it’s earned in the form of rent, loan payments, or other regular financial obligations.

As for increasing debt loads each month, I would argue that these individuals aren’t living paycheck to paycheck at all. They are financially drowning. They are living outside of their means – no matter the why.

Discussions with individuals who attend my classes, colleagues, and friends reinforce the flaws I see in these definitions. Comments are routinely made about how hard it is when unexpected expenses crop up.

And everyone wants to know when they will no longer need to monitor their money so closely.

Additionally, teaching ways to save money on daily living expenses is always a popular topic, both in classes and casual conversations.

If living paycheck to paycheck was only for individuals without savings or spending money before it’s earned, I would imagine these types of comments, questions, and constant desire to find savings would not be so common. Wouldn’t you?

A New Living Paycheck to Paycheck Definition

I propose a new definition. Living paycheck to paycheck is when an individual must work (exchange their time for money) to support themselves and their family via various expenses, including saving “expenses”, without acquiring new debt on a monthly basis.

Under this definition, a spectrum of living paycheck to paycheck emerges based on the reason you live paycheck to paycheck. And some reasons for living paycheck to paycheck are more ideal than others.

I believe it is not a question of if you live paycheck to paycheck but how you live paycheck to paycheck.

The spectrum of living paycheck to paycheck:

We all live paycheck to paycheck, the reason why we do is what varies.

At some point in life, most of us will experience the left end of the living paycheck to paycheck spectrum.

The goal, of course, is to slide along the spectrum from the left side to the right, by either reducing expenses or increasing income or both.

This living paycheck to paycheck spectrum acknowledges and allows even those with savings to recognize that they must manage their expenses or risk sliding backward along the scale.

The living paycheck to paycheck spectrum calls attention to the fact that not all paycheck to paycheck living is equal.

Even those of you with emergency savings still need your regular paychecks to support your life beyond a handful of months.

This new definition debunks the common thought that if you save (short or long-term savings), you don’t live paycheck to paycheck. But that’s just not true.

Making your piggy bank happy, makes you happier too.

If you save each month, you are sliding along the spectrum to the right. Woohoo! However, it does not mean that you get to stop working or stop managing your money. Yes, you have greater freedom in how your money is spent as you slide right along the spectrum, but you still need the paycheck to pay the bills, including monthly savings “expense”.

Sliding toward the ideal way to live paycheck to paycheck changes your financial stress. It doesn’t mean there is no stress. A new, I suspect healthier, form of stress emerges from having more options on how you live and save.

Achieving The Ideal Way to Live Paycheck to Paycheck

In order for you to slide towards the ideal way to live paycheck to paycheck (and gain a little financial breathing room), there are four basic steps:

1) Track Spending

Arguably the most important step (but thanks to technology also the easiest) is to track your spending. Unless you follow the money and understand your money’s secrets, you will never be able to identify the reason you are living paycheck to paycheck. 

2) Understand needs versus wants

This step is a little squishier than the first because it varies from person to person. Almost any of your expenses could be considered a “need”. The key is to recognize all your needs and that many “needs” have a want component too. This is where it is important to train your brain to find ways to meet physical needs with as little money as possible so you may enjoy the wants of life more while still saving for the next part of life’s journey.

3) Identify the reason for living paycheck to paycheck

After you have determined your needs versus wants, assign each expense from tracking your spending as either a need, a want, or a split between the two. If you already have a savings “expense”, make sure you mark that as savings. To identify the reason for you are living paycheck to paycheck ask yourself:

    1. What percentage of your spending is needs and how much is wants?
    2. What percentage of your spending is saving? Don’t forget to include any pre-tax savings in your spending review!
    3. How does your spending compare to your paycheck (income)? Is it more or less?
    4. Which type of expense is the largest percentage of your income? Needs, wants, or savings?

(Note: If your income is less than your spending, you aren’t living paycheck to paycheck. You are in a state of financial emergency and need to stop the spending bleed…stat!)

Using your expense percentages, determine where you sit on the living paycheck to paycheck spectrum.

Keep in mind that this a is a fluid spectrum. It is possible to sit on the left side and have both low income with high need expenses causing critical paycheck to paycheck living. It is also possible to sit in the middle of the spectrum by having equal amounts of need and want expenses with no savings.

Find ways to reduce your expenses or increase income to slide along the living paycheck to paycheck scale.

4) Implement cost savings techniques or find ways to increase income

After you have determined the primary reason you are living paycheck to paycheck, seek out ways to reduce that type of expense first. Redirecting the money from those reduced expenses into savings “expense” will help you slide along the scale to the right faster.

When low income is part of your reason, seek out ways to increase income while implementing expense saving techniques.

The farther left on the spectrum you are, the more creative and harder working you will have to be to gain momentum to slide toward the ideal way to live paycheck to paycheck.

Further, life on the left side of the spectrum will not be an episode of ‘Modern Family.’ Does that mean it’s impossible to live? No. I have read many stories of individuals that found a way to live on the far left side. Some have intentionally chosen that path, some have not, and some have worked hard and been creative to claw their way to the right side.

A shift from the far left side to the far right side of this scale is a tremendous feat! Some might even call it “The American Dream”.

Additionally, you may never have a savings rate percentage that is higher than your needs and wants. That’s okay. This spectrum is more about acknowledging (and becoming aware of the reason) that you live paycheck to paycheck. Then making a conscientious decision to either stay where you are or to strive for the ideal way to live paycheck to paycheck.

The Satisfied Spending program is all about helping you determine the right place for you on the living paycheck to paycheck spectrum.

Freedom from Living Paycheck to Paycheck

All of this begs the question, do you ever get to stop living paycheck to paycheck?


By investing money into passive income (savings) you break out of living paycheck to paycheck.

Passive income can be generated from traditional savings tools (i.e. stocks, bonds) or other passive income streams (i.e. book sales, affiliate marketing). When passive income covers your daily living expenses it is commonly referred to as retirement or financial independence. At this point, you are no longer obligated to exchange your time for money to live.

The ideal way of living paycheck to paycheck is to have your savings rate be the highest percentage of “expenses.” With savings being the highest percentage, you propel yourself toward financial independence faster. 

Find your sweet spot living paycheck to paycheck and be more joyful!

That said, not everyone one wants to break free from a paycheck as quickly as possible. Some people truly enjoy what they do and would happily work until they are no longer physically able. If this is you, fantastic! (Send me an email or comment below. I would love to hear what type of work you do that you are so passionate about.)

However, even those who work at what they love will eventually find their bodies can no longer work the way they used to. This is why it is important to save at least something to generate passive income for your future self to spend.

You may also choose to live just to the right of the middle of the paycheck to paycheck living spectrum. After all, no one is guaranteed tomorrow so make sure you enjoy today!

And even when you no longer live paycheck to paycheck, it does not free you from managing your money. Often passive income, just like income from a paycheck, is limited. The financially independent must still control expenses or risk sliding back into living paycheck to paycheck.

That said, controlling your expenses doesn’t have to be a deprivation of living, a burden, or something to dread.

Satisfied Spending

I developed the Satisfied Spending approach because I want to enjoy life – regardless of how I chose to live on the spectrum of paycheck to paycheck living.

The Satisfied Spending program emphasizes knowing what you want and training your brain.

Training your brain how to think (and subsequently feel) about money,

allows controlling expenses to stop controlling you.

Training your brain allows you to naturally, habitually seek satisfaction with the resources you have and eventually find the point of “enough”. Though the process of training your brain, you repair your money relationship.

With the right training, we all can find freedom from traditional budgets. It is your perspective and thought processes, more than your knowledge of personal finance, allowing the ideal way to live paycheck to paycheck.

Karen Whaley

About the author

Karen Whaley

Financial Lifestyle Coach
Certified Financial Instructor

I help clients use money to live - not live for money. If that sounds appealing, you are in the right place my friend!

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