The dangers of living paycheck to paycheck
Living paycheck to paycheck is not a sustainable financial plan, Hamm writes. There are too many things in life that can cause the economic bottom to drop out tomorrow, and if you do not have an emergency fund, you will find yourself in a bad situation.
People wait in line to enter the City University of New York Big Apple job fair in New York. At some point in 2012, about 13 million Americans faced a crisis in which they lost their job and they were so financially weak that they faced immediate hardships without their next paycheck, Hamm writes.
Shannon Stapleton/Reuters/File
According to this survey, 68% of Americans are living paycheck to paycheck. Two out of every three adults living in the United States would suffer significant challenges if their next paycheck were delayed or absent.
In 2012, about 20,500,000 Americans lost their jobs, according to this data analysis. Even if you don’t perfectly agree with that analysis, you can’t argue that the number is somewhere in the ballpark. 2012 was actually a very low year for job loss, too.
Thus, at some point in 2012, about 13 million Americans faced a crisis in which they lost their job and they were so financially weak that they faced immediate hardships without their next paycheck. That’s about one in twelve adults.
Staying afloat just isn’t enough.
In a given year, about one in eight adults is going to lose their employment position. If you’re one of the majority of Americans who would struggle if you lost your job and missed even a paycheck, you’re adding a gigantic risk to your life.
Your job is not a stable thing. It is not a guarantee of pay in the future. It is not something you’re “owed.”
Your job is an agreement between you and your employer. You do some work, they pay you for it. There are alot of situations – unexpected and otherwise – that can cause that agreement to come to an end, often unexpectedly. It happened to twenty million Americans last year.
You owe it to yourself to always be doing two things.
First, you should always have an emergency fund and, if you don’t, you should always be building one.An emergency fund is a chunk of cash you simply have sitting there in a savings account waiting for you in case something bad happens – like what happens to the one out of eight Americans annually who lose their jobs. It also helps if your car dies or a close family member passes away suddenly or countless other things.
It keeps you from being in a situation where any bit of bad news causes you to go into debt.
Second, you should always be thinking about your resume and your calling card. Always. When you’re actually at work, you should spend every moment either accomplishing resume-worthy things, getting resume-worthy training, or building connections to people who might find value in your resume.
At the very least, achieving things makes you a more valuable employee where you’re at. It can also make you appear a valuable prospect to others whether you happen to be employed or not.
Your resume is essentially part of your emergency fund.
Now, some people often say “my credit card is my emergency fund!” No, sorry, it’s not. Your credit card is something that a lending institution has loaned to you. They can pull the plug on it at any sign of distress or any concern that you might not be worth lending to or any change in the policies of that lender, so it’s not reliable. Not only that, even if you do use it, you’re going to eventually have to repay it, which is going to make the paycheck-to-paycheck routine even tighter when you do find another job.
Build an emergency fund now. I suggest having at least two months of living expenses for your family in there, if not more. Stop going out to dinner and stop buying things you don’t need for a little while if you don’t have an emergency fund.
Build your resume now. Stop wasting time at work, too. Focus on doing things that others will find value in, and do those things during every moment you can at work. Pinterest and Facebook can wait until later.
One final note: getting yourself in a position where you’re doing better than staying afloat is a huge stress relief. It truly does make your day-to-day life less stressful, even if you don’t see the stress at the moment.
Just staying afloat isn’t enough. You need to build something now. There are too many things in life that can cause the bottom to drop out tomorrow, and if you’re not ready, you’re going to be in a bad situation.
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