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LIVING PAYCHECK to paycheck is defined as spending “all of the money from one paycheck before receiving the next paycheck.” But living that way doesn’t have much to do with income level, even though the idea is often presented that way.
One study says 53% of those earning between $50,000 and $100,000 live paycheck to paycheck, including 70% of millennials. The popular claim is that 50% of Americans are just scraping by. To that, I say, “balderdash.”
Here’s the flaw that applies to all except those in the lowest income brackets: The “spend” part of the definition includes all spending, not just on necessities. Spending can eat up an entire paycheck without it being a sign of financial distress.
Come to think of it, although retired, I live paycheck to paycheck. My pay is all spent after paying for two homes, two cars, vacations and funding my grandkids’ 529 plans.
Are there Americans who struggle to cover the basics? Of course. A study, based on Bureau of Labor Statistics’ data, says the lowest 20% of earners do spend 100% of their incomes from all sources. But even then, their annual spending includes more than $2,700 on eating out and entertainment.
One bit of research claims Americans spend $1,497 a month on non-necessities. Much of this money goes toward eating out, which—the survey claims—consumes an average $787.28 a month. Another study says the average American spends $697 a month on non-necessities, with millennials running higher at $838 a month. If millennials invested half of that extra spending, they’d have more than $600,000 after 30 years, assuming an 8% annual return.
If you doubt my curmudgeonly observations, stroll the streets of any town. Count the businesses providing decidedly beyond-the-basic goods and services—as well as those selling lottery tickets.
Admittedly, these spending numbers are based on surveys that are questionable in accuracy. In this case, however, I’m betting they understate true spending. How many people will say they can’t come up with $400 to cover a financial emergency and then admit they spend $30 a week on designer coffee?
Looking at only one-half of the income-and-spending equation leads to distorted policies—like a family of four earning $300,000 a year receiving government payments from the child-care tax credit.
To me, eating out is a treat. An occasional night out. I can’t believe how many people eat out (or take out from pricey restaurants) multiple times a week. I could never have saved for retirement doing that, or getting hair/nails done frequently, Starbucks or any of the other treats people consider “necessities” they’re entitled to, all the while crying poverty.
I 1000% agree that child subsidies, health subsidies and other programs need to be means tested. So frustrated that folks earning more than me, who have more investment assets than me, are getting handouts while I work for every dollar. (SS is the exception, as we each pay into that – it’s not an entitlement program like the others.)
If you’re not deep in mortgage debt or have kids, chances are you’ll pay more than your fair share.
Couldn’t agree more Richard … amazed when I drive past a local shopping plaza that includes a nail salon, a bake shop that only sells fancy cupcakes, a tanning salon, a gun shop, a beauty parlor, a yoga studio and assorted restaurants … none of which I consider “necessities!
Great point however as a millennial saving up here in London and still living at home, eating out actually becomes one of the few ways to catch up with friends consistently. Almost like drinking alcohol, there is a social benefit to meeting up with friends and it’s a cost many millennials suffer. Of course, if I had my own place, I’d be more inclined to invite them round but with house prices so out of reach, saving the roughly £40 a month I might spend eating out doesn’t make a dent in the overall deposit required.