“Financially Comfortable” v. “Paycheck to Paycheck”

Please don’t criticize my TV habits – I watch the first 20 minutes of The View. What can I say, I love Whoopi.  Well, today I watched the whole episode, and the last guest was some financial guru whose purpose was to put a positive spin on the economy. She put up a pie chart with the following statistics:

3% are wealthy
27% are financially comfortable
54% live paycheck to paycheck
16% are getting further in debt

But…how do you distinguish between the middle two categories? I wouldn’t classify myself as either.

Paycheck-to-Paycheck:  I think agreement on this classification is fairly easy to attain. I would define this as anyone who couldn’t skip more than two paychecks without sinking further into debt. They’re probably debt-slaves as it is, or maybe their expenses are high because they have a lot of kids, an expensive medical condition, or just graduated college. That’s definitely not me.

Financially Comfortable:  To me, this means that you have a sizeable portfolio, you own a reasonably successful business or you’ve got a very stable job, and you either own your home outright or have a very manageable mortgage. You could go out and buy a new car without needing a loan. You could afford to take a year off from work to pursue a dream and not return mired in debt. If you’re half of a couple, you could live well enough if either of you stopped working. I don’t qualify…well, maybe a little bit (could take a year off from life, as long as it was spent somewhere cheap like Thailand), but not in any other way. By my standards, I don’t qualify.

Clearly my interpretation sets the bar a bit high? Perhaps it’s as simple as:

  • No need for a mental debate over purchases under $100?
  • If your computer breaks, you don’t need to finance a replacement?
  • Your emergency fund = at least 3 paychecks?

Where would YOU set the bar? What criteria would you consider indicative, or at least minimal?

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12 Responses

  1. This is a great question. I think I set my bar about halfway in the middle of your “financially comfortable”.

    My understanding of financially comfortable would be no consumer debt, no student loan debt–only a mortgage, if that. A full six month emergency fund. I don’t think the ability to take a year off working is financially comfortable–that’s rich.

    I’m also in between paycheck-to-paycheck and financially comfortable. I have no debt other than student loans, and I’m still in school. I think my job is stable, and if it turns out not to be I have several months’ expenses in an emergency fund. I contribute to but haven’t fully maxed out my retirement accounts in any given year.

  2. I feel like these categories are rather broad. Right off the bat I know that I’m not getting further in debt and I’m also not living paycheck to paycheck. I’m definitely not wealthy, so by process of elimination I’m financially comfortable. Some people may not agree with that since I am carrying a modest student loan. (It’s locked in at under 3% interest, so I’m in no hurry to pay it off…but the debt is still there.) I feel that these categories are too broad.

    On another note, I finally decided to take advantage of the fact that I live in NYC and had just signed up for The View tickets prior to reading this post!

  3. I think “paycheck-to-paycheck” means if you miss even 1 paycheck, you have to dig yourself further into debt. I agree that there should be a category in between PTP and “financially comfortable”. I think most people fall into the category of “Financially Stable”, meaning they can probably survive a few months, but not too long without a paycheck.

  4. I’m between the two categories as well, and I set my bar about half way through your financially comfortable.

  5. I think you’re def. on the right track! and i’m probably somewhere in the middle too. def. not on the paycheck-to-paycheck side any more thank goodness!

  6. I consider paycheck to paycheck literally as bank account at zero at the end of the period, no savings and probably some debt. Your financially comfortable to me is a pretty high standard, buy a car outright! It will be a very long time till I get to that point, so I guess I’m in-between your categories.

  7. My husband and I have about a 26 month emergency fund, no mortgage, a car loan, and no debt other than the 0% offers that I make payments on. I guess we are financially comfortable and I feel that way, too. I feel prepared for whatever happens with our jobs, money wise, except for not knowing how much we would have to pay for individual health policies. That would probably blow our budget to bits.

  8. Speaking from the point of view of the financial industry, we consider anyone who doesn’t have money left over at the end of the month as living paycheck to paycheck. However, the caveat to that is that they may not have debts, but are contributing to retirement accounts and an emergency fund. Still, they budget their entire paycheck to cover these items, so they are therefore living paycheck to paycheck.

    Someone who is financially comfortable may have no debt, be contributing to their retirement and savings goals, yet have mastered living below their means to the point that they have money leftover in their checking accounts at the end of the month. These folks are the ones that don’t spend a lot of time worrying over an unexpected bill. They can easily afford a trip to the emergency room or vet. They budget their expenses well below what they make, or they simply make more than they’ve budgeted for – depending on how you’d like to look at that.

    For me, based on this definition, I live paycheck to paycheck. I budget my entire paycheck into some category or other and rarely end up with anything left in that account.

  9. Thanks, Kristy – that rather helpfully tightens up the definition a fair bit. Though it lets you qualify as Financially Comfortable if you don’t budget every dollar (e.g. for IRA deposits, EF fund, travel fund), if I read that right…

  10. Interesting… I’m not living paycheck to paycheck. I have no debt other than my mortgage and I have a decent emergency fund – at least 4 months worth.

    I only have a minimum retirement fund however, and certainly don’t consider myself financially comfortable. I’m saving more now for retirement, but I’m way behind.

    Following a disastrous marriage & divorce & being left with $750K in community property debt (resulting in filing bankruptcy) I’m just getting back on my feet.

  11. checking accounts are very convenient for business transactions that is why i have it.*,

  12. [...] After college you know you have loans, rent, and other bills to pay. It is important to have some type of job even if it is not in your major. It is not uncommon for your first job to no be in your field of study in college. If you are lucky and have a full time job right in your field then financial comfortability might not be as tough. Having a safety savings will help you feel more financially sound. A good safety savings would be to have over a $1000. This amount will allow for you to cover unexpected costs such as higher utility expense, car repair, unexpected bills, tickets or fines, and others. Having that extra money will allow for you to feel comfortable that you know you have some money to cover unexpected costs. A good way to come up with this safety savings would be to save about 10% of any money that you make.  Going pay check to pay check would probably be best. 10% may be too high but try to safe as much as possible to allow you to feel financially comfortable. (to read more about financial comfortability click here) [...]

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