The foundational rule of most financial programs is to live on less than you make. This can be expressed many different ways: live within your means, spend less than you earn, or stop living paycheck to paycheck. In this post I want to take issue with one of the above statements. Stop living paycheck to paycheck. I have a problem with this particular statement. Before I get into my issue with the statement, let’s define the meaning of the statement. The business dictionary defines it as:
A term referring to a situation in which an individual must meet all financial obligations with current earnings from one pay cycle to the next. Individuals who live paycheck-to-paycheck typically have no significant liquid assets.
With such a general definition, most of the people I know are living paycheck to paycheck. To be totally honest, based on the definition above Mrs. Broke Architect and I are living paycheck to paycheck. And it appears that we will be living this way for a while. I am not admitting our situations as an acknowledgement of our failure. I am making this statement to acknowledge the fact that in order for us to truly stop living from paycheck to paycheck, we have to obtain financial independent. I personally hate hearing someone advising people to stop living paycheck to paycheck. Because not living paycheck to paycheck takes a lot of mental focus, financial determination and time. And most of us do not have the ability and or patience to stop living paycheck to paycheck.
As for our situation, we live in the DC metro area where everything seems to be expensive. Mrs. Broke Architect and I need a paycheck and a half of the next check to cover all of our monthly cost (and we’re debt free). This leaves half of a paycheck that we can use to build wealth. Currently, most of our wealth building is done in the form of retirement savings—primarily in our 401ks. Seeing that we do have a large amount of money in a none retirement investment account and we do not own any rental property, we have no choice but to live from paycheck to paycheck.
As a blanket statement, I believe most Americans live paycheck to paycheck. It is a matter of how you live from check to check. In our living from check to check, Mrs. Broke Architect and I decided to live debt free expect for our mortgage. This allows us to max our 401k and lowers our taxable income, which means we give the government a smaller portion of our income due to our increased pre-taxed saving amount into our 401k. Additionally, we live a frugal, minimalist lifestyle and we are contently tracking and evaluating our spending to ensure we are living below our means. Lastly, we also have six months of emergency fund. This is how we have chosen to live from paycheck to paycheck with some level of comfort and stability.
The bottom line is that living paycheck to paycheck is on the path to financial freedom if you do it correctly. Mrs. Broke Architect and I maybe living from check to check for multiple years as we continue building our wealth. Wealth building can be a slow process; it may take us 10 plus years to meet our target saving amount.
So, if you are living paycheck to paycheck, it may not be as large of a problem as you have been led to believe. It is a matter of how you are living during this phase of your life. Are you making financial decisions that will change your family’s future? Or are you looking to have the typical American life where most people cannot handle a $500 emergency without pulling out a credit card? Where the typical car payment is over $350. Where the average American family as only has $5000 in savings. We can do better; we must do better. We must take our financial future into our own hands. I challenge you get on the path to financial freedom, it is our only option.
How are you living from paycheck to paycheck?
Without sacrifice there is no growth
The Broke Architect