If your checking account is usually empty by payday, does that mean you are living from paycheck to paycheck?
As it turns out, “paycheck to paycheck” means different things to different people.
Nearly half of Americans believe they are living from paycheck to paycheck, according to a recent report from Bank of America Institute.
Yet, when the think tank applied a strict definition of “paycheck to paycheck” to actual bank accounts, researchers found that only about a quarter of households were actually subsisting from one payday to the next.
What does ‘paycheck to paycheck’ actually mean?
Strictly speaking, living paycheck-to-paycheck means spending nearly all your income on necessities, such as rent, child care and food.
For ordinary consumers, however, living from paycheck to paycheck might simply mean their checking accounts run dry by the time their next paycheck arrives.
“The common-sense definition is that by the end of the month, you have spent your entire paycheck, and you’ve got nothing left over,” said David Tinsley, a senior economist at the Bank of America Institute.
The good news, experts say, is that many Americans who live from one payday to the next are doing reasonably well, despite appearances.
“Sometimes it feels like you’re doing bad because you don’t have much left between paychecks,” said Elizabeth Ayoola, a personal finance expert at NerdWallet. “But your net worth says otherwise.”
In a recent NerdWallet survey, 57% of Americans said they were living paycheck to paycheck.
But are they, really? Among the paycheck-to-paycheck respondents in the survey, 31% said they contributed regularly to a savings account. More than one-fifth said they had an emergency savings account.
It’s important to note that neither NerdWallet nor Bank of America defined what it meant to live paycheck to paycheck in their surveys.
To the experts, living from paycheck to paycheck generally means that necessities swallow up your income. If you are saving aggressively for retirement, or spending lavishly on gym memberships and housekeepers, then, by definition, you are not living paycheck-to-paycheck.
Clearly, though, many Americans use a different definition.
Living paycheck to paycheck isn’t necessarily bad
For millions of consumers, financial experts say, living paycheck to paycheck means most of your paycheck is gone when the next one drops. And that is not necessarily a bad thing.
“If you are putting that savings away, if you have emergency funds in place, if your debt is not out of control, then even if you are living from paycheck to paycheck, you are probably doing pretty well,” said Ayoola, the finance expert at NerdWallet.
For many consumers, NerdWallet found that the paycheck-to-paycheck feeling doesn’t mean you are broke; you are just “tightly budgeted.”
Let’s say you manage to live on a 50-30-20 budget, allocating 50% of your income to needs, 30% to wants and 20% to savings.
You “pay yourself first,” setting aside 20% in savings on the day you get paid. Throughout a pay period, you spend the other 80% on your needs and wants. Your checking account balance gradually drops toward zero. But your savings accounts remain flush.
“One hundred percent of your budget is spent, so it doesn’t look like there’s anything left over,” said Melissa Cox, a certified financial planner in Dallas.
But you are not living paycheck to paycheck, according to Cox, “as long as you’re putting money aside – and there are some people who don’t like keeping money in their checking account.”
More of us live paycheck to paycheck
However you define “paycheck to paycheck,” more of us seem to be living that way.
In the Bank of America surveys, the share of consumers who said they lived from paycheck to paycheck has gradually risen, from about 35% in early 2022 to 47% in the third quarter of 2024.
“I think, mainly, it’s about inflation,” Tinsley said. Consumer prices rose swiftly in 2022 and ticked up further in 2023 and 2024.
When the Bank of America researchers looked at a strict definition of living paycheck to paycheck, they noted a similar trend.
Nearly 30% of households spent more than 90% of their income on necessities in 2024, a larger share than in 2019.
More than a quarter of households spent at least 95% of their income on necessities. That figure, too, is rising.
Wealthy Americans, too, feel financially stretched
Researchers were surprised to find that low-income Americans weren’t the only ones living from one paycheck to the next.
Among households earning more than $150,000 a year, one-fifth met the strict definition of living paycheck to paycheck, the think tank found.
One possible reason, Tinsley said, is that higher-income households are more likely to own expensive homes, which come with high mortgage payments.
If you feel you’re living from paycheck to paycheck, USA TODAY has rounded up the following expert tips on how to gauge your financial health.
Is your debt under control?
If you have unsecured debt, such as a credit card balance, and you are unable to reduce it with monthly payments, that could be a sign your finances are stretched.
“It’s pretty obvious when you talk to clients if they have a lot of debts,” Cox said. “Those are the type of people I would say literally are living paycheck to paycheck because there’s not enough to go around.”
Are you saving money every month?
Regular contributions to a retirement account are a good sign that you’re not really living from paycheck to paycheck, experts say.
Another marker of financial stability is keeping an emergency savings account, ideally one with sufficient funds to cover three to six months of expenses.
“This not only offers peace of mind but also lessens dependence on your next paycheck,” said Ashley Folkes, a certified financial planner in Birmingham, Alabama.
The key is to keep supplementing that account if you need to withdraw from it.
Are you spending on nonessentials?
In the NerdWallet survey, many consumers who said they lived paycheck to paycheck were also spending on entertainment and luxuries, including subscription services, gym memberships, salon treatments and house cleaners.
Strictly speaking, experts say, many of these individuals are not living paycheck to paycheck. They could stop paying for luxury expenses and have more money in the bank on their next payday.
