When you live paycheck to paycheck, it means that you are not earning extra money and putting it in savings while you live off of the assets that you already control. You need those paychecks for basic expenses like the mortgage and food.
If you do live this way, you are certainly not alone. Some studies have discovered that the majority of Americans live paycheck to paycheck, putting it at about 54%.
This means that bankruptcy may be a constant consideration and may be far closer than you think. All it takes is one unexpected bill for you to suddenly not be able to pay for everything that you need. Say your child has to go to the hospital for a night and it costs $2,000. Say your car breaks down and it’s going to be $5,000 to fix it. There are all sorts of things that can happen in a split second that can derail all of your financial plans when you’re living paycheck to paycheck.
Earning more does not necessarily help
It’s not just people making minimum wage who are living this way. About 40% of people who make more than $100,000 every year claimed, in the same study, that they also lived paycheck to paycheck. The only difference was that the amount that their expenses were higher. They had bigger mortgages or higher car payments, for instance, but they were still just as close to bankruptcy as someone making far less money.
You can see just how fragile your financial position may actually be, even when it seems like things are going well. If you do need to file for bankruptcy, it’s important to know about all of the proper legal steps to take.