Living paycheck to paycheck is a term I hear often within the personal finance community. There are some different definitions out there for what this truly means, but I struggle to fully comprehend what it means to NOT live paycheck to paycheck (P2P).

Does it mean that if you missed one month’s salary and you could survive – you weren’t living paycheck to paycheck?

Do you need the 6-month emergency fund built up?

Or, in the case of JL Collins – do you need that all important F-U money?

What does living paycheck to paycheck mean?

When I landed my first job out of college and I started paying my monthly bills, I seemingly spent exactly what I made!

I kind of kept track of my expenses – basically checking in on my credit card balance once every week or so to ensure it wasn’t getting too out of control. Also, I kept a minuscule emergency fund, which I often dipped into for things I didn’t need to spend money on.

It is funny how that became routine for me. If I spent too much one month, I’d tighten up my spending a little next month, so I could pay my credit card off in full. I guess one thing that I did do well was pay off my credit card each month.

I enjoyed being able to pick up the tab at the bar for my friends or buy excessive rounds of shots (which I still do, but on a much less frequent basis).

My future wife and I would travel. However, back then we did have some frugalness because I always coupled our travel with where I had work meetings (usually in Southern Cali)…

But, at the end of the day, I knew I was living paycheck to paycheck. 

And I would ask myself: Why am I living like this?

How did I know I was living this way?

Shortly after starting my career, I began hearing the term paycheck to paycheck more often, and I thought it was normal to live this way. I was saving some money, and I had a plan to knock out my student debt quickly.

I executed the plan horribly because I never checked in on my plan.

In the back of my mind, I knew I had to get my budget in order, develop a plan to eliminate debt, execute on that plan, and rebuild my emergency fund. Because I didn’t take my budget seriously and because I didn’t check in on my budget regularly – I kept overspending each month by continually “swiping the plastic.”

I knew I needed to change. I knew that my loose spending habits were preventing me from executing on my plan to get out of debt and save more money.

How to stop living paycheck to paycheck…

I started by getting my finances under control.

First, I began tracking where all of my money was going. You can do this by collecting receipts or using a software tool like Mint. Next, I created a budget that I STUCK TO and CHECKED IN on it.

Third, I built up my emergency fund to a healthy level to combat any events that were thrown my way.

Fourth, I iterated on my get out of debt plan by creating a debt snowball. And that snowball turned into an avalanche where we eliminated $97k of debt in less than a year.

Finally, we started investing and increased our savings rate drastically.

In closing…

Now, we don’t live paycheck to paycheck. We could get by with our emergency fund for a while, and if needed, we could dip into our investments. That is if we stopped getting paid for whatever reason.

So I guess my definition to get out of living P2P is to have enough cash set aside to cover your life as you live it now for at least a few months (preferably up to six months).

I am NOT saying this to brag or gloat, but to encourage you to work to get yourself in this position. A position where cash doesn’t rule your life, but YOU rule your life and do what makes YOU happy.

What is your definition of living paycheck to paycheck?