Living "paycheck to paycheck" -- isn't that the point?

[BuckyBadger]

If you are automatically contributing to retirement accounts, savings accounts, investments and the like, isn't living "paycheck to paycheck" kind of the point?

I'm asking this because as my EF begins to grow, my checking account -- the account from which we pay cc bills (we charge EVERYTHING we can on a rewards card and pay it off in full every month), mortgage, utilities, etc. -- seems so low, especially in comparison. It's kind of freaking me out. I worry about one automatic utility payment getting forgotten and causing an overdraft.

I'm thinking aobut keeping an extra $1,000 in there and just considering in my mind that $1,000 = $0, if that makes sense.

What do you guys think? About both the meaning of the phrase in general, as well as my $1,000 = $0 plan.

Thanks!

[jpg7n16]

I have a different meaning to the phrase than what you do.

I think you're meaning 'paycheck to paycheck' as 'what's left over from my paycheck is just enough after saving to get me by to the next paycheck'

Whereas I usually think of the term as 'if I don't my paycheck I can't pay my bills' or 'this paycheck is just enough to pay my bills, and there's nothing left for me' - typically used of someone with a lot of debt payments, and high expenses.



If you're able to save, I don't think you're living paycheck to paycheck. I want to say there was another thread recently debating what exactly it means to live paycheck to paycheck. I'll see if I can find it...

edit: yeah check out DS's thread here Paycheck to paycheck: I just don't get it

Or this one here: Paycheck-to-Paycheck Mindset

Those may give you some more information about the mindset you're looking for.

[Joan.of.the.Arch]

Yeah, go ahead and keep some padding in your checking account for your peace of mind.

[snshijuptr]

I keep $2000 in my checking at the end of the month mainly because DH doesn't get paid until the 5-7th but also because I'm afraid of an overdraft.

[disneysteve]

We've talked about this before.

Paycheck to paycheck means spending every penny you make between the time you get paid and the time you get paid again. No money set aside for savings or future needs. Nothing left over at the end of the 2 weeks between checks.

What you are describing is not paycheck to paycheck. You are talking more about cashflow issues. I do think you should have a buffer in your account because some expenses are variable. You might have a larger utility bill during the coldest part of the winter or the hottest part of the summer. You might have to pay for a costly auto repair one month. You might go on vacation and charge more to your credit card. So you either need a cushion in checking or you need another account from which you can transfer funds easily in time to pay the bills.

[bjl584]

Two different things.

Living paycheck to paycheck is cashing your paycheck then spending every dime on bills, fun, etc. and being basically broke until the next paycheck. No money is set aside for retirement or for emergencies.

If you have a solid budget in place, then by its very nature you will live paycheck to paycheck but it isn't the same as what is described above. You earn x in your pay, you then take x and divide it according to your budget. Part will be saved for retirement, part will be allocated for bills, part will be allocated for spending money, etc. Essentially you have taken your entire paycheck and divided it up according to your budget. No more money will come into your budget until your next paycheck, but you are far from broke until that happens. You are following a well thought out plan and you know exactly how much money you have and where it is.

[BuckyBadger]

Originally Posted by disneysteve

So you either need a cushion in checking or you need another account from which you can transfer funds easily in time to pay the bills.

EF, right? And then pay back into the EF by diverting savings or decreasing spending until it's back up to a comfortable level?

I must sound idiotic. I have a PhD for crying out loud! But "Personal Finance" was never a course offered to me...

[littleroc02us]

Why is your EF account tied in with your daily account. The EF is suppose to be an account all by itself and never used except for emegencies. AS for worrying about an overdraft, how is that possible if your are following a written budget that you are following?

[bjl584]

Originally Posted by BuckyBadger

EF, right? And then pay back into the EF by diverting savings or decreasing spending until it's back up to a comfortable level?

I must sound idiotic. I have a PhD for crying out loud! But "Personal Finance" was never a course offered to me...

An EF isn't for paying bills or day to day expenses. It is for emergencies only. (Medical emergency, car breaks down, furnace breaks, basically anything that may happen that you haven't budgeted for.) Keep this seperate from your checking account.

Anything that you do buget for (groceries, gasoline, utility bills, entertainment, etc.) would be kept in your primary checking account.

Build up your EF to between 3 and 6 months worth of expenses then set it aside and forget about it. Once built up, divert the money that you were funding it with for other purposes (extra retirement, car fund, extra spending money, college fund, etc.) If you must draw from your EF, then rearrange your budget to divert money back into it until it is built back up to its original level of 3 to 6 months worth of expenses.

Don't feel bad about not knowing a lot of this stuff. They don't teach it in school. It comes with time and experience.

[BuckyBadger]

Originally Posted by littleroc02us

Why is your EF account tied in with your daily account. The EF is suppose to be an account all by itself and never used except for emegencies. AS for worrying about an overdraft, how is that possible if your are following a written budget that you are following?

Because I'm trying to invest everything I can that I'm not already saving or budgeting for. I'm trying NOT to keep more money in my active checking account than necessary. I'm thinking of variable bills that I budget the average for, but by definition, sometimes the bill is above average.

But I'm also thinking more about the following sort of case: the animals go to the vet once a year and it's like $350. It's not an evergency, I'm also not going to take $13.50 out of my account every pay period and put it somewhere else to "prepare" for a bill that I can easily pay by not putting those $350 into savings for a month. Or by taking $350 out of my EF for a month and putting it back next paycheck.

I guess I'm thinking of the EF more as a unusual circumstances fund. I mean, if I have 26k in cash in an account that is totaly liquid, do I need another completely separate account with a few thousand in it that is also liquid? I don't see why? I'd be happy to listen if someone wants to give me their opinion!!

But maybe this is all academic, as I haven't been trying to keep my checking account low yet. Up until now we've had a variable amount in the account -- from a few thousand to a few ten thousands. Now I want to try and make that money work for me, which entails making it harder to get to. That's the change in mindeset I'm looking at.

ETA: I suppose it's because we have more than enough money to pay our bills and meet our goals, but it's all about what imaginary bucket you're putting it in...after all, money is fungible.

[jpg7n16]

I view my 'EF' as the total level of cash I have on hand across all accounts.

I personally only have a checking account, and don't bother with a savings account. I have about 3 months expenses in that one account, and I have other liquid securities held in a brokerage account (about 4 more months -and growing! - expenses held in stocks and a bond fund). Then I have my retirement accounts.

If I had a savings account, I would just add the checking balance to the savings balance to determine how much cash I had on hand. That should fall between 3-6 months expenses combined.

So for your EF, if your expenses are $2000/month and you determine you want a 6 month EF, IMO that would be $12k held in cash across all cash accounts. So, I have no problem with $2-3k in the checking and 9-10k in savings. Or $5k in checking and $7k in the savings. I personally wouldn't care either way. Whatever helps you sleep at night.


Sinking funds, like your vet expense or for car repairs, I personally don't consider saving extra for those. I'll just deduct from my EF when it happens, then build back up to 3 months. This lets me keep the most in my brokerage account at all times.

[cypher1]

Originally Posted by BuckyBadger

Because I'm trying to invest everything I can that I'm not already saving or budgeting for. I'm trying NOT to keep more money in my active checking account than necessary. I'm thinking of variable bills that I budget the average for, but by definition, sometimes the bill is above average.

But I'm also thinking more about the following sort of case: the animals go to the vet once a year and it's like $350. It's not an evergency, I'm also not going to take $13.50 out of my account every pay period and put it somewhere else to "prepare" for a bill that I can easily pay by not putting those $350 into savings for a month. Or by taking $350 out of my EF for a month and putting it back next paycheck.

I guess I'm thinking of the EF more as a unusual circumstances fund. I mean, if I have 26k in cash in an account that is totaly liquid, do I need another completely separate account with a few thousand in it that is also liquid? I don't see why? I'd be happy to listen if someone wants to give me their opinion!!

But maybe this is all academic, as I haven't been trying to keep my checking account low yet. Up until now we've had a variable amount in the account -- from a few thousand to a few ten thousands. Now I want to try and make that money work for me, which entails making it harder to get to. That's the change in mindeset I'm looking at.

ETA: I suppose it's because we have more than enough money to pay our bills and meet our goals, but it's all about what imaginary bucket you're putting it in...after all, money is fungible.

I'm kind of in the similiar setup with my EF. I keep my EF in ING along with my car fund balance. I also have a few thousand in my reg savings account tied with my checking account at credit union. Now that is more of short term savings for home projects/repairs, and hobbies fund. While I don't have pets, I factor seasonal costs like resealing driveway this summer, auto insurance every 6 months, even xmas budget for next year into that savings. Thats just my setup. Others may have better solutions or systems to work to your lifestyle.

[disneysteve]

What we do is similar to what you are asking about, OP. We do not maintain a specific "emergency fund" account that we don't touch. Our cash reserves are more liquid than that and fluctuate from month to month. Some months, I transfer excess money in the checking account into the money market. Some months I need to transfer some money from the money market into the checking account. It all depends on our spending that particular month.

We don't follow a budget. We spend what we need to spend when we need to spend it. But we are financially secure enough to do so without getting into any trouble. We DO budget our savings and never waiver from that plan.

So in practice, there are occasionally times when, for example, a $4,000 credit card bill comes in but we don't have enough in checking to cover it at that moment and still pay all of the other bills. So I either hold that bill until I deposit my paycheck or I transfer money into checking from savings to cover that bill. It is all about cashflow.

[littleroc02us]

Because I'm trying to invest everything I can that I'm not already saving or budgeting for. I'm trying NOT to keep more money in my active checking account than necessary. I'm thinking of variable bills that I budget the average for, but by definition, sometimes the bill is above average.

Traditionally, and if you go by it, an EF fund is a seperate account that isn't for investment purposes, it's kept liquid so it can be easily obtained, it's not to be borrowed from. Just leave it alone.


But I'm also thinking more about the following sort of case: the animals go to the vet once a year and it's like $350. It's not an evergency, I'm also not going to take $13.50 out of my account every pay period and put it somewhere else to "prepare" for a bill that I can easily pay by not putting those $350 into savings for a month. Or by taking $350 out of my EF for a month and putting it back next paycheck.

So, what happens if you take out the $350 for the vet and then you have an emergency where the car dies or something? Are you going to borrow then? Defeats the purpose of an EF.


I guess I'm thinking of the EF more as a unusual circumstances fund. I mean, if I have 26k in cash in an account that is totaly liquid, do I need another completely separate account with a few thousand in it that is also liquid? I don't see why? I'd be happy to listen if someone wants to give me their opinion!!

3-6 months expenses in your EF, I don't need justification for this because it's the smart thing to do unless you are someone who likes to borrow for emergencies. .

[elessar78]

In a weird way, I do live paycheck to paycheck because I treat savings as another line item in the budget, no different than, say, the electric bill. So at the end of each pay period every dollar is spoken for.

We've essentially cut our discretionary spending to bare bones so when it get's close to pay day we're running on empty. But not really since we're putting away a good bit into savings, but the effect is generally the same because if we're running low we try to stay disciplined and not dip into "saved money" to cover our costs.

[BuckyBadger]

Originally Posted by littleroc02us

But I'm also thinking more about the following sort of case: the animals go to the vet once a year and it's like $350. It's not an evergency, I'm also not going to take $13.50 out of my account every pay period and put it somewhere else to "prepare" for a bill that I can easily pay by not putting those $350 into savings for a month. Or by taking $350 out of my EF for a month and putting it back next paycheck.

So, what happens if you take out the $350 for the vet and then you have an emergency where the car dies or something? Are you going to borrow then? Defeats the purpose of an EF.

If by "borrow," you mean, "from myself," then yes. If I paid $350 from my EF for the vet and then had car expenses I would have $25,650 still to pay them. Then over the next few paychecks I would build my EF back up to $26k.

You may be misunderstanding my goal. I have no consumer debt to pay down. I don't need to pinch every penny -- just keep track of things before anything could get out of hand. I am trying to figure out the best way to put away the most money I can toward furure wants and needs, while still living a comfortable lifestyle and without dedicating my life to budgeting minutia.

My overall goal is like that of elessar78 and disneysteve. Make "paying myself (ourselves)" an important and primary part of where each paycheck goes, and spend the rest however we want.

[littleroc02us]

Originally Posted by BuckyBadger

If by "borrow," you mean, "from myself," then yes. If I paid $350 from my EF for the vet and then had car expenses I would have $25,650 still to pay them. Then over the next few paychecks I would build my EF back up to $26k.

You may be misunderstanding my goal. I have no consumer debt to pay down. I don't need to pinch every penny -- just keep track of things before anything could get out of hand. I am trying to figure out the best way to put away the most money I can toward furure wants and needs, while still living a comfortable lifestyle and without dedicating my life to budgeting minutia.

My overall goal is like that of elessar78 and disneysteve. Make "paying myself (ourselves)" an important and primary part of where each paycheck goes, and spend the rest however we want.

Sorry I was mistaken about the 26k checking account thing. I guess you do what you want, but if it were me I would put aside and EF account and then use the rest to invest or put towards a major purchase.

[Mithrin]

I like to keep a buffer in my checking account so that I don't have to worry about overdrafts. I generally keep an extra 1K in checking. It's more than the largest check I write each month (rent), so I don't have to worry about whether the rent check is cashed before the paycheck clears. Also, my bank now requires a minimum balance to avoid a monthly fee, and the padding keeps me from getting hit with that.

[Redraidernurse]

We always keep a cushion in our checking account, so we never give a second thought worrying about any over drafting.

[tripods68]

From our Net Pay checks, we automatically saved at 1,124 - to 1,625 per month towards our EF. Our monthly goal is to saved 1,500 a month till we reach our 8 - 10 months EF. We're half way on our goal but it's by no means easy...and its a constant struggle. The point is, we hardly keep any balance on our checking account.

Not to get off tangent, but last night I was watching 60 minutes which they featured "homeless" kids living on motels because of the depression-era with millions of families who have loss their jobs, homes, etc. Many of them have gone to sleep hungry.

It made me sad a bit tearful but thankful at the same time how lucky we are as a family. Both of us still have our jobs while raising our two wonderful kids to the best of our abilities. With our many busy lives, sometimes its nice to be reminded, what we view as daily struggles, are no way be compared to those families who have suffered far deeper than many of us here...We are all should be bless and thankful.