Times are hard and living paycheck to paycheck can make them even more precarious. Providing yourself some financial cushion not only provides peace of mind but also may save you from having to file bankruptcy in the future. Let’s take a look at a few ways that living paycheck to paycheck can lead to financial hardship.
- No emergency cash. Emergencies are simply a part of life. It’s not a matter of if something will happen but when. Living without a cushion of emergency cash means that you will repeatedly depend on credit cards to rescue you when the unexpected happens. But depending on the length and severity of your emergency, this temporary boost from credit may not be enough and at some point you may be unable to repay it.
- Job loss equals disaster. When living paycheck to paycheck, you don’t have enough assets or cash on hand to absorb the shock of a job loss. Losing just one month of pay could land you on the streets. Or at best, in desperation you’ll take a job that doesn’t pay enough to cover your expenses and debts. *Job loss – When living paycheck to paycheck, you don’t have enough assets or cash at hand to absorb the shock of a job loss. Losing just one month of pay can have serious consequences. Without some financial cushion you may find yourself taking a job that doesn’t pay enough, rather than holding out for one that covers your expenses and debts.*
- Even happy events can cost you. An upcoming wedding, a new child, an amazing job opportunity that would require you to move: happy events and fortunate opportunities can also translate into unexpected expenses. Having the money saved up before they are even on the horizon will allow you to fully enjoy these moments rather than have to spend time and energy figuring out how you will pay for them.
Your first step in stopping to live paycheck to paycheck is by starting an emergency fund. We often emphasize this point on this blog: though emergency funds take time to build, they are worth the peace of mind they provide.