Living Paycheck to Paycheck

I attended an informative, hour-long financial seminar the other day in my neighborhood. Near the end, someone asked the question "How do I know if I'm living paycheck to paycheck?"

I raised my hand, and the speaker allowed me to answer her question. In short, living paycheck to paycheck means that if you didn't get your next paycheck, or a month's worth of paychecks, you would be unable to pay your bills. You would most likely need to borrow money to pay the rent, pay the mortgage, and/or buy groceries. Living paycheck to paycheck also means that if a financial emergency occurs, such as a $500 automobile repair, you don't have the cash on hand to pay the bill.

How do you get out of the cycle of living paycheck to paycheck? Here are a few ways to break this cycle:

• Build your emergency fund
• Pay off debt
• Plan and save for for future expenses (such as auto repairs)
• Get adequate insurance

You'll find peace of mind when you have an emergency situation and you have enough money in the bank to take care of the situation.

Spending Priorities

Over the last couple of months, we have had two devices at home start to give us trouble.

The first is a computer that we used to record over the air TV (our digital video recorder, or DVR). This computer started freezing at random times during the day. Freezing even while running a live CD operating system such as Knoppix or Ubuntu helped me come to the conclusion that this was a hardware issue, and not an issue in Windows. I began shopping around for a new or refurbished computer, but wasn't willing to spend less than $500, so I could get a PC that would last a few years. We have several PCs throughout the house, and one day I was looking at the specifications on one of these computers. It turns out that the processor was fast enough to work with Windows Media Center, but the PC needed more RAM. A $75 order for more memory on Crucial.com allowed me to re-purpose a PC we already owned and save a wad of cash.

The second device that started acting up is an older CRT TV. Lately, it would show the picture in color, but after a couple of minutes most of the colors would turn green, and almost make it unwatchable. One night, I got tired of the green color, and told my wife I was going to replace it. I started looking online for a nice LCD HDTV. I found several sales at local stores that I planned on visiting the next day. I planned on spending between $300 - $400, money that I had previously budgeted to go to emergency savings, but had not transferred to savings just yet. The next morning, I decided to look in the local online classifieds, and found the perfect replacement: $10 for a used 26" CRT TV (the same size as our failing TV). I called the number on the listing, arranged to pick it up, and brought it home. You know what, it works great, and even fits in the cabinet where we had our old TV.

For $85, we were able to get our home entertainment back to where it was before the devices began to fail. I could have spent around $1000, but this money had other priorities. Upgrading an existing PC and purchasing a used TV helped us stay in our budget.

$1773

$1773. That's what it recently cost us to replace our failing water heater and pressure reducing valve (PRV) in our home. We've known that both items had issues, and finally called a plumber. He showed up, said we needed a water new water heater, a pressure tank, and a PRV. Knowing that these items needed to be replaced sooner rather than later, we agreed to the estimated price and he started to work. After about 3 hours, he had replaced each item and the hot water and water pressure in our house was back to normal.

How did we handle the cost? Simple. We paid for the repairs out of our emergency savings account. Repairs of this type couldn't wait any longer, and we're glad we had the money available so that instead of this financial burden becoming an emergency where we would need to borrow money to pay for the repairs, it was simply an issue of transferring money from our savings account to pay the plumber once he had finished his work. No big deal at all. We even went out to eat that night because paying for emergencies from our emergency fund doesn't affect our regular monthly budget.

We will need to replace the emergency savings we spent on repairs, but we will tackle that one month at a time.

What are your experiences when an unexpected expense such as plumbing repairs comes to visit? Please leave your comments below.