How Much Money in the Bank Makes You Poor?
The concept of being “poor” is often seen as a black-and-white, yes-or-no state of being. You’re either poor or you’re not. However, the reality is that poverty exists on a spectrum, and where you fall on that spectrum depends on a variety of factors, including how much money you have in the bank.
While there’s no specific dollar amount that qualifies you as poor, there are some general guidelines and red flags that it’s good to be aware of.
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Do You Have Three Months of Living Expenses?
One of the most commonly cited guidelines for avoiding poverty is having enough money saved to cover three months’ worth of living expenses. This represents the bare minimum emergency fund that financial experts recommend keeping on hand.
“It is difficult to characterize ‘being poor’ with a cash savings threshold,” said Thomas Brock, expert contributor at Annuity.org. “Personal financial situations and budgetary habits vary widely, as do saving and investing preferences. That said, a conservative rule-of-thumb is that you should have at least three months of living expenses stored in a highly liquid vehicle. The inability to maintain such an emergency reserve is indicative of poverty.”
No matter how frugal or financially savvy you may be, life will inevitably throw you curveballs in the form of car repairs, medical bills, home repairs, or any number of other unexpected costs. Without a financial safety net to cover those costs, they can quickly snowball into overwhelming debt.
“You will never break the cycle of being poor/in debt if you don’t prioritize an emergency fund,” said Mark Henry, CEO of Alloy Wealth Management. “You may work hard to pay off your credit cards, but the first unexpected expense will put you right back in debt. Most people aim to have three to six months of expenses in their emergency fund to cover things like car trouble, medical bills or losing their job without notice. Even if you can’t save enough to cover three to six months of expenses, every little bit helps.”
Of course, building up that level of savings is easier said than done, especially if you’re living paycheck-to-paycheck. However, even socking away a few dollars here and there can go a long way in an emergency. Every little bit helps, and it’s better to have some cushion, no matter how small, than to be completely caught off guard.
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Are You Making Ends Meet Without Going Into Debt?
Being able to consistently pay all of your bills on time without relying on credit cards or other forms of debt is a positive sign that you may not be living in true poverty. The ability to make ends meet with just your income, even if you have little to nothing left over after paying expenses, means that you’re at least treading water financially. You may not be getting ahead or building up savings, but you’re also not sinking further into debt every month.
“The definition of poor is ‘lacking sufficient money to live at a standard considered comfortable or normal in a society,'” said Henry. “So while there isn’t a specific amount of money that makes you ‘poor,’ you should be able to pay for your basic living expenses — food, housing, utilities, etc. — without using a credit card or going into more debt.”
If you’re able to consistently pay your bills while also slowly building a little savings, even at a snail’s pace, that’s a good indication that you may be living with financial insecurity, but not necessarily in poverty.
Are You Living Paycheck-to-Paycheck?
One of the most obvious indicators that you may be poor, or at least living in financial insecurity, is if you find yourself living paycheck-to-paycheck. When every penny you earn is immediately accounted for in paying bills, buying food and covering other basic necessities, it leaves you with virtually no wiggle room to build up savings or handle unexpected expenses.
“If you find yourself living paycheck-to-paycheck and scraping pennies together to make ends meet, I would suggest taking a closer look at your finances as well as your lifestyle,” said Henry.
While living paycheck-to-paycheck is certainly not a sustainable or desirable financial situation, it doesn’t automatically mean that you’re impoverished. There are scenarios where even individuals with decent incomes may be temporarily living this way due to short-term strains.
But if you’re consistently living month-to-month with no clear path towards building your savings or improving your standing, that’s a major red flag that you could be living in poverty.
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This article originally appeared on GOBankingRates.com: How Much Money in the Bank Makes You Poor?
