Paycheck-to-paycheck nation

What does it mean to live "paycheck to paycheck"? I peruse the Wall Street Journal, Motley Fool, and various finance columns and am told quite firmly that I don't want to be doing it, but what exactly is it? David Bach is a personal finance author. In Tuesday's column he says that "over 70 percent of Americans continue to live paycheck to paycheck." In order to have a statistic like that, there must be a clear standard that distinguishes the P2P versus the non-P2P persons. But what that standard is, I have never been able to find out.

Taken literally, if you are "living from paycheck to paycheck" and the paychecks stop coming, what happens then? You die? Too literal. You are flat broke? But then the above statistic implies that 70 percent of Americans have no net worth. That seems ridiculous. Maybe it means "no savings"? But then, what counts as savings?

I feel like I live paycheck to paycheck, but it's partly a self-imposed illusion that helps curtail spending. Admittedly, if I stopped getting paid I'd have to engage in drastic cost-cutting immediately and might resort to credit in as little as six weeks (I've never bothered to develop the much-advised "six month cushion"). On the other hand, sixteen percent of my gross pay goes into the 401(k) plan and another four percent into the employee stock purchase plan. That steadily increases my net worth, but maybe it isn't the kind of "savings" that the paycheck-to-paycheck folk talk about. Hard to tell. But in my circumstances, it just seems to make more sense to take pre-tax money and put it into a 401(k) earning 10% than take after-tax money and put it into a 3% account. It's certainly less of a spending temptation this way as well. I suppose I won't be the darling of the personal finance scolds, but so far it's working for me.