Have a weekly or a biweekly paycheck? Do you get bonuses in your paychecks? I guarantee you do. Here's a budgeting tip for you.
Getting a regular paycheck is a blessing in many ways. There's a stability in being an employee.
A regular paycheck makes budgeting fairly straightforward. Straightforward enough that you can budget with pen and paper!
I've earned a paycheck every two weeks from my day job — the same day job — since 2000. (I've been told it's uncommon these days to work at a job that long.)
A paycheck every two weeks gives me 26 or 27 paychecks a year, depending on when the first payday falls during the year. Most of the time, it's 26 paychecks per year.
With 12 months in the year, most months I receive two paychecks per months.
But in two (or occasionally three) of those months, though, I get an extra paycheck.
Regular budgeting with regular bonuses
You might see where I'm going with this.
Let's say we base a monthly budget on two biweekly paychecks, and we manage to stay within budget with just those two paychecks.
That's a great place to be.
Because then those extra paychecks that show up every few months are like hefty bonuses — bonuses that can be put toward any kinds of purposes.
Knock out something big
Let's look at an example.
Let's say that you earn $52,000 per year, and get paid every two weeks. That's twenty-six paychecks of $2,000, of which you might take home $1,500.
So twice a year, you'll receive a “bonus” paycheck of $1,500. By most standards, that's quite a bit of money.
Assuming that you budget regularly for $3,000 per month (two paychecks), then you can throw this extra $1,500 at something big.
(If you get paid weekly, this works the same way, but in smaller amounts more often. Taking the same example above: rather than getting two two-week bonus paychecks, you'll get four one-week bonus paychecks, each for about $750.)
Here are some big things:
- Emergency fund. Dave Ramsey recommends getting an emergency fund of $1,000 before doing anything else financially. (It's the first of his seven Baby Steps to taking control of your money.) Sock just one extra paycheck and BOOM! You're done with Baby Step 1. Next!
- Knock down a credit card balance. Maybe you've been working down some personal debt you've accrued. Maybe one of them you've knocked below $1,500. Slay that dragon and put that payment you were making back into your budget.
- Allocate a big yearly expense. This might be an annual insurance payment, like car insurance. Our yearly car insurance is about $1,000/year, so one $1,500 payment would more than cover that. You might even save some money by paying for the entire year up front instead of month by month.
- Invest it. Either in Roth IRA or some other investment vehicle that you understand well. Something that makes your money work for you.
- Pay for Christmas. Or some other entirely discretionary expense like a vacation, a cruise, or whatever. Nothing says that you can't enjoy what you've earned now!
How to make this work with your budgeting
All good ways to use those “bonus” paychecks, right?
It would be nice if all of these things happened magically by themselves, but there are a few things to put into place to make it all work.
Follow a monthly budget without the bonuses
Base your monthly allocations on the two bi-weekly paychecks per month (or the four weekly paychecks per month).
If you don't have a zero-based budget, you can either use Mint.com (which is free) or try out my pen and paper budget (also free).
Getting through February is the easiest: only 28 or 29 days.
The other months are harder because you're effectively trying to use 28 days' worth of pay for 30 or 31 days.
Make sure you're keeping the budget!
Check at the end of each month. Reconcile your checking account and credit card statements to make sure that you're not spending more than you pull in for the two bi-weeklies or the four weeklies.
Then with those bonus paychecks, you'll truly be able to “roam about the cabin” and use them for good purposes, rather than covering the pieces that you overspent the months prior.
Lots of ways to budget. This budgeting tip is one of them.
No one way works for everyone. If you've tried other ways without success, then try again! The only time you fail is when you stop trying!
