Monthly budget, bi-weekly paycheck

[corn18]

The fact that I get paid every 2 weeks and my budget is planned monthly was driving me batty. I could either average the monthly income which could create cash flow issues or 2 months out of the year show income spikes. I don't like either of those.

I fixed that by taking the 2 "extra" paychecks out of the plan. So each month, I get 2 paychecks. Now I have a nice monthly flow of predictable income. I also track irregular expenses like car registration, kid camps, vacation, etc… outside the base budget. That is all covered by short term savings I take out of my pay each month and build up a fund to cover all of them through the year. So now the base budget is a very tidy representation of income vs. expenses. This may seem trivial, but it has really helped us nail down our monthly expenses.

So now I have $11,977 of planned, monthly income after all deductions and savings and $10,492 of planned, monthly, regular expenses each and every month. Haven't decided what to do with the excess yet. I guess I'm still nervous about sticking to the budget, although so far this year we have underspent the base budget by $1,963, which is good.

Tom

[kork13]

That is essentially the same as what I do with my budget. I include all regular, recurring expenses in my monthly budget, then pay for all irregular expenses (insurance, vacations, etc.) out of short-term savings. The trick is actually allocating a healthy monthly amount to boost that short-term savings as a part of your monthly budget. In the end, you're basically "pre-paying" those irregular expenses by saving up for them.

As for those "extra" 2 paychecks, I would personally direct them both straight to your short-term savings, and that would probably cover a good amount of your irregular expenses. Add an extra $200-$300/mo to short term savings from your base budget, and you should be covered.

[corn18]

As for those "extra" 2 paychecks, I would personally direct them both straight to your short-term savings, and that would probably cover a good amount of your irregular expenses. Add an extra $200-$300/mo to short term savings from your base budget, and you should be covered.

That's exactly what I do. That helps keep the monthly allotment for ST savings to a reasonable amount. The 2 paychecks cover about 1/2 of my annual ST savings requirements and the monthly allotment covers the other half. I do keep a healthy cushion in ST savings as well as I am new to this approach.

[snafu]

We follow a similar [personal escrow] plan plus practice zero based budgeting so that any sum left in checking is swept to a linked savings account with a few computer clicks. When the sum is sufficient it gets invested in the targeted investment. It's shocking how those tiny, leftover bits turn into substantial [ROTH-like] portfolio.

[hamchan]

My husband and I are paid on opposite weeks, so we have an extra paycheck four times per year. We use the extra check to pay down debt or put into savings. Whichever makes the most sense at the time. I also try to plan vacations around these pay periods, since paid vacation isn't really a thing in my line of work. That way losing a week of pay won't effect our ability to pay bills.

[LivingAlmostLarge]

We use it for short term savings the extra two paychecks it makes it easy to budget.

[elessar78]

ok help, I understand that there are 26 pay periods a year and only 12 months per year (2x12). But the extra paycheck has never materialized for me. Where is my planning going wrong? I've tried to analyze this situation before but always decided that the "extra paycheck" was an illusion.

For example, in 2014 January and July are the 3 paycheck months.

My system works out to where check #1 goes to: mortgage, living expenses, spending money, and savings, check #2 goes for living expenses, spending money and savings. On months where the third check comes in, it comes so late in the month that it's basically the first check of the next month. If I don't use check #3 to pay for next month's mortgage payment then I couldn't pay it (without going into saved monies) until the 13th of the following month.

Enlighten me, O wise ones.

[corn18]

EXAMPLE: Annual take home pay $120,000. If you get paid every 2 weeks, you average $10,000 / month. But you actually get $9,230.76 for 10 of the months and $13,846 the other 2 months. So, set your budget to live off of $9,230.76 each month and you can just save the extra 2 paychecks when they come.

For you, why you aren't pocketing an extra paycheck on the 2 months where you get 3 paychecks is beyond me. If you have no money left in those months, you are spending that extra somewhere.

[hamchan]

It usually gets used/saved the month before. For example, next month my husband gets paid on the 2nd, the 16th, and the 30th. May's rent will come out of his check on the 2nd (since it's set up to deduct from our account on the 3rd) and June's rent will come out of the check on the 30th. But this month he got paid on the 4th and the 18th. Rent had already been paid by the 4th, and next month's rent will come from the check he gets on the 2nd. So neither the check he got on the 4th nor the 18th needed to go to rent. So I took his check from the 18th and used it to pay off credit cards.

Of course this is somewhat oversimplifying things, since I also get paid on the alternate weeks, and one of DH's checks isn't quite enough on it's own to cover rent (he carries all our insurance, so lots of deductions), but you get the basic idea.

[paystub]

EXAMPLE: Annual take home pay $120,000. If you get paid every 2 weeks, you average $10,000 / month. But you actually get $9,230.76 for 10 of the months and $13,846 the other 2 months. So, set your budget to live off of $9,230.76 each month and you can just save the extra 2 paychecks when they come.

For you, why you aren't pocketing an extra paycheck on the 2 months where you get 3 paychecks is beyond me. If you have no money left in those months, you are spending that extra somewhere.

Very good example, and i Agree with you "tomhole"...

[Gary4587]

I think weekly is much better option.

[Patrick_OG]

It usually gets used/saved the month before. For example, next month my husband gets paid on the 2nd, the 16th, and the 30th. May's rent will come out of his check on the 2nd (since it's set up to deduct from our account on the 3rd) and June's rent will come out of the check on the 30th. But this month he got paid on the 4th and the 18th. Rent had already been paid by the 4th, and next month's rent will come from the check he gets on the 2nd. So neither the check he got on the 4th nor the 18th needed to go to rent. So I took his check from the 18th and used it to pay off credit cards.

Of course this is somewhat oversimplifying things, since I also get paid on the alternate weeks, and one of DH's checks isn't quite enough on it's own to cover rent (he carries all our insurance, so lots of deductions), but you get the basic idea.

This is called living paycheck to paycheck. Try to avoid this. Your best solution is to divide the expenses across all paychecks. This actually increases your amount after expenses because everything is averaged over all paychecks. I wrote a program to solve this, if you check my profile you may read the webpage.

[krantcents]

The fact that I get paid every 2 weeks and my budget is planned monthly was driving me batty. I could either average the monthly income which could create cash flow issues or 2 months out of the year show income spikes. I don't like either of those.

I fixed that by taking the 2 "extra" paychecks out of the plan. So each month, I get 2 paychecks. Now I have a nice monthly flow of predictable income. I also track irregular expenses like car registration, kid camps, vacation, etc… outside the base budget. That is all covered by short term savings I take out of my pay each month and build up a fund to cover all of them through the year. So now the base budget is a very tidy representation of income vs. expenses. This may seem trivial, but it has really helped us nail down our monthly expenses.

So now I have $11,977 of planned, monthly income after all deductions and savings and $10,492 of planned, monthly, regular expenses each and every month. Haven't decided what to do with the excess yet. I guess I'm still nervous about sticking to the budget, although so far this year we have underspent the base budget by $1,963, which is good.

Tom

Have you thought of creating a biweekly budget? I would create a 13 period budget. You could take your monthly expenses, multiply it by 12 and divide by 13. Therefore every period (4 weeks) would match your income and expenses.

[hamchan]

This is called living paycheck to paycheck. Try to avoid this. Your best solution is to divide the expenses across all paychecks. This actually increases your amount after expenses because everything is averaged over all paychecks. I wrote a program to solve this, if you check my profile you may read the webpage.

I've tried it this way before, but I didn't like it. Most bills are due monthly so it makes more sense to me to budget based on four weeks' pay. Also, living paycheck to paycheck implies that you don't have any money left when the next paycheck arrives, which is not the case for me.

[Patrick_OG]

It usually gets used/saved the month before. For example, next month my husband gets paid on the 2nd, the 16th, and the 30th. May's rent will come out of his check on the 2nd (since it's set up to deduct from our account on the 3rd) and June's rent will come out of the check on the 30th. But this month he got paid on the 4th and the 18th. Rent had already been paid by the 4th, and next month's rent will come from the check he gets on the 2nd. So neither the check he got on the 4th nor the 18th needed to go to rent. So I took his check from the 18th and used it to pay off credit cards.

That's not what you said here.

The concept of living paycheck to paycheck is that you pay the total bill amount with a specific paycheck. Dividing the amount over all your paychecks gives you more control in the long run, and you aren't worried about whether or not the paycheck is big enough. No offense, but your method seems unorganized, lackadaisical, and prone to mistake.