Many workers in the United States receive their paychecks every two weeks - many federal and state employees are in this group. At the same time, most bills and payments that people make are paid on a monthly basis.
This creates an interesting situation. Over the course of a year, there will be two months where an individual will receive three paychecks - occasionally, when the calendar lines up, there will be three months in a given year where this happens. During every other month, a person receives two paychecks.
I was once in these shoes. My last job paid me every two weeks, and I know quite well some of the traps people can fall into…
Treating that “extra check” as a reward. Like many people who live on biweekly checks, I usually thought about things in a monthly pattern, since that’s when the bills came in. This meant that most months, I paid the bills with two paychecks. Then, when I would have a month where I would get paid, say, on the 2nd, 15th, and 29th, I would treat that third check as some kind of “bonus” - giving me free reign to blow it on frivolous stuff. This “extra” check is where many of my big unnecessary purchases came from - that would often be the source of a new video game console or an iPod. I wouldn’t use it for things like paying down debts because, well, I was “paying” those bills with my normal checks and I had convinced myself that this third check really was a bonus.
Failing to develop a regular bill-paying schedule. Another challenge of the conflict between the biweekly checks and the monthly bills is that it was quite difficult to have a regular bill paying schedule. Usually, I’d pay bills whenever my latest check came in, and this worked fine most of the time. But when irregular bills hit, or a bill came in the day after I paid bills, I’d run into trouble and sometimes rack up some late fees simply because my checking account balance would be waiting for that next infusion of cash in two weeks.
Running “dry” between checks. This leads into my third problem. Quite often, I’d get my check, pay my bills, and find that my checking account balance was really low. That meant that the expenses I needed to pay for for the rest of the period would go on the ol’ plastic and stay there - groceries, gas, and so on would wind up being fodder for pushing my credit card balances to the moon.
How can one get past these problems? Here are four great tactics to use if you’re paid biweekly but struggle to make things work on a monthly schedule. They worked well for me, anyway.
Strongly adopt a two week schedule
Ignore the fact that your regular bills come in on a monthly basis. Instead, adopt a strict two week schedule for paying the bills. When you’re paid, pay whatever bills are outstanding immediately. Do this with every single paycheck.
I adopted a routine of paying the bills every other Monday like clockwork. I’d collect all the bills in a consistent spot as they came in, then I’d sit down on bill paying day and go through them, knocking all of them out. If I had more bills than cash, then I tapped my emergency fund a bit, but with the further tactics below, it wasn’t long before that wasn’t a problem.
Create a healthy emergency fund and fund it every paycheck
One of your regular bills that should come out of every paycheck is a strong allotment to a savings account somewhere - your emergency fund. Your emergency fund is there to handle large irregular bills and to handle true emergencies, like your car breaking down.
Don’t know how much to contribute? Start by contributing 10% of your paycheck to your savings account right off the top each time you get paid. If your paycheck is $1,000, immediately put away $100 for emergencies. You may find later that this isn’t enough, but you’ll almost never find that it’s too much.
Build a sizable buffer in your checking account
Once the bills are paid, it can be awfully tempting to see what’s left as free spending money. The bills are paid, time to go party, right? It sounds good on paper, but if you do that each time, you’ll eventually find that there are two week periods where you don’t have the cash to even cover your ordinary bills. What about those weeks when your mortgage, your car payment, your electric bill, and your cable bill all stack up? That’s more than your paycheck right there.
“Isn’t that what an emergency fund is for?” Normal bills are not an emergency. Normal bills are normal - things you should easily be able to cover with your normal pay. If you’re having difficulty with this, particularly when it’s paired with spending binges, then something has to change.
What you should effectively do is decide that the absolute minimum balance in your checking account at any time should be equal to a paycheck. If you look at your account balance and it’s less than a paycheck’s worth, you don’t have spare money to spend needlessly. That way, even when the bills stack up, you can pay them all with ease, without worrying a bit about it. It also ensures that you won’t be overdrafting.
Budget in a small amount of free spending each paycheck
Many people will think that building up such a buffer will add up to no fun at all. “I’m not going to give up my fun!” is something I hear quite often.
You don’t have to. You just need to put some constraints on it, like putting a bridle on a horse. You can still go for a nice, fast gallop, but you’re not in danger of things going completely out of control.
Just set yourself a free spending budget each paycheck - your allowance, if you will. I suggest withdrawing it into cash. Then, when you’ve spent it, you’re done - no hitting the ATM for more. If you want something big, save up that money over a few pay periods and buy it. Use this budget for all of your unnecessary expenses - eating out, buying gadgets and extra clothes, golfing, and so on.
The danger comes when you don’t set any limits and drain your account thanks to frivolous spending. Putting yourself on an allowance keeps this in check but allows you to still enjoy life.
The Simple Dollar chronicles a man's road to recovery from "total financial meltdown." As author Trent Hamm puts it, "The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two." We'll post a couple of entries a week, but you can check out his writing daily at www.thesimpledollar.com