While most people are familiar with the traditional approach to budgeting their money every month, you might want to break down your budget into smaller chunks if you are still have trouble. Planning your budget around your pay periods may help you get a better understanding of your expenses and the timing of their payments. Budgeting is all about cash flow, knowing where it goes, and monitoring changes. Budgeting each time you earn a paycheck can keep you out of hot water should you run into an unexpected expense.
Break Down Your Expenses By Paycheck
Like most people, I get paid twice a month on the 1st and the 15th of each month. We all have several major reoccurring expenses that must be accounted for in each pay period. For example, my mortgage and insurance payments are debited from my checking account on the first of each month. My wife’s car payment and the investment for my Roth IRA and sons’ 529 College Savings Plans are paid on the 15th. When my wife bought a new car, we asked the bank to make the payment due date the exact same date as her previous car loan payment date. That way we kept our two week budget intact.
What About Ongoing Expenses?
What about the things that you do every week? What about groceries? What about eating out at restaurants? When constructing a budget based on two pay periods, you should divide these expenses in half. If you use the envelope system to buy your groceries, you should divide the money equally. For example, my wife and I spend $400 per month every month on groceries for our family. We allocate $200 out of every paycheck for groceries and only go shopping for them every other week. This keeps our spending in check.
Use the Envelope Method to Categorize Expenses
Part of this process can be made simpler by using the envelope method to categorize your expenses. For example, after you’ve devised a budget, set aside an envelope for each expense. Label the envelopes. When you are paid, put money in the envelopes and then dispense the money accordingly. You can take any excess out to go towards savings or to an envelope for the next pay period. The envelope method is an excellent method to use if you want to keep close track of what you spend.
Shift Extra Income From One Pay Period To The Other
Establishing a budget for your money each time you are paid strengthens your cash flow. If you find that you have money left over after you are done budgeting, you’ll need to see where you can apply the excess. For instance, you may find that you can add to your investment accounts with extra money you did not spend. Or, perhaps you will find out that you need to shift money from one budget category to another. These changes can be made easily when you are budgeting two weeks at a time.
When you plan your budget by paycheck, you uncomplicate the process of spending and saving. Budgeting your money whenever you get paid allows you to make needed adjustments without feeling undue stress or strain.
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I get paid every two weeks which would make it hard to implement your plan for a few reasons:
Rent or mortgage payments are due once a month, so you advocate splitting it into two “payments” and then sending it out once a month?
The other issue is that once every 6 months, there is a month with 3 pay periods. Plus, if you’re budgeting two weeks at a time and then you have 3 days left over, what happens to those?
I budget two paychecks a month, and with the third that sometimes occurs, I just throw it in savings.
I get paid every two weeks and this is pretty much what I do. I set my recurring bills to come out every 4 weeks instead of once a month, so I’m now about a month ahead on many of my bills!
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