Having a Monthly Budget While Getting Paid Every Two Weeks…(aka “Why We Got A Month Ahead”)
For years our family budget was on a “every-2-week” schedule. I’d get paid every two weeks, so our budget would be planned for that amount of time and would restart two weeks later. The problems with this are that most of our bills (actually, all of our bills) are on a monthly schedule, and the amounts don’t change much (like our monthly mortgage payment, phone bill, etc.) The only things that aren’t monthly are things like food, gas, and other miscellaneous expenses, all of which are variable (but rarely change by too much). I didn’t like saving up half of the house payment one paycheck and saving the rest during the next check. Some bills were due during one paycheck and others would be during the second. And since I get paid every two weeks, the paychecks showed up at different times in the month. It would be different if the checks came on the 1st and the 15th of each month. That would be easy. Mine come every 14 days, which means that I may get paid on the 1st and 15th one month, and then on the 3rd and 18th of the next month, and so on. At some point my first paycheck of the month won’t come until almost the second week of the month. What if I have a bill that is due on the 10th of every month but I don’t get the money until the 13th? I understand that it is no big deal to budget that way, and maybe most people do it, but I’ve always envisioned an easier way…
Now, we have a true monthly budget. It doesn’t matter when we get paid during the month. Here’s the key: We use last month’s money to pay this month’s expenses. We only budget the money we actually have. The trick was to get two months’ worth of money into our checking account (which is trickier than it sounds). Here is a real-life example, but using made-up numbers to make the math easy:
- Over the course of many months, we’ve saved up more than two months’ of living expenses. Yes, that means that if our family typically budgets/spends $4000 a month, we had to wait until we had about $8000 in the bank.
- In March, I was paid twice, which came to more than $4000.
- In April, I paid all of our monthly bills at one time. I used to pay those at certain intervals, waiting until my second paycheck came in so that we could pay larger stuff like house payments using both of my checks. But now, I just pay the mortgage whenever I want (the start of the month) because I’m using March’s paychecks. I also pay all utilities that are due in April, all food, gas, and miscellaneous using March’s money. I pay them all at the start of the month with no worries that the money won’t be there. And April’s money (April’s paychecks) is just sitting there, waiting to be used in May.
- At any given time during the month, we have at least one full month’s worth of expenses in the bank, but it is usually more like 2 months’ or a little more.
- I never worry about whether we have the money to pay a normal monthly bill. I know I have it. I received it a month ago, in two installments (bi-weekly checks).
Here is another great reason to do it this way. Twice a year, we have a month where we receive three paychecks instead of two because there are five weeks in two of the months. I think this usually happens in July and December (or something like that…I can’t recall). Since I know that we live on two paychecks per month, the third paycheck in July (and December) can go straight into savings. An entire paycheck going into savings. Pretty sweet. In the above example, that would mean that twice a year I’d drop $2000 in the savings account. Booyah…
So far it has worked well. Maybe there is some flaw in my new system, but I can’t find it yet. If there is, please point it out. I’d love to know it before it secretly causes my personal economic empire to crumble over night…