One of the things that held us back from being financially successful for years, was confusion over how to allocate our money. A topic that came again and again over the years was how to make a monthly personal budget when you get paid bi-weekly. It is one of the main reasons our budgets failed time and time again. When you have monthly bills and are paid on varying dates it can get very confusing, very quickly. I did a bit of research (not scientific at all!), and found that a large portion of people I asked were paid bi-weekly as well. We finally figured out a system that works for us.
Make a budget that works for you
- Make a list of all the bills that are due in every month: We have only one bill that is due quarterly, but if you have several take the amount and divide it by the number of months until the next payment is due. This would include things like life insurance, auto insurance, sewer and trash bills. Our only quarterly bill is our sewer/trash/recycling bill. It’s $130, so I save $44/month for it. It goes into our short-term savings (more on that soon).
- Add up all your fixed monthly expenses, and divide that number by 2: If your mortgage or rent is equal to about 35-40% of your net pay, you can use one check for “mortgage plus living expenses,” and one for “debt, utilities and other bills plus living expenses.” This is the method we use, and I will continue to use it until we are debt free.
- Make a 2 Week Budget: This sounds crazy, I know. How can you make a 2 week budget when you have monthly bills? The key to making a 2 week budget is to know what bills are being paid by what paycheck for this month, and allocating the extra money to your spending categories. For instance since I know that one check will be the mortgage I know how much will be leftover to spend, so I just break that money down by category. It might look something like this:
Paycheck (net): $3,000
Mortgage: -$2,000
Groceries: -$300
Gas: -$100
Allowances: -$25
Eating Out: -$100
Pets: -$75
Misc.: -$100
Savings: -$300
Total: $0
Note: The Savings amount is not your automated savings, this is your short term savings used for things such as clothing, gifts, and other expenses that are unpredictable.
Another approach is you could try taking a daily $ spending amount which would look like this.
Net Pay - Fixed Expenses= $X/14=Y
Y=daily spending amount
Net Pay: $3,000 - Mortgage: -$2,000 = $1,000-$300 Savings=$700/14 days=$50/day
You may spend $200 at the grocery store one day, and that’s okay, you just have to keep a tally (on paper, a spreadsheet, or online money software), and know that you may have several days where you have No Spend Days, or spend less than your allotted amount.
What about those 2 “extra” checks each year?
There are 2 ways to approach the “extra” money you get twice a year.
- It’s not there. Act as though those “extra” checks aren’t there, and deduct spending $ and short-term savings for that period. The take the rest of that $ and throw them at debt or long-term savings. This forces you to live on less. You are living off about 92.5% of your net pay, and the other 7.5% is a bonus every year.
- It’s short-term savings. Use the extra money (minus spending cash) to fund your short-term savings for the year. This is an account you should use for things like clothing, gifts, car maintenance, etc.
By living on a 28 day budget, you will end up getting an entire month ahead. You can continue to live ahead of the curve, and spend last month’s money on this month’s bills. Then when you are 1.5 months ahead take an “extra” check, and use it in one of the ways outlined above.
Say you are starting the new year a bit ahead, here is an example of when you would take your “extra” check.
Paydays
1/7 Mortgage (due 2/1)
1/21 Other Bills (February bills)
2/4 Mortgage (due 3/1)
2/18 Other Bills (March Bills)
3/4 Mortgage (due 4/1)
3/18 Other Bills (April Bills)
4/1 EXTRA CHECK
4/15 Mortgage (due 5/1)
4/29 Other Bills (May bills)
Are you paid bi-weekly? How do you handle it?
Kelly
photo credit: orphanjones
Alicia Cornish says
Thanks so much for these tips! They have been SUPER helpful!
Passingthru says
Just starting earning a salary that is bi-weekly. Have been twice a month for years. Converting is exciting being that I know I’ll have two extra pay checks a year.
As for budgeting, getting there, but my goal is to not worry about paying per paycheck bu instead picking two dates and making all payments then. Unfortunately, I have double expenses at this point, but will eventually get rid of a mortgage payment and then I’ll succeed with my goal of not paying attention to the dates of the pay periods, but instead focus on the two dates in the month when I pay my bills.
I’m sure it will take some time to adjust to the new routine. Good luck!
Brian says
This is great Kelly. I wrote about this in a post about the "Two Paycheck Method" discussing what to do with that extra paycheck. This is essentially how i live.
Great that you went back to update this!
Brian says
This is great Kelly. I wrote about this in a post about the "Two Paycheck Method" discussing what to do with that extra paycheck. This is essentially how i live.
Great that you went back to update this!
Megan says
I get paid monthly - on the last day while my husband gets paid monthly on the 15th. We divide up the bills according to what is due when and he pays certain things and I pay others. It's not perfect but it works for us!
Megan says
I get paid monthly - on the last day while my husband gets paid monthly on the 15th. We divide up the bills according to what is due when and he pays certain things and I pay others. It's not perfect but it works for us!
This is very helpful-thanks!
This is very helpful-thanks!
Mary, thank you!
Ideally with bi-weekly pay the goal should be to get 2 weeks ahead of the bills.
For instance I name our checks. One is mortgage, one is everything else. Both include room for groceries, etc.
By sticking with that I have been able to get a month ahead of the bills, and then we have an "extra" check that goes to one of our big goals like paying down debt.
Mary, thank you!
Ideally with bi-weekly pay the goal should be to get 2 weeks ahead of the bills.
For instance I name our checks. One is mortgage, one is everything else. Both include room for groceries, etc.
By sticking with that I have been able to get a month ahead of the bills, and then we have an "extra" check that goes to one of our big goals like paying down debt.
Mary says
I forwarded this post over to a friend who also gets paid bi-weekly as well. She always seems to be in a frenzy with organizing payments every payday, this should help her though. Thanks a lot
Mary says
I forwarded this post over to a friend who also gets paid bi-weekly as well. She always seems to be in a frenzy with organizing payments every payday, this should help her though. Thanks a lot
Kelly says
Love your post, Cathy! Thanks for sharing it. I’m a very visual person so your method will help me tremendously.
Bill, nice of you to stop by.
We’ve always been paid bi-weekly, so I don’t know how I would deal with any other pay schedule!
Kelly says
Love your post, Cathy! Thanks for sharing it. I’m a very visual person so your method will help me tremendously.
Bill, nice of you to stop by.
We’ve always been paid bi-weekly, so I don’t know how I would deal with any other pay schedule!
Bill says
Great post. I love these kind of “real world” examples of how people are dealing with budgeting issues.
I actually preferred getting paid bi-weekly instead of on the 15th and the end of the month for the reason you stated of being able to treat the extra two checks as a “bonus”.
You also hit the nail on the head by noting that it helps tighten your budget, living on 92.5% of your income. The two extra checks can really take a bite out of any debt lying around!
Again, great post and thanks for sharing. Good luck to you, although it doesn’t sound like you’ll need it because you’ve got a plan!
Bill says
Great post. I love these kind of “real world” examples of how people are dealing with budgeting issues.
I actually preferred getting paid bi-weekly instead of on the 15th and the end of the month for the reason you stated of being able to treat the extra two checks as a “bonus”.
You also hit the nail on the head by noting that it helps tighten your budget, living on 92.5% of your income. The two extra checks can really take a bite out of any debt lying around!
Again, great post and thanks for sharing. Good luck to you, although it doesn’t sound like you’ll need it because you’ve got a plan!
Cathy @ Rainy Day Pennies says
I was going to publish my article in a few days, but since you already published this great topic, I thought I would release it early!
Basically, I draw a ‘map’ showing how all my accounts are related and the bills from each one. I calculate the monthly total, then the per check total for each one. The ‘extra’ 2 checks a year just filter into a little bit of a buffer.
Creating Mind Maps for Budget Planning
Cathy @ Rainy Day Pennies says
I was going to publish my article in a few days, but since you already published this great topic, I thought I would release it early!
Basically, I draw a ‘map’ showing how all my accounts are related and the bills from each one. I calculate the monthly total, then the per check total for each one. The ‘extra’ 2 checks a year just filter into a little bit of a buffer.
Creating Mind Maps for Budget Planning