If you are paid biweekly, or even every week, you have the opportunity to save an entire paycheck twice each year. Don’t lose that extra money you receive each year.
How It Happens
If you are on one of these pay plans then, twice a year, you receive an extra paycheck. The reason I call this an extra paycheck is because ten months out of the year you receive, and live on, two paychecks a month. However, twice a year you will receive three paychecks a month. Now for those who are paid weekly, stick with me, you also need to look for the months where you will receive five paychecks instead of four and apply the same process I will detail below.
Now before you learn the hard way, there is one problem, the timing of the three paychecks does not typically allow you to save the extra paycheck since they are usually needed to pay bills. Since I was living like approximately 68% of American households, living paycheck to paycheck, I could not just save that additional paycheck without some planning.
How To Solve It
You have already proven that you can live ten months out of the year on two (or four) paychecks, so save the extra income received the other two months. In order to save the extra paycheck you need to split the savings up over the next three paychecks so you can continue to pay all of your bills and save the paycheck. The extra paycheck comes at the end of the month, right before bills are due, and it is easy to miss this opportunity if you are not prepared to take advantage of it.
For 2013, March, May, August and November have five Fridays, so the last Friday of these months will be the extra paychecks we will target to save. Once again rent/mortgage payments are generally due at the beginning of the month so saving all of the third paycheck is nearly impossible, unless you have a plan.
How It Works
Here is an example of how to shift the third paycheck from May and November and save that extra paycheck in June and December, with a paycheck of $1,200 biweekly and monthly bills of $2,400:
. Typical Scenario: Your New Saving Scenario:
Monthly Bills: $2,400 $2,400
Biweekly Paycheck #3: $1,200 $1,200
Biweekly Paycheck #1: $1,200 $1,200
Biweekly Paycheck #2: $1,200 $1,200
Total Income: $3,600 $3,600
Savings – Paycheck #3: $ 0 $ 400
Savings – Paycheck #1: $ 0 $ 400
Savings – Paycheck #2: $ 0 $ 400
Total Savings: $ 0 $1,200
Savings Missed: $1,200 $ 0
In this example I split up the savings over three paychecks and was able to save an entire paycheck. If you use this method you may need to adjust how much you save out of each paycheck but you will still be able to meet your budgeted financial obligations and save the extra paycheck.
Remember, if you don’t do this plan, the extra paycheck will find a way to slip out of your account with little or nothing to show for it. This way of managing the extra paycheck is the normal way of managing money where things happen to your money without you thinking about it. I did this for years but I decided that I don’t want to be normal and I now choose to save the extra paycheck and choose where my extra paycheck is spent.
Something Will Happen
Knowing how to save your extra paycheck allows you to choose where you want that extra monthly income to go instead of wondering where it went. If you are not sure of the best way to use this newly found money to your financial situation, contact me, and I will help you find the solution that is right for you.
So what are you going to do with those extra paychecks?