In months when you are paid every two weeks, you’ve undoubtedly noticed a little extra money. You may even have assumed that your company’s payroll system had made a mistake. But it’s not a blunder. You only get two months like this a year where you get a third pay check and your monthly costs stay the same at the same time. Cheers up! But what you need is a plan with that additional money.
What is the main cause of this? In a 52-week year, if you’re paid biweekly, you’ll receive 26 pay-checks. In other words, for two months out of the year, you’ll be getting paid for three.
There’s a lot of value in those two extra pay-checks. However, if you don’t have a strategy in place, they can just vanish. Fast. Finding out when your two pay-checks will be deposited is the first budgeting tip for saving two payments. Take out a calendar and jot down your pay-checks for each month of the year, emphasizing the two additional. To keep track of when your bank account will be credited with more dollars, you may want to set up a calendar reminder on your phone. Tracking the additional pay-checks in advance is essential since they will fall on various days each year.
Budgeting with an additional income may be done in a few different ways, each of which should be tailored to your unique circumstances and financial objectives. It’s up to you whether you decide to set aside a certain amount of money each month or whether you’d rather spread it out throughout the year.
How can I plan for an additional paycheck in advance? If you get paid biweekly, here are five budgeting tips:
#1 Pay off your high-interest loan first
Think about how a third salary can help you pay down debt once you’ve finished leaping for pleasure.
Make a note of all your debts and classify them by amount and annual percentage rate before using your new budget and an extra salary to pay them off (APR). Paying down the loan with the highest APR might save you the most money because you are paying the most to carry a balance. Paying off a few low-interest, low-balance bills might help you build momentum and reap additional financial rewards. In other words, if you’re near to maxing out a credit card, your credit score might suffer because of your high credit use ratio.
With an additional paycheck, you’ll be able to free up even more money from following paychecks if you prioritize debt payback in your budget.
#2 Establish an emergency savings account
Budgeting with an extra salary isn’t only about paying down debt. It’s critical to have an enough emergency money on hand. It’s critical.
You may avoid taking on additional debt by setting aside three to six months’ worth of your typical monthly spending as an emergency fund. These money can be better protected if they are kept in a different account from your usual checking and savings (and reduce the temptation to dip into them for non-emergency expenses). A high-yield savings account, a certificate of deposit, or a money market account can serve as an emergency fund.
Create an emergency fund or add to an existing one if you need to save two paychecks. One way to achieve this is to have your additional paychecks automatically deposited into your emergency fund.
#3 Make an effort to save towards a long-term objective
Two full paychecks out of 26 can be a good start if you want to save for a goal like a new vehicle or house or contribute to tax-advantaged retirement funds.. As a budgeting trick if you’re paid biweekly, move your two additional paychecks from your bank account to a savings or retirement account as soon as possible.
The maximum yearly match in your company 401(k) may be enough to sway you toward a Roth IRA if you have already maxed out your contributions in your company 401(k). First-time home buyers who have kept a Roth IRA for at least five years are eligible to withdraw up to $10,000 to buy a house. Both of your big goals would be within reach if you had an extra wage to work with.
In the grander scheme of things, you may save up to start your own firm. If you’re thinking about establishing your own business in the future, you may want to consider setting aside a portion of each paycheck as a form of seed money.
#4 Stay on top of your bills
If you’re paid biweekly and receive a third paycheck and already have an emergency fund, debt-free status, and are saving regularly, consider this budgeting hack: Prepay a portion of your monthly expenses to avoid late fees. Prepaying some of your payments might alleviate some of your financial stress in the coming months.
If you’re paid monthly, ensure with your suppliers that you won’t be hit with a prepayment penalty and familiarize yourself with any prepayment limits before employing this budgeting tip. Car insurance premiums may be paid in whole, and some providers may even reward you for doing so. Prepaying your utility, mobile phone, and/or rent payments can be a good idea as well.
#5 Afford essential compensations
It’s important to keep in mind that managing money is about more than just the cash amount. Financial decisions are frequently influenced by one’s feelings, which are frequently the driving force behind them. Acknowledging this truth is a critical step in effectively managing your finances.
Whatever the reason, you may be looking for a break from the daily grind or a chance to learn something new with your family or friends. A budgeting method to save two salaries might be augmented with some self-spending.
To save two paychecks, there isn’t a budgeting strategy that works for everyone
Many people move back and forth between different budgeting methods when faced with a one-time windfall. If you have a debt-reduction objective and an additional income, you may put it all toward that goal instead of spreading it out. Another possibility is that you set a 10-year retirement goal and haven’t made any progress toward achieving it. A little amount of the money might be directed toward achieving your goal. The savings potential of a third salary can help you build a strong financial foundation, even if your budgeting methods differ from those of your peers.