The dreaded third pay check

October 19, 2009 · 10 comments

For those of us that get paid every two weeks, we face an epic battle, that others do not. For us, managing a budget is no easy task. Ten months of the year, things are just fine, but when March and October come around, my whole world turns upside down…I get an extra paycheck.

Although it is definitely a good problem to have, it does make things more difficult than other payment plans. We are really left with two options…

We can break up the two extra paychecks, by twelve, and calculate that in to our budget. Say for example you get $2K every two weeks. That means 10 months of the year your income will be $4K, but for two months it will be $6K. You can take the extra $4K (from the two extra paychecks) and divide that by twelve, this gives you $333. For budgeting purposes, you can average your monthly pay to be $4,333. In my opnion this method sucks. It’s a lot of work, a lot of planning, and a waste of time.

I subscribe to the “Booya, extra money” budgeting plan. Instead of breaking up my extra two paychecks over the entire calender year, I simply pretend they don’t exist. If I get $2K every two weeks, then I budget my cash flow around a $4K monthly income. When the time comes for the extra paycheck, I get to do with it what I want. Why? Because I have established spending habits around a $4K income.

If you haven’t noticed…it’s October, which means I’ll have an extra $1,500 coming my way. Perhaps I will buy 1,500 McChickens, maybe I’ll give it away to one of my lucky readers, but most likely I will contribute to my Roth IRA or pay down my student loan. Ah, the life of being a frugal ninja :) I know there are others that get paid every two weeks. What method do you use? Is there a third option I haven’t thought of?

{ 10 comments }

1 Jake Stichler

I do my budgeting paycheck to paycheck, rather than month to month, for just this reason. The "Paycheck Allocation" sheet in my budget spreadsheet tells me what to do with each paycheck when it comes in. So, for me, rather than having an "extra paycheck," on occasion I end up going two paychecks without paying certain bills or debts, as each one is paid with the check immediately preceding the due date. This also results in a much faster and more reality-based payoff plan, rather than pretending those extra checks don't exist. The skipped payments also don't always match up with the extra-check months.

For example, my 12/18 paycheck will partly be used to make my credit union loan payment. 1/1/10 and 1/15/10 checks fly by, then a paycheck on 1/29/10 that comes in just in time for the 1/30/10 due date. I know this example doesn't match the last sentence of the previous paragraph, but whatever, it was the first one I could find without looking to hard in my slightly intoxicated state.

2 Michelle

I know it's sheer laziness and coincidence, but my two extra paychecks generally fall on/about my auto insurance renewal date – so bub-bye $800 of each of the extra checks! (lazy meaning I don't accrue the $125 or so each of the 6 months leading up to the policy renewal). The balance I throw at a budget category that's gotten walloped (like auto repairs) or pay down debt.

3 Frugal Urbanite

The extra paycheck is 'extra money' to us. Granted, we've normally got it earmarked for something before it even hits the bank, but we don't factor it into the month by month budgeting.

4 Duddes02

I get paid every two weeks, but I'm pretty sure my pay is Salary/24 instead of Salary/26. Does that make sense? I get paid on the 15th and the last day of the month…I never get an extra paycheck though.

Am I missing something?

5 SS4BC

That sounds like a "nice problem" to have. I get paid once a month – and while it may be easier to budget because of monthly expenses – it is harder to make changes to the budget. Essentially I get only 12 shots in a year to get it right – rather than 24 (or 26).

@Duddes02 – some people just get paid on the 15th and the last. Other people every other week. If you get paid every other week then you end up with 52/2 = 26 paychecks – which ends up with three paychecks in one month twice in a year.

My part time job pays every two weeks, but just the second and fourth Friday of the month – so I also never see an extra paycheck either from that job.

6 Duddes02

Thanks SS4BC! That makes sense

7 Anonymous

All into savings!*

*Except for the little bit that is going to my credit card since I went a bit nutso knowing that I had an extra load of cash coming my way. Wasn't able to pay the full balance like I normally do last week.

- Courtney

8 Jesse

Didn't you just blog about cash flowing purchases? This is a gift to you, cash flow that paycheck into that digital camera you have been promising yourself for years or whatever ;)

OK, I'd probably pay off debt with it but I can dream through you right?

9 Single Guy Money

I don't add the additional money in my budget. I just transfer the entire amount to savings. Sometimes though, I take a little bit and splurge with it.

10 Becca

I don't smooth out my income either; the paycheck is currently earmarked for Roth IRA contributions, but in the past it has been used for debt or trips to Europe or whatever floats my boat. :-)

Also, for those of you who get paid on a set time each month, your paycheck is smoothed out already, since instead of being paid every 14 days you will be paid every 15 or 16 days, or flipping between 14 days and then 16 or 17, depending on the month. You are only biweekly if you are paid every 14 days (for example, every other Thursday no matter date or week).

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