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
Eating Out: -$100
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.
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?