The Extra Paycheck Club

Combine Tour to Save Money

Summertime! And the living is easy — especially if you are in the Extra Paycheck Club, and you might be whether you want to be or not. While two paychecks each month is still standard for many people, some employers pay bi-weekly. Instead of getting paid twice a month (24 paychecks/year), you get paid every other week (26 paychecks/year). It’s not exactly free money; you end up getting paid the same rate annually, just split over more paychecks.

Example: if you’re making $52,000/year before taxes, on a twice-monthly paycheck, your gross paycheck is for $52K/24 = $2167 per pay period. Bi-weekly paychecks for the same year would be $52K/26 = $2000 per pay period.

There are two main implications:

You make less each month. Same amount of money over more paychecks = less money per paycheck. Not exactly rocket science, but there’s an opportunity here to trick your brain. If you budget as if you were still getting two paychecks each month, you live on less each month. In the example scenario, you tell yourself that you’re making $4000/month, which is true for 10 months a year. If you set a monthly budget based on that amount, you live on less than you’re actually earning each month. It’s a neat psychological trick – pretending the money doesn’t exist may help curb spending.

You get two “extra” paychecks a year. If you’re on a bi-weekly pay schedule but living off two paychecks a month, then your two additional paychecks are like extra Christmases! For me, this usually happens in December/January and in July/August. What to do with this extra $2000 in summer? SO MANY OPTIONS:

1. SAVE or PAY DOWN DEBT

Probably Bert’s favorite option. The extra paycheck can go directly into a savings vehicle or a loan provider without you so much as seeing the impact on your regular monthly budget. A perk of the bi-weekly structure is the ease of saving these paychecks without a lot of advance planning. Basically: it makes saving easier.

2. SPEND

Look at this manna from heaven! It’s a windfall; your bank account just got an extra infusion. A friend who was previously on a bi-weekly pay schedule told me she used to use her extra paychecks to pay for vacations. So, in a sense: it makes spending easier!

3. ALLOCATE

The paychecks are part of your annual salary, and you may find it difficult to live on a smaller monthly budget. This may be particularly true if you or your employer is transitioning from a twice-monthly schedule to a bi-weekly one. You can do the math to figure out how much you’re earning on a per-month basis, and assign that income. In our example case, there’s an extra $167/paycheck you’re not seeing until you get that extra paycheck ($2000/12 paychecks). You could budget for $2167/paycheck ($4,334/month gross) and let the extra paycheck serve as regularly monthly income. This is a little tricky, but manageable with a spreadsheet or YNAB. (Not a sponsored link, but I did find YNAB invaluable during my transition into the EPC.)

4. COMBINATION

A little of column A, a little of column B. My guess is that this is what most people do with their extra paychecks, including myself: I’ll probably split between savings, student loans, and fun money for right now, with some set aside for additional expenses over the next couple months.

I’m not pushing any of these; they are the universe of options, as I see them. So, members of the Extra Paycheck Club — did I miss anything? Do you like being part of this club? What are you doing with your extra paycheck?

 

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41 Comments / Post A Comment

peacheater (#733)

I guess I don’t really think of it as extra money. I don’t live paycheck-to-paycheck, so I just keep putting as much into savings as possible while keeping the sum in my checking account big enough so that I don’t have to worry about bills.

gyip (#4,192)

Yeah, I get paid bi-weekly. I wish Mint.com would recognize that. Oh well. I’m using it to add to my savings since I’m currently falling short :|

ThatJenn (#916)

I use it to pay down debt, generally, since that’s the mode I’m in. The third paycheck is also bigger than the other two for me, since my deductions for parking, health care costs, insurance, etc. are only pulled from the first two paychecks of the month. One thing I did that has helped is I’ve set it so a flat $X from each paycheck goes to my checking account, and anything in excess goes to savings. In a normal month, that means $Y twice a month goes to savings, but on that third paycheck it’s a whopping $Y+200 plus the regular two deposits. The extra $X in checking goes towards debt.
I don’t know what I’ll do once my last remaining debts are paid off! (I am on track to pay off my last bits of credit card debt before September, and hope to pay off my car in the year following that, and while I may incur other debts I don’t have any particular plans that would make that happen.) The extra, and extra-large, savings deposit already makes me feel virtuous so I don’t know if I’d really feel like I had to put the extra checking-deposit into savings as well… perhaps it will make it so I DON’T briefly incur credit card debt for twice-yearly travel. :)
@ThatJenn By the way, I don’t actually budget any differently for those two months a year, but I do look forward to them eagerly as they help me accelerate a bit towards my goals. October here we come!@ThatJenn By the way, I don’t actually budget any differently for those two months a year, but I do look forward to them eagerly as they help me accelerate a bit towards my goals. October here we come!

Worgchef (#6,838)

I remember this from my first job! One of my co-workers was excited because we were getting three paychecks that month.

Agreed with above posters – I never thought of it as “different” than other paychecks. I drove (!) by the bank (!!) on Friday afternoon and deposited it like any other.

kentuckienne (#4,294)

I get paid this way. It was tougher when I was getting paid hourly and so my paychecks fluctuated by days/hours worked, but now that I’m salaried, I just know what allocations are necessities (student loans, savings, car payment) and then spread out the other categories using Mint.com’s monthly carryover in individual budgets.

PicNic (#3,760)

so I’m hourly, and on the bi-week schedule. In my last job I was paid weekly, so this was a major adjustment for me budgeting-wise. It took a while to get the hang of it, with some missteps along the way.

I’ve had 2 months of the “bonus” check and neither time did it really play out as a lot of money – the first was this past November, which immediately went in for Christmas presents and was absorbed into my monthly spending seamlessly. The other was this past May, and was pretty much the same. Maybe I’m budgeting wrong. I’ve been at a place where I’ve been basically budgeting paycheck-to-paycheck every 2 weeks and it’s down to pennies. So it seems like when that extra paycheck came, it was just the same as any other two week budget. Like all the advice says, I probably just need to “earn more money” for this to be a thing.

thegirlieshow (#5,285)

Looking forward to August for exactly this reason.

MrDean (#6,289)

I love the extra paycheck. I intentionally don’t budget for it, so it’s pure windfall. About 20% is allocated to spending on a special big ticket item (new laptop, big trip) and the rest is a big savings bump that makes me feel a lot better about my tiny accounts.

wrappedupinbooks (#1,426)

I used to get paid this way and I miss it so much

erinep (#4,236)

I get paid once a month, on the first. Unless the first is a weekend day or a holiday, which has happened far too often in the last year. Apparently the money is out there but the credit union doesn’t process it until the next business day.

I’ve been at this job for five and a half years and one of the biggest anxieties about (hopefully soon!) finding a new job is that I would likely have to go back to getting paid like most normal people do. I’ve really gotten used to having rent due on payday and have most of my bill autopays on the 5th of the month.

Kthompson (#1,858)

@erinep I too get paid on the first and it does suck! But at my place, if the 1st falls on a weekend, my boss processes payroll early so we get paid a day or two before, so we don’t have to wait. Waiting until the 5th would be awful! I have rent to pay! Stresses me out thinking about it.

I too would much rather prefer to be paid biweekly.

erinep (#4,236)

@Kthompson no, I’m so used to it that I would have issues moving back to every other week! I don’t have to wait til the 5th to get paid, just the next business day. Most of my autopays are on the 5th so that all that money is gone and not tempting me.

@erinep I also get paid once monthly, but it’s on the last day of the month and if that falls on a weekend, its the friday before. So basically the last business day of the month. I like it because it makes me feel super rich for a day or so before all my first of month bills go through, but I also have a spouse who gets paid on the 1st and 15th, so it takes the pressure off (we have combined finances) if something comes up mid month. Before we moved here and got our current jobs, it was opposite-he got paid monthly, but on the 15th, and I got paid every other Friday, so we’ve been used to this format for some time. But we’ve pretty much experienced all the standard pay arrangements now I guess!

CaddyFdot (#2,686)

@erinep I wish I was paid monthly so I could do this. It would be so much easier to just have the lump sum, subtract all the bills, and budget out the rest for the month. Though I realize this would only work for me because I make enough to have some savings to cover odd late-month expenses and a family who could help me out if the expense was really big.

@erinep Yes my husband gets paid once a month on the 15th and has the bigger monthly check (partially because I get paid biweekly) a it’s so annoying to have to temporarily move money around for like the five days before he gets paid because it seems like we’re broke but we’re totally not broke and UGH just make my cash flow easier, please.

garli (#4,150)

I get paid every other week and my husband gets paid every other week except we’re on opposite schedules so we get a paycheck every week. We also pay our mortgage every other week (so 26 payments a year) so the extra money never really feels like a windfall.

PicNic (#3,760)

@garli this sounds super appealing to me! both the opposite bi-weekly schedules and the mortgage schedule

garli (#4,150)

@PicNic It’s awesome except that the mortgage payment week lines up with the smaller paycheck week, so the two months a year that we get 3 smaller paychecks and mortgage payments are like “aw man” even though they’re totally accounted for in our long term budgeting.

I just feel like Mint.com is judging me with out considering all the details.

@garli I just feel like Mint.com is judging me with out considering all the details.

I’m glad I’m not the only person who feels that way sometimes! Mint can be like the worst judgy nagging parent, and sometimes I want to be like, God, you just don’t understand, I know what I’m doing, Mom, geez… *dramatic huffy eyeroll*

garli (#4,150)

@bowtiesarecool Dude TELL ME. The worst is when you buy plane tickets and it’s like YOU SPENT 3000 DOLLARS ON TRAVEL THIS MONTH. YOU USUALLY SPEND 20.

I’m sorry! Do you want me to spend more every month so I don’t get this guilt trip?

Allison (#4,509)

@garli that they average out things that are OBVIOUSLY NOT REGULAR PURCHASES makes me insane.

@garli Oh man, the random travel expenses. I just booked a cruise for next November, and I was SO excited that I could budget for the same monthly payment of X dollars against the balance each month and not piss Mint off.

I mean, you can sorta game it by setting a highish monthly budget for a category and having the unspent amount roll over from month to month, but it just breaks my brain. Always with the guilt trips.

“You spend a lot of money on travel.” THANKS FOR THE CRITICISM, MINT. No, I don’t want your rewards card.

OllyOlly (#669)

Has everyone who gets paid BW ever multiplied their BW gross pay by 26 and saw if it equaled their yearly salary? Because mine doesn’t, and apparently this is part of a standard government accounting practice involving how the pay periods fall, but I never quite understood it.

I know that ever 10 years, you get three three-paycheck months, so it ends up making up for it in a way, but only if I happen to be at this employer during that year.

If anyone is familiar and can explain to me why this is how it is, I would really appreciate it.

Allison (#4,509)

@OllyOlly …mine is $188 short. Which I never noticed before because my pay always seems to change midyear.

boogers mcgee (#4,474)

@OllyOlly The number of pay periods is actually 26.1 (Source: I do finance for a university and calculate pay CONSTANTLY). So that might account for some degree of discrepancy.

AitchBee (#3,001)

I convert my bi-weekly pay schedule into monthly income and budget based on that (this works best once you’re not living paycheck to paycheck).

I would like to propose, for convenience, that we switch over to a system of 13 four-week months. Sure, it will be inconvenient to convert everyone’s birthdays over, but it’s an investment in our future.

CaddyFdot (#2,686)

@AitchBee Unfortunately I suspect that landlords everywhere would use that as an excuse to ask for a 13th full rental payment rather than redistributing the annual amount across 13 months instead of 12. =/

moreadventurous (#4,956)

I just had this for the first time in May! I didn’t know it was a thing so I had not budgeted for it at all. I used the money to pay for a trip I was already planning to go on. Zero regrets.

Saving and paying down debts are good, but I think if you’re already doing those things in your normal monthly budget spending the “extra” paychecks on (at least mostly) fun is totally reasonable and probably best for your mental well-being.

NoName (#3,509)

My 2 EPs go directly to my investment account, barely touching my checking account.I find it’s so much easier to live within my means when I hide my money from myself.

CeeEm (#5,833)

This is such a minor detail but my metro card comes out of my paycheck — $56 per paycheck for the $112 monthly unlimited. So on months where there are 3 pay days (like last month for me), I always get excited about the slightly higher number on my check. It’s the #littlethings.

BillfoldMonkey (#1,754)

I don’t have this strictly speaking, but I do get extra paychecks in the summer if I can pick up a summer class that’s not part of my annual contract. I was living paycheck-to-paycheck for a long time and generally treated that extra money like a massive windfall and spent it on both arguably necessary and totally frivolous things, since my budget was so constricted the rest of the year. I just did the math though and realized that if I’d kicked that money into a savings account I’d have had the down payment for a house by now, so :/

Allison (#4,509)

I organize my bill paying etc to coincide with the biweekly payment, so it doesn’t *really* feel extra, except for how there is more to throw at the credit card even before my mortgage is paid etc.

The “when” of them changes a lot, or there were just a few weird years, because I’ve definitely had the extra paycheck in April (happy birthday to me!) and March, but I think it’ll be January/July for the next couple of years.

Kimberly Alison (#4,465)

I get paid on the last work day of every month. Sometimes it’s the 31st, but it has been as early as the 28th. I love it. All of my bills clear by the 7th of the month and I know that whatever I have left is my fun money for the month.

EmilyAnomaly (#4,238)

I am paid this way and will have three paychecks in August. I’ve been at this company for four and a half years. I usually look at the calendar well in advance to figure out when those 3 paycheck months will be: usually one in the winter and one in the late summer. My monthly budget accounts for just my two biweekly paychecks and I determine what the third paycheck will cover a few months ahead of time. The winter one usually helps with holiday expenses and the jump in heating costs for the winter months and the summer one is usually for things like clothes and shoes, which I don’t buy or budget for during the year. My third paycheck this August will go into savings earmarked for a trip. Ideally, I’d love to be part of the group that just saves their extra paycheck each year

mapooka (#6,914)

Ever since I realized this happened, I look forward to it (almost all year, because I’m a dork). I figure since rent always costs the same, this is like free money (that I worked for; and all my work is hourly, so it varies), but free money nonetheless. At Christmastime it might pay for gifts; otherwise, a big purchase or big savings.

I had a third check in May at one job, and there’s a third check coming in June at another job. So that’s mainly going in my trip-to-Europe fun, but also to pay for tooth extractions for my unfortunate cat.

andnowlights (#2,902)

I literally just printed out a 2014 calender and circled all the days I get paychecks to see when my 3 paycheck months are this year! I thought I had already had two (it always get thrown toward the student loan so it’s not even a thing to me right now) but it TURNS OUT I get it in October, which is exciting! It almost makes up for spending $$$ on the trip for my husband’s conference in October.

nell (#4,295)

I have this. It is great for the aforementioned reasons but starting it threw off a very carefully calibrated autopay system I had for like…everything, back when my checks landed in my account on the 1st and 15th (or earlier, if the 1st fell on a weekend). Obviously “set it and forget it” is not a great approach to personal finance in general but it was so delightfully easy.

Goodie (#5,447)

I live in Australia and I don’t know anyone who gets paid twice a month. I have almost always been paid fortnightly though my current job is monthly.
I never even thought of fortnightly pay as being a bonus paycheck. But financial advice that I have told by everyone since I was a child was to pay your mortgage fortnightly but make the payments half the monthly payments so you are effectively paying an extra month a year and pay it down a lot quicker.

I build our monthly budget on two paychecks, and then when the “bonus” paycheck comes in it gets split into 60% debt payment, 40% savings. Because I am a REALLY exciting and interesting person.

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