How to Create a Paycheck Budget

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If budgeting a month or more at a time overwhelms you, consider the paycheck budget. As the name suggests, you budget by the dates you receive your paycheck. It’s a simple method that requires a little more legwork, but it is a good option for many. Budget naysayers or those who haven’t been successful with a budget can use this method to their advantage.

What does a paycheck budget mean?

You correlate your bills according to your pay dates when you budget by paycheck. For example, if you get paid on the 15th and 30th of the month, you’d include all bills due between the 15th and 30th in your 15th paycheck. All bills due between the 30th and 15th will be from your 30th paycheck.

Think of it as a more simplified way to budget your income and expenses versus budgeting monthly. As a result, you’ll have more frequent interaction with your pay and better understand where your money goes each month.

Benefits of a paycheck budget

A paycheck budget does require a little more work since you’ll budget for each paycheck. For example, if you get paid weekly, it can feel like a lot of work. However, there are benefits you might enjoy.

You’ll have a better understanding of where your money goes

When you have to budget each paycheck, you will see where every dollar goes. In addition, you must schedule each bill to coordinate with your pay date. This makes it clearer about how much money you have to spend and how easy (or hard) it is to afford your bills.

You might avoid overdraft fees

If you often overdraft and pay the expensive fees, a paycheck budget can be a welcome reprieve. With more constant interaction in your bank account, you’ll know how much you have and what you can spend. When you schedule your bill payments to coincide with a paycheck, you’re more likely to have the funds available when you pay your bill.

It can be flexible

You might be able to allocate funds to something else in a hurry if you have an emergency and need to be able to do so. For example, you can allocate funds from your next paycheck to cover the bill you had to sacrifice and get yourself back on track faster. It’s essential, though, if this happens, to get in touch with your creditor right away and let them know of the situation. Don’t just ignore your late payment.

You can make more ‘real-time’ financial decisions

Forecasting what might happen with your finances down the road doesn’t often feel real. As a result, you might make unrealistic decisions or goals that you can’t reach. When you’re involved with your finances more frequently, you can see how certain financial decisions would affect your financial situation in real-time.

Who is the paycheck budget best for?

Budgeting methods are a personal decision, but some people benefit from the paycheck budget more than others.

People new to budgeting

If you’re a beginner at budgeting, the budget by paycheck method could be the best introduction. You’ll see how to budget, but in bite-size pieces, so you don’t feel overwhelmed or frustrated. In addition, you only have to make decisions that affect one paycheck at a time, which is a lot easier when you’re just starting.

You like to be actively involved in your finances

If you’re not the ‘set it and forget it’ type, budgeting by paycheck may make you feel empowered. You’ll be more frequently involved with your finances and always know what’s going on. You won’t be guessing about what bills you can afford or how much money you can save. Instead, you’ll know in real-time what you can and cannot do.

You live paycheck-to-paycheck

If you live paycheck-to-paycheck and are tired of it, the paycheck budget might help you stop the panic between paydays when you run out of money. Knowing exactly which bills you can pay with each paycheck and how much money it leaves you to spend in between can be empowering and help you get on a better financial track.

You like being organized

Paycheck budgets are good if you want to know exactly where you stand financially at any moment. You’ll budget every dollar you bring in with each paycheck, so you are aware at all times where you stand. Unfortunately, sometimes when you budget monthly, you can feel less in charge, and things can get out of control, which isn’t cohesive for Type A personalities. 

How should I budget my paychecks?

1. Write down your paydays

Figure out how often you get paid and what dates coincide with your pay dates for the year. Then, write them out so you can plan your spending and expenses around them.

2. Write down the due dates for each of your bills

Regularly pull all bills you have, like your mortgage, credit card payments, car loans, student loans, and any other bills you consistently pay. Then, write down the due dates for each bill. 

3. Align the due dates of your bills to your pay dates

Next, determine which bills you can pay with which paycheck. For example, if your car loan is due on the 5th and you get paid on the 1st and the 15th, you’d allocate funds from your paycheck on the 1st to pay your car loan.

4. Align your discretionary spending to your pay dates

Along with your bills, you must account for other spending– such as groceries, eating out, entertainment, and miscellaneous things like car repairs or medical bills. You can get an idea of your average discretionary spending per month by looking at your last 12 months of bank statements to give yourself an idea.

5. Determine how and when you’ll save money

You might want to set it up where you save money from one paycheck a month or so that you save money from every paycheck. Of course, everyone has a different preference, but the bottom line is the same. You must save money.

6. Keep reviewing your budget

It’s essential to keep reviewing your budget to see how you’re doing. The paycheck budget works so well for most people because you must budget several times a month (in most cases), so you’re always aware of where your budget stands.

How do I implement my paycheck budget?

You can spread your bills out over four paychecks if paid weekly. It requires a little more legwork since you’ll feel like you’re always budgeting, but it may help you stay on top of your bills and spending even more. 

How do you budget when you get paid biweekly?

If you get paid biweekly, you’ll split your bills into two. Let’s say you get paid on the 1st and the 15th. You’d use the 1st paycheck to pay everything due between the 1st and the 14th. You’d use the 15th paycheck to pay any bills due between the 15th and the 30th. Don’t forget to account for money for saving and spending in there too.

How to handle unexpected expenses

Unexpected expenses are never fun, and when you’re budgeting so carefully with the paycheck budget, it can feel like a slap in the face. If you leave a little room in your budget for the unexpected, you might be just fine. If not, there’s still good news. 

You can offset the risk by saving an emergency fund or rainy day fund.

An emergency fund covers expenses for 3 to 6 months if you lose your job or fall ill and can’t work. If that’s the case, this fund can carry you through the hard times while you figure things out again.

A rainy day fund is a fund you continually fund to pay for unexpected or periodic expenses that you didn’t include in your budget. For example, if you have a sudden car repair, you can pull the funds from your rainy day fund and then work to pay it back within your budget.

Must-have tools for using a paycheck budget

To budget by paycheck, you’ll need a few simple tools.

  • An electronic or paper calendar to keep track of your pay dates and bill due dates
  • A budgeting app or spreadsheet so you can map out your income and expenses
  • A tool to remind you to pay your bills, whether you set them up on autopay or set up calendar reminders on your phone so you don’t miss your due dates

The bottom line

The paycheck budget is a great way to keep yourself on track. Even if you only use it for a few months or a year until you get used to budgeting, it’s a great way to ensure you meet your financial goals. We love it because it’s simple and shows you head-on how you spend your money. It’s eye-opening and beneficial for most people. So if you’re struggling to budget, consider trying to budget by paycheck and see how easy it can be.

Samantha Hawrylack

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