I’ve learned over the years from my own experience and others that there are a lot of ways that we can receive income. Even if you have a regular salary, you may get paid weekly, every other week, or twice a month and that can affect how you manage your budget. I’ve gone through a lot of trial and error and I feel like I’ve found a way to manage our household income in the way that best suits our family, so I’d like to share with you my learning to hopefully give you a leg up!
When I had my first job out of college, I was paid every other week. Pretty typical, but I decided to complicate things and “Meredith-ize” it (as some friends of mine would say). I literally divided the pay over the weekdays in a month. I would get excited when it was a 22 or 23 weekday month because I’d have slightly extra. Looking back, what was I thinking?! I do NOT recommend that! My guiding principle these days is SIMPLICITY! When you get paid every other week, you get 26 paychecks per year. Usually you get 2 every month, but two months out of the year you get 3. Back in the day when I was overcomplicating everything, I had a coworker remark about our “extra paychecks” and how they can just go to savings. I didn’t accept that then (maybe because I wasn’t a huge fan of this particular coworker HA) but I totally get it now that I’ve come full circle and have the same pay cycle again. In between though I had weekly paychecks and “semi-monthly” (getting paid on the 15th and last day of the month aka getting 2 paychecks per month every month of the year). With weekly paychecks, you get 4 extra paychecks a year. And what if you are in an occupation where you don’t have regular salary at all?
My recommendation is to build your budget around the lowest expected monthly income. If you get weekly paychecks, build your budget around 4 paychecks. If you get paychecks every other week, build your budget around 2 paychecks. If you are paid semi-monthly you can also build around those two paychecks. If you are self-employed or work on commission, hopefully you have some history of your pay and expenses and can “low ball” an amount that you think you are likely to receive each month.
What does this accomplish?
- It forces you to live BELOW your means, which is the key to financial independence, building wealth, and just being prepared for the unexpected.
- If all your necessary expenses are covered within the lower monthly income, then the occasional windfalls can go toward achieving your financial goals! You can put a big chunk toward debt repayment, building an emergency fund, paying off your mortgage, etc.
- Psychologically, it puts you in a state of being accustomed to a lower standard of living and then being pleasantly surprised when you have those windfalls, versus being stressed about coming up short all the time. This is also why I’ve learned to not make plans for tax refunds and bonuses before you know the amount because you may be disappointed when it’s not as much as you expected!
The other thing about managing pay is to make sure you’re prepared to be flexible. My company switched from semi-monthly to paychecks every other week. This actually made our regular paycheck amounts go DOWN. If you have a budget and are living below your means, this kind of change won’t phase you. We looked at our budget and our savings allotments and lowered those each month but made sure we were replenishing them with the “extra” paychecks twice a year. We were still saving the same amount, but just getting it in chunks versus monthly installments. Turns out at the same time my company was going through this change, my husband was promoted from an hourly weekly pay to a salaried semi-monthly pay. And if you change companies, your pay schedule might change. So these pay adjustments happen more often than you may think. If you’re prepared, it’s one less thing to stress about!
If you’re a teacher, you may only get paid 10 months out of the year, if you don’t have summer employment during those two months, I’d recommend dividing those 10 months of paychecks over 12 months. Even if you DO have summer employment, you could put that extra income straight into savings. That way you’ll relieve your stress and obligation to get a job just to make ends meet. You can divide your yearly takehome amount by 12 and set aside the difference in a savings account (never invested because you want to make sure you have access to that money) so that you’re prepared for those 2 months without pay. Does that make sense? Let’s do some math:
If your monthly take-home pay during the 10 month school year is $3600,
Then your annual take-home pay is 3600 x 10 or $36,000
You should make your budget on $3000 per month, 36,000 / 12
And put $600 per month into a savings account during the school year so you have $6000 for your summer expenses.
Living on commissions can also be challenging. Again, if you live on the lowest monthly amount possible, you can take the bad times with the good and hopefully never be stretched too much. And when those large commissions come, they will really jumpstart your savings and debt goals!
Is there anything more you’d like to hear on this topic? Did I miss any unique situations? Let me know in the comments below!