Your employer just told you that they’re moving from paying you every month to every two weeks. Sounds painless, right? It can be if you get ahead of it. Budgeting now for the upcoming change in the frequency is both smart and will save you headaches later.
Here’s how it will work. We’ll use Larry’s example to illustrate.
Larry normally gets paid on the 25th of each month. His next check is scheduled for July 25th. He’s budgeted his money to pay all his bills and save a little. Assume he starts with $100 in his checking account before payday.
Here’s how his monthly budget looks:
Now, his company is making a change. Instead paying him for a month on July 25th, he’ll get paid every two weeks starting on July 20th. More specifically, Larry would normally make $4,200 on July 25th but now will get paid $2,000 on July 20th. FYI – it’s a little less than half his monthly check because he’ll now be paid 26 periods instead of 12.
So now what?
Larry will need to adjust his budget and cash flow to match his new pay schedule with the following steps:
Go all checking (or as much as possible). It’s good to avoid credit cards during a transition so you can see all cash in and all cash out.
Determine bills for 1st paycheck on July 20th. For Larry, we’ve highlighted the bills:
Notice how we broke up the food and gas budget. For expenses that vary throughout the month, include a portion in your budget for each pay period.
Determine bills for 2nd paycheck in August. We’ve highlighted the bills again:
Adjust your life to live on 2 paychecks per month. Sure, it’s not always possible. But, if you can do it, you’ll have 2 months where you get a 3rd check for savings, vacations or even doing a onion tasting in South Georgia :).
In our example, Larry always had a positive balance in his checking account. That’s the goal but not always realistic during this transition. If you set your budget and notice you’ll have a negative balance in your checking account, here are some options:
Reschedule your spending so you don’t go negative. Call to see if you can change your due date. Your next paycheck will come in on August 3rd, so it might be best to move the due date past that date.
If you can’t move your due dates, find a way to cover the gap. Here are some tips:
-Pull from savings and schedule a transfer back on August 3rd -Use a credit card and pay it off in full on August 3rd
The change in the frequency of your paychecks may be a struggle for the first 4-6 weeks.. Eventually, you’ll adjust. The key to making this a positive change it to adjust your spending to 2 paychecks per month. By doing so, you’ll automatically save and turn a daunting change into a great benefit.