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Many of us will be using the start of 2017 to hit the reset button on our personal finances, which means coming up with a new budget.
While budgets can get very complicated, I choose to keep mine as simple as possible.
This painless budgeting trick can save you money
With the help of an online budgeting tool, I generally look for three pieces of information: what I’m earning, what I’m spending and what I’m saving.
As long as I'm not in the red, I usually consider it a good month.
Today I wanted to share a budgeting trick that I’ve been using for years. It's helped me painlessly save two paychecks a year. And it's also made budgeting a lot more fun!
If you get paid every other week, try this...
Here's an example
Let’s say that after taxes, health insurance and retirement savings are deducted, your employer deposits a check for $1,500 into your account every two weeks.
Since there are 52 weeks a year, that’s 26 checks. Your annual take-home pay is $39,000.
If you’ve always been paid this way, you may not realize that you’re receiving two more paychecks a year than someone who’s paid twice a month.
- Twice a month = 12 months x 2 = 24 checks
- Every other week = 52 weeks / 2 = 26 checks
If you’re paid every other week, you’ll receive two paychecks a month, except for the two months of the year when you’ll get three paychecks.
This is something I look forward to every year, so I already know that my 3-paycheck months for 2017 will be March and September. Yours may be different.
Treat the third paychecks as "bonus" money
Here's where the budgeting trick comes in. I simply set my projected monthly income based on receiving two paychecks a month and nothing else, which would be $3,000 using our example above.
Because those 3-paycheck months only come twice a year, I treat those checks like bonus money!
Maximize your 3-paycheck months
Need some ideas? When I was paying off my $86,000 mortgage in two years, I would use those “extra” paychecks to reduce the principal balance.
But you could use that money to reach other goals as well:
- Pay off a debt
- Contribute to a retirement account
- Add it to the new car fund
- Pay an insurance policy (auto, home, life)
- Grow your emergency fund
- Erase student loan debt
- Start a vacation fund
- Save up for a home renovation
Get a plan together now!
If you decide to use this strategy, the key is to make a plan for your third paychecks well ahead of time so that you spend your money wisely when that direct deposit hits.
To help you make a budget for 2017, use our step-by-step Common Cents Budgeting Guide.