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Adding income to your budget is easy for someone who gets paid once a month or on the first and 15th of each month. But what if you get paid every two weeks and have those “magic months” twice a year with three paychecks? Or what if you have an irregular income? How about a household where you’re both paid differently? We’ve got all that covered!
If you are an EveryDollar Premium user, you have access to the Paycheck Planner tool which allows you to enter all of your paychecks for the month and parcel the money out. Click here to learn how it works.
No Premium? No problem! See below for more information on how to budget with your particular paycheck frequency.
Monthly
This is the easiest one of all—one paycheck equals one month’s expenses. Whenever your check comes in, use it to budget for the next month. For example, if you get paid on the first of April, then your mortgage, food and all other expenses for that month are covered by that paycheck.
If you get paid in the middle of the month, it’s easiest to set up your budget to cover the next 30 days. So, if you get paid on April 15, that money will cover all your expenses until May 15. Then your May paycheck will take care of everything until June 15, and so on.
Twice Per Month
This one is perhaps the most common pay schedule. You get paid on or around the same two days each month, such as the 15th and 30th. The best way to work this is to treat the paycheck on the 30th as the first paycheck for the following month. That’s because it can be confusing to make a budget at the first of the month when you don’t get paid until the 15th.
For example, if you get your paychecks on August 15 and 31, then the paycheck on the 31st counts as the first income for September. So, to work your entire September budget, you’ll use the August 31 paycheck and the September 15 paycheck. Then, when you get paid on September 30, that counts as the first money toward October.
By doing it this way, you already have a paycheck in place by the time you turn the calendar. You can attack the bills in the first half of the next month without wondering which paycheck is supposed to cover what.
Weekly
This kind of paycheck is exactly how it sounds—you get paid once a week on the same day. Just like with the biweekly pay schedule (which we’ll talk about next), there will be some months where you get an extra check. In this case, five paychecks instead of four.
If you’re on this pay schedule, save a quarter of your house payment out of each paycheck you get. If your mortgage note is $1,000 a month, then save $250 from each check. For the months with five checks, put that extra $250 toward your current Baby Step!
Bi-weekly
A bi-weekly pay schedule can be challenging, especially with varying dates. Sometimes you'll even get three paychecks in a month. Remember, you'll have at least two paychecks every month.
If you're paid bi-weekly, show the entire amount of your last paycheck in the month you receive it in EveryDollar, even though some money from that paycheck will be used for next month's bills until your first paycheck kicks in during that month. For instance, if you get paid on March 25th, use it for remaining March expenses and April bills that you have to pay before your first check in April arrives.
Here’s an example:
You get paid on Friday, March 25th, and the paycheck is $2,300. You will show that paycheck under the Income group in March's budget and you will enter the entire amount of $2,300 under the Planned column in March. You figure it will take $400 to get you through the rest of March (covering food, gas, bills, etc.). You also have a house payment of $1,100 due at the beginning of April. And the remaining $800 of that paycheck will be used for expenses that you have at the beginning of April until you get paid again on April 8th. Again, you will show the entire paycheck amount of $2,300 in March's budget, even though you are using most of it to cover bills at the beginning of April. The same thing will happen with your final paycheck in the month of April, it will cover expenses to get you through the rest of April (covering food, gas, bills, etc.) and then it will also cover the house payment you have to pay and other expenses at the beginning of May until your first paycheck of May kicks in.
If you get three paychecks in a month, you’ll do pretty much the same thing. Let’s say you get paid on Friday, September 2, as well as the 16th and 30th. By the time you get that last check, September’s budget is done, and you’re on to October. You can still show that final paycheck you received on the 30th in Septembers budget even though you will likely use most of the money from it in the month of October, you will still show the entire paycheck amount in September's budget.
Plan ahead and budget accordingly to stay on track.
💡 Pro Tip: If you receive a paycheck on the last day of the current month (on the 30th or 31st for example) you can show that paycheck in the next months budget if you want (especially if you will use all of the money from that check in the following month). As long as you handle things consistently with regards to your paychecks it will balance out.
Irregular Income
If you have a variable income then make sure you add an income budget line item for each paycheck but make sure that you enter a low estimate for each paycheck in the Planned column. If you need to look back on pay statements to come up with that low estimate that may be helpful. Create your budget off of the low estimated income and then once you actually get paid and add the income transaction to the budget item then you can adjust your Planned column amount to what the Received column shows. You can then adjust your budget at that point to allocate the extra money you actually received.
This usually applies to people who work on commission or are small-business owners.
Setting Priorities With Irregular Income
When you sit down to make your budget, make what’s called a prioritized spending plan. You list all your expenses in order of priority. The cable bill is not as important as eating, for example, so it goes further down the list than food.
When you have an irregular income budget, the first budget items you should cover are:
- Food
- Utilities (electric bill, water, etc.)
- Shelter (mortgage or rent)
- Transportation (gas for the car)
Here’s how you make a prioritized spending plan:
- List all your budget items for the month, just like when you make a regular budget. Then, look them over and number them by importance. Following the Four Walls, you’d place a 1 beside food. By doing this, you’re saying that if you only have enough money to pay for one item on the list, it will be food. Keep moving down the list until everything is numbered. Then rewrite the list in order by number. Now you’ve got a prioritized spending plan.
- Beside each line item, write the amount of money you realistically plan to spend on that item. Spend down the list (on paper) until your money runs out for that month.
- When you get paid, start at the top of your list and work your way down.
Draw a Line
Once you’ve spent all your income for the month, draw a line at the place where the money ran out. Everything below the line doesn’t get paid because the money has run out. If you cover everything and have money left over, put that extra cash toward your current Baby Step.
Over the Hill, Through the Valley
It’s also a good idea during those good months to set up a hill-and-valley fund.
A hill-and-valley fund is a savings account where you put aside extra money to get you through the lean times. It’s one step down from an emergency fund. With an emergency fund, you only use it when the transmission goes out or a roof starts leaking. The hill-and-valley fund is there to help you meet monthly expenses when you run short.
So, if you’re a straight-commission salesperson with a $5,000 household budget and you earn $7,500 one month, set aside that extra $2,500. That way, when a month comes along where you only earn $3,000, you have those savings at hand to cover your expenses.