There are so many methods you can use to do your budget. You can do it by needs vs wants, zero-based budget, monthly budget, 50/30/20 budget, paycheck budget, and many more. Also, you can combine methods. I use a zero-based budget and paycheck budget. With so many different budgeting methods make sure you use what works for you. Remember personal finance is personal.
What is the paycheck budgeting method?
The paycheck budgeting method is all about assigning bills and saving goals to specific paychecks, so instead of budgeting once a month, you are reviewing your finances every time you get paid.
Some of the important things to consider when implementing this budgeting method include:
- Pay frequency (weekly, biweekly, and monthly)
- Paycheck amount
- Bill due dates
- Savings goals (and amounts)
Pros of using the paycheck budgeting method
Since most people are paid weekly or bi-weekly, with the paycheck budgeting method you can better manage your cash flow (stay on top of your bills) and avoid missed payments or overdrafts. Since you know how much money is available to spend, you are avoiding going into debt. This method provides a clear roadmap for your finances, allowing you to plan and make informed decisions about your spending.
Cons of using the paycheck budgeting method
This method is not for anyone with irregular pay because assigning expenses to a specific paycheck is hard. You should use a different method such as a bare-bones budget.
How to budget each paycheck in 7 easy steps
- Get a Blank Calendar: Download a printable calendar, or use a digital calendar or a monthly budget planner. Write down your pay dates and how much you make each paycheck so you can visualize your income schedule.
- Identify Expenses and Due Dates: We are going old school, grab a paper and pen/pencil. Also, you can use your notes app on your phone. Get all your bank statements that you have paid for the last 3 months. Start writing down all your recurring bills, subscriptions, debt payments, and the due dates.
- Allocate Expenses to Each Paycheck: Strategically assign expenses to specific pay periods, ensuring a balanced distribution of funds. For example, if you get paid on the 15th and the 30th of the month. gather all the bills that can be paid with each paycheck according to their due dates. Do the same thing for bills due after the 15th of the month.
- Plan for Special Occasions: Account for birthdays, anniversaries, and other special events to avoid last-minute financial strain.
- Add Discretionary Spending: Set aside funds for discretionary expenses like groceries, entertainment, gas, and dining out. Allocate funds for each paycheck. Make sure you set aside what makes you happy and brings you joy. I call my account the fun account for movies, candy, and hanging out with friends.
- Build Sinking Funds: Establish savings accounts for future expenses such as emergencies, vacations, and home repairs. Planning for future expenses such as Christmas helps you avoid more debt. Also, you can save a little at a time each month all year long. Put your sinking funds in a high-yield savings account and have it automatically transferred so you don’t have to think about it.
- Review and Refine: At the end of the month, review your budget and track spending patterns or if anything unexpected comes up to your budget. Adjust as needed.
Paycheck budgeting tips
1. Consider splitting larger expenses between paychecks for a more manageable amount. For example, $1,200 mortgage, you can do $600 in paycheck 1 and $600 in paycheck 2 if it will help you pay the bill.
2. Have a buffer in your budget for unexpected expenses, like a forgotten subscription or a bill that comes in higher than expected. For example, I keep a $100 buffer in my account just in case to avoid a $40 overdraft fee.
3. If you have more expenses on one pay date, you can always call the companies to change the due date. You can explain that moving your due date a few weeks later would make it easier to pay. Most companies are willing to accommodate such requests, especially if you are going to pay on time. Spreading your bills over the month will relieve the stress of paying your bills on time.
What to do if you don’t have enough money to cover all your bills?
- Cut your expenses- Cancel subscriptions and memberships that you are not using. Consider shopping around for better rates on car insurance, renters/house insurance, cable, cell phone, and wifi. Even call credit card companies to lower your interest rates.
- Increase Income- Get a part-time job or start a side hustle selling something for money.
The paycheck budgeting method works best on consistent income. If you have a side hustle, you can use your side gig money for extras or savings since it’s more variable.
Additional Budgeting Tips
- Schedule a money date for 30 minutes a month to review your expenses.
- Make sure you are paying yourself first by investing in your work 401k or 403B. Start with the amount to get your employer match if you get one. Then increase it.
- Have an emergency fund with 3 to 6 months of living expenses in a high-yield savings account.
- Quarterly/Yearly payments such as memberships, magazine subscriptions, gym memberships, Water bills, car taxes, home & car insurance, and medical, can be saved in a sinking fund so you can be prepared for those expenses.
Lastly, be flexible with your budget, it may take a few tries to get all your expenses to add up to your paycheck amount. I recommend giving yourself 3 months to try this method and asses if you are sticking to it.
I have been using this method for 9 years and it has helped me increase my emergency fund savings and have money for vacations.
What budgeting method do you use?
If, you are looking for more budgeting tips. Check out this article next!
10 Ways to Have Fun on a Budget