Stretch your budget with biweekly planning
How do two extra paydays every year sound? If you are paid once every two weeks — the most common pay frequency in the United States, according to the Bureau of Labor StatisticsThis link opens a third-party website not affiliated with STCU. — you have the benefit of using a biweekly budget to stretch your money further.
With those “extra” paydays, you could pay down your debt more quickly, build an emergency fund, or just give yourself some budgetary breathing room. If you find yourself painfully short on your budget every few months, then planning for a biweekly budget could also help smooth out some of those bumps.
A beneficial calendar quirk
If you’re paid biweekly, then you will usually get 26 paydays in every year. Despite this, most of us think about budgeting in a one-month cycle, which assumes 12 months, or 24 two-week blocks. While the math doesn’t always work out perfectly, this generally means that in a one-year period, “extra” paydays will arrive twice.
Pay down debt faster
Once biweekly budgeting becomes old hat, and you have a healthy emergency fund, biweekly budgets can help you pay down your debt more quickly. Do this by making 26 payments a year instead of 24.
On many loans, if your terms allow for it, those two extra payments will be applied directly to your principal instead of your interest. These principal-only payments will directly reduce the amount you owe, helping retire the loan early and saving you money on interest.
Start with a basic budget
In order to take advantage of biweekly budgeting, you first need to adjust how you think about your budget. If you’ve already got a monthly budget – great! If not, then you should follow the same basic steps for building one. Keep a spending diary, set financial goals, and create a detailed spending plan for expenses that are paid monthly, quarterly, yearly, etc. Biweekly budgeting operates on the basic assumption that the take-home pay from two biweekly paychecks will cover all of your monthly expenses, so you want to make sure that’s possible.
Split your thinking
Once you have a monthly budget, start by splitting all of your expenses. For bills that come due monthly, or monthly savings goals, simply split them in two. For example:
|Rent / Mortgage||1500||750|
For expenses that do not have specific due dates, such as entertainment, personal care, or groceries, divide the monthly amount by 2.167 to account for those extra four weeks in the year. For example:
If you have quarterly, biannual, or annual expenses, then divide the amount by the number of paychecks, instead of the number of months. Once you’ve done the math, you have a freshly-minted spending plan that will help you determine how much of each paycheck you should set aside for each spending category.
One of the biggest challenges when you are starting out with biweekly budgeting is that the rest of the world continues to operate on a monthly basis. For bills that come due once a month, you’ll need to set aside half of the necessary funding from each paycheck.
If you have very good self-control, then you can leave the money in your main account until you are ready to pay the bill. If you are like many of us, however, a second “bucketed” account to keep your monthly bills separate may be more effective. As an added bonus, you can set up automatic payments from that account to make the process even easier.