Updated: May 25
Budgeting is a hard enough process on its own, and it oftentimes feels like there isn't really a standard way of doing things. There are different strategies, like the 50/30/20, but also different budgeting best practices, depending on who you ask.
And don't get us started on the confusion that so many of us face, where we get paid twice most months, but three times other months.
Thankfully, there is a really easy solution in the form of a biweekly budget.
What is a biweekly budget?
A biweekly budget is just a budget that you complete and track every two weeks rather than monthly, which is considered more conventional. Completing the budgeting process biweekly allows those that get paid in that cadence to better track and manage personal cash flow.
Remember - biweekly doesn't necessarily mean twice per month. Usually, with 26 pay periods in a year, there will be ten months over the year where you are indeed paid twice, but approximately two times per year, you will be paid three times.
This usually happens if you receive your first paycheck of the month very early in the month. If you get paid on the 1st, for example, you'd also get paid on the 15th and the 29th.
Biweekly budgeting pros and cons
Among the many pros to creating a biweekly spending plan are:
Budgets matching your paycheck cycles precisely
Simplifying your savings
Two months with an extra paycheck to take advantage of
1. Matching pay and budget cycles
It only makes sense that you create your spending plan around when you'll get paid. That way, you'll always be prepared to meet your expenses as they pop up, and once you understand the cadence of the biweekly cycles, you may even find it an easier process to complete!
If your expenses are heavily concentrated in either the first or second half of the month, many companies will work with you to switch the date your payment is due.
Another option is to make partial payments on all of your bills biweekly.
2. Simplify your savings
Saving roughly the same amount of each money every two weeks is better for your finances and better for building a sustainable routine. Having smaller contributions to your retirement accounts every two weeks also provides you the opportunity to dollar cost average your investments as well.
3. Two months with three paychecks
If you get used to handling your monthly expenses over the course of your two paychecks, you'll be pleasantly surprised twice a year when you get paid a third time. These can be excellent opportunities for you to pay down some extra debt or contribute to your emergency fund.
We'll talk about how to handle this third paycheck in a minute.
A couple of downsides to the process include:
Having to create two budgets per month
Takes a little more time
1. Two budgets per month
Of course, completing the budgeting process twice a month can be a little cumbersome. But although it can be inconvenient, it is important to understand how it can also make your cash flow easier to control. To make things easier, it actually makes sense to create both of your budgets at the beginning of a new month.
2. Time intensive
Having to do twice the work also takes more time than doing it just once. But I'm confident that you'll be thankful once you see how much easier controlling your cash flow is.
How to create a biweekly budget
Creating a biweekly budget is actually really easy to do. I recommend that you use these five steps to help you create your spending plans:
Evaluate your income and expenses
Look at your net income
Establish savings goals
Track your spending
Let's break these five steps into more detail.
1. List out your expenses
Your first step is to list out all of your income and expenses that you will or are likely to encounter in the upcoming month. Start by listing out all of your income sources, including your salary, hourly earnings, freelance jobs, investments, and any other sources of income you may have.
Afterwards, begin to take stock of your expenses, including
Rent or Mortgage
Credit card bills
In the past, I've found that I actually struggle to remember all of these expenses on the spot. So, to make the process easier for you, you may consider printing out your past debit/credit card statements.
You may also consider trying to think outside the box and remember incidentals such as gasoline and toiletry-type items.
To help with your cash flow, you'll want to understand the cadence in which your monthly expenses will come due. Since you are now budgeting in two-week intervals, your main priority should be to ensure that you have enough income and cash flow to cover your expenses as they come due.
If you find that the majority of your expenses come due within a short period of time, you may consider trying to change the due dates on some of your bills so that your due dates are better balanced.
You'd be surprised by how many utility companies, credit card companies, and others are willing to change the due date of your payments.
The easiest way to start is to print out a calendar for the given month. Then, color-coding if you feel so inclined, label your paydays in one color and your expenses in another.
If you know the costs of your fixed bills, label them. If you're a visual person, there is no substitute, even technology. After you've labeled those things that you'll pay each month (credit card, car, home, etc.), pivot and label any special financial expenses that may pop up in any given month.
In my opinion, using a paper calendar to track your bills and your payments is a great way to keep on top of things, and a good way to let out some creative energy too!
2. Calculate your net income
Now that you have an idea how much money you earn and what your monthly bills look like, you should calculate your net income. To calculate your net income, just subtract your monthly expenses you identified in step one from your total income.
Once you're sure that you've accounted for all of your expenses, your net income is equal to the amount of money that you have left over after covering your monthly expenses.
3. Set your savings goals
With your net income in mind, it is time to establish your savings goals. Your goal here is simple. You want to save enough money each month so that you can meet your future financial goals, but also keep enough financial flexibility each month so that you can still enjoy life.
You also want protect yourself in case you encounter any unexpected expenses in any given month.
4. Track your spending each month
As each month unfolds, you'll want to continuously track your spending to make sure you stay on track. There are a number of budgeting apps that you may use to help you automate this process.
5. Evaluate and adjust
Even though you're budgeting every two weeks, you'll still want to evaluate your progress regularly. Look for things like:
Are you meeting your savings goals?
Do you have money left to enjoy life now?
Are you paying all of your bills?
Biweekly budgeting three paycheck months
Those that are paid biweekly will have two months over the course of the year where they will receive three paychecks. If you are paid on Friday, this will be the months where there are five Fridays and you get paid during the first week.
During these months, you will want to do what you can to use the extra money to your advantage. You may use these funds to save for a vacation, pay down debt, or advance towards your savings goals.
If you are able to bolster your savings, it could help protect you in the event of a future financial emergency or unforeseen expense.
Here is a fiscally responsible plan for what I do when I get an extra paycheck
Remember to budget for the upcoming two weeks - you still need this money!
Then, consider allocating some money to any outstanding debt/savings needs you have.
Save a little money for you to enjoy too!
It really depends a lot on your finances. The third paycheck in a month is a great opportunity to get ahead, and whether that means paying off debt, catching up on retirement savings, or saving for a vacation is largely up to you, as long as you meet your savings goals.
I could go on all day, but make sure you keep the following in mind as you give the biweekly budget a try.
Remember to save money every two weeks (retirement accounts, investment accounts, etc.)
Stay organized - late fees and penalties are a no go!
Pay off debt with any extra dollars you have
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