Few events in life will have farther reaching financial implications than if/when you change employers. Things like healthcare costs and retirement contributions are but a few items that should be carefully considered before making such a move. Hopefully the jump to greener pastures also includes a raise!
I switched jobs a couple of years ago, and one of the biggest changes had less to do with dollars and cents and more to do with the calendar. I went from being paid twice a month (semi-monthly) to every two weeks (bi-weekly). Though technically I wouldn’t be receiving any more money, I would be going from 24 to 26 pay periods each year.
I saw this as an opportunity and decided that I would continue to budget as if I were on my previous, semi-monthly, schedule. That means two months of the year (I’m looking at you, March and September!) I end up with three paychecks instead of two. Some might think of it simply as a mind trick or a hack, but I like to think of it as an artificial constraint. The end result is that I get mini mid-year bonuses! Well at least that is one way to look at it.
I purposefully don’t budget for these extra pay periods. Instead, I wait to see what needs I have when the time comes. It usually means using these extra paychecks in one of three ways (in order of priority):
Catch-up, replenishment, and stress relief: We all know life is filled with the unexpected, yet I still find myself getting frustrated and down when I can’t stick to my budget. The dishwasher dies, utilities are higher because of a hotter than anticipated summer, you end up being a little too social and eating out more than planned, etc. Whatever the reason, spending usually happens in peaks and valleys. Overspending is likely going to happen at some point in any given year. If I’m behind after 4 months, then staring down another 8 with no relief in sight is a little discouraging. 12 months is a long time for any budget. It’s hard to stay motivated and easy to give up. To fight this psychological battle, I use these extra pay periods to play catch-up and keep myself on track. (If I’ve dug myself into a hole deeper than a whole paycheck can get me out of, then maybe it is time to go back to the drawing board.)
Treat yourself: It’s just how it sounds. If you’ve been staying within your budget thus far, congratulations! You should reward yourself and not feel bad about it; you’ve earned it. It could be something as small as an extra night out or as big as a weekend getaway. It all depends on how healthy your budget is on paper, how motivated you feel about it, and what that extra paycheck can cover. Be honest with yourself, and be careful not to overspend!
Pay down debt/keep saving: Your budget is on track, you’re feeling good about your year, and you don’t have any short-term needs/wants to splurge on. Make an extra payment towards any debt you have. If you don’t have any debt (ahhhh, nirvana) then keep saving; grow that emergency fund!
Now why would I leave paying off debt as the lowest priority item? If you have debt, appropriate payments should already be a regular part of your budget. I would suggest that finding ways to stay motivated and on course are more prudent than trying to kill off your debt at the risk of discouragement and falling off the rails all together.
If you get paid weekly, then you can do something similar and only budget for four paychecks a month (assuming you get paid every week of the year, that means four mini-bonuses — YAY!). For those of you getting paid semi-monthly, it would require more work and discipline (maybe a separate account where a 1/13 of your paycheck goes), but it can be done.
Anyone else budget off of 24 instead of 26? What do you do with the extra funds when they come?