24 vs. 26

24 vs. 26

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?

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  • Reply Aili August 1, 2016 at 8:27 am

    We do at our home! What rocks even more is that my husband and I are both biweekly and opposite weeks, so most of the time we get 4 of these “special” pay checks a year, not just 2. We typically use it to pay taxes in the spring, holiday presents in the fall, and either save or splurge with the others… it is like a mini savings account you don’t have to pay into!

    • Reply Tyler August 5, 2016 at 4:57 pm

      Wow, 4?! That would be quite the boost. A little jelly over here.

  • Reply Kelsey August 1, 2016 at 9:02 am

    This is an interesting idea. I am a recent graduate and just made big job switch this month after only 3 months at my first post-graduation job. The new switch came with this same change from 24 to 26 paychecks. I am definitely going to take a closer look at my budget and see if I can take advantage of your ideas! Those student loans aren’t going to pay themselves and I will feel super accomplished if I can put a whole paycheck against them a couple times a year!

    • Reply Tyler August 5, 2016 at 5:06 pm

      If you’ve switched jobs recently then it is a great time to try and implement this before your spending habits solidify a little more. Also, it may take a few months before seeing the benefits in your bank account, so the sooner you start the better!

  • Reply Nilda Cotto August 1, 2016 at 12:51 pm

    Thank you for this article! My employer uses this system. I created a spreadsheet to see the whole year at once, and identify the two extra paychecks. This spreadsheet helps me keep track of debt payment in order to add something in those months. Also, if some unexpected expense comes in (car repair, medical expense, etc.) I can “refund” the amount with that money. I love your idea of the Treat Yourself. I am so focused in payment debt that do not even think of enjoying the process, and that is so important!!!

    • Reply Tyler August 7, 2016 at 10:39 am

      “I created a spreadsheet to…” Now you’re speaking my language! I will say that as time goes on I’m finding out that budgeting isn’t just a game of math. I’m learning that psychology has a bigger impact than I gave it credit in the beginning.

      • Reply Nilda Cotto August 8, 2016 at 9:12 am

        Psychology…that is so true! Every payday teaches me that there are a million ways to do it. Thank you for reading my note.

  • Reply Ev August 2, 2016 at 8:11 pm

    Hubby is doing his Masters right now so budgets are tight. We use the 2 “bonus paydays” for debt and for saving for Christmas. This will be the first year we’ll be able to fly back to family and have it paid for!

    • Reply Tyler August 5, 2016 at 5:08 pm

      Even when things are tight, it feels good to have money available for planned expenses. Enjoy the fam!

  • Reply Tabitha August 2, 2016 at 10:03 pm

    Good article! My husband is paid every two weeks as well and I love it for our budget – I still write up and plan our budget as though there are only two paychecks a month (which most time is the case) and then there is a third one every once in a while (okay twice a year) like a beautiful unexpected gift. The “Catch up/Replenish Stress Relief” category is usually what happens with it, but I’ve been working towards being one month ahead budget wise and want to use those “extra” two paychecks to do it. Meaning for example that the two paychecks that come in July are actually the ones August’s budget gets to use, and so then you know exactly the amount you have to work with and it’s already in the bank account. We’ll see how it goes – we were really close in June and then *boom* unexpected bills and there go the reserves, but reserves are there for just such a reason and seasons in life right? Now to tighten the budget belt and replenish ’em. 🙂 This blog is a great encouragement not to just proverbially throw up the hands and forget about the mean ol’ budget, but to keep on keeping on. Thank you!

    • Reply Tyler August 3, 2016 at 1:23 pm

      Thanks, Tabitha! We are in a similar boat most recently. We’ll be playing a little catch up in September, but like you said, these reserves are designed for exactly that.

  • Reply Melanie August 5, 2016 at 9:27 am

    Hi Tyler! Welcome to the blog! I actually am on the same page where I get paid 3x in September but I cant seem to figure out how it ends up being extra. For August I get paid 8/5 and 8/19 which covers me through 9/2 when I get paid again. Then the money from 9/2 and 9/16 covers me for September. Then my third paycheck for September comes 9/30, but wouldnt that 9/30 check and 10/14 check cover me for October? I cant seem to figure out how it is like an extra paycheck…hoping you could shed some light. 🙂

    • Reply Tyler August 5, 2016 at 3:57 pm

      Hi Melanie! Thanks for the welcome. The premise of the post is that you think about two paychecks covering a whole month’s worth of expenses. Using your pay-dates 8/5 & 8/19 would account for August (that should mean 8/1-8/31, not 8/5-9/2). Sep would be covered by 9/2 & 9/16, and Oct would be covered by 10/14 & 10/28. That leaves 9/30 un-allocated or as an extra paycheck. If you are paying for everything in cash, this requires that you have enough of a buffer to get you through the first 14 days of October. Lets pretend that you just started budgeting and you don’t have extra to float you for those days. Back to your example of 9/30 & 10/14 covering October. Lets map out your paychecks and what months they cover until your next 3x month:
      10/28/2016 NOV
      11/11/2016 NOV
      11/25/2016 DEC
      12/9/2016 DEC
      12/23/2016 JAN
      1/6/2017 JAN
      1/20/2017 FEB
      2/3/2017 FEB
      2/17/2017 MAR
      3/3/2017 MAR
      3/17/2017 APR
      3/31/2017 APR
      Do you see what has happened? If you stick with it then by the end of next March you will have funds for all of April before it starts. Exciting! This is akin to the 3rd suggestion above of beefing up that emergency fund. In this case it has taken the shape of a full month’s buffer. Alternatively, you can use one of those March paychecks as extra (catch up? treat?) and it shouldn’t throw you off track. I suggest you keep going and map out those paychecks until the end of 2017. That should help you see the extra pay periods or see how many months buffer you can build up… Sorry for the long-winded answer; I hope it helps.

  • Reply Lynsey @ foronlytwocents.com August 8, 2016 at 10:04 pm

    I recently switched to a job that pays bi-weekly, and I’m looking forward to my first month with three pay days. We plan to use the extra paycheck to go straight towards our current savings goal, which is saving up a fund that will cover all my husband’s college expenses from now until he graduates. For me, that month will be December. Can’t wait!

  • Reply San August 10, 2016 at 6:44 pm

    I get paid 26 times and I try to budget off of 24 … the problem is that often my budget also falls in line with weekly expenses (e.g. for groceries) and when the month is a week longer, then that shows in my grocery budget as well. Haven’t quite figured out how to bridge that as it seems like I always need at list a bit of this extra paycheck.

    • Reply Tyler August 12, 2016 at 11:16 am

      Lets say you go to the grocery store every Tuesday and your budget calls for $100/week (I like round numbers) for food, it sounds like you run into trouble on those months where you have 5 Tuesdays, right? In this scenario you would spend $5,200 on food all year long. Using your 24 pay periods could you set aside $433 each month, but then only spend the $100/wk? Then when you hit those 5 Tuesday months you should have a little extra to cover it without dipping into those extra pay periods. This is the mentality behind envelope budgeting.

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