YNAB You Need A Budget

[mia.m]

I get paid bi-weekly so I have two months of the year where there are three paychecks in a month. November's the next time this happens for me. In the past, I haven't really noticed any benefit from that third paycheck, probably because I was not budgeting my money well. But now that I'm a ynabber, I was thinking more about how I would deal with this extra paycheck this time around. I don't have a full buffer and I have some debt I'm trying to pay off. I put away $150 per paycheck toward my buffer, so I'm working on that and should reach full bufferhood next summer. I'm "snowballing" the debt as fast as possible and that's going along well, too.

But after thinking about this extra paycheck thing for a while, I see now that I need to use some of it for food and other incidental spending for that two week period; however, there should not be any bills to pay with it. So if I budget some of the paycheck for food and miscellaneous daily spending, I'll have quite a bit left to put toward my debt. If I had a buffer and was debt-free, I suppose the extra paycheck would go toward savings.

Am I thinking of this correctly? How do other people deal with a third paycheck on a bi-weekly pay schedule?

thanks!

[Trevor]

Sounds like you have a decent strategy for your situation. That is one of my favorite parts about using YNAB. I used to just think of an extra paycheck in a month as money that I could blow on something that I anything. Now I will budget the money just like any other income (which could lead to getting something that I want but at least I will be weighing it against all the other things that I spend money on). I would love to be in a position to comfortable put the whole amount into long term savings but I'm not sure that I am anywhere close to that happening.

I'm going to use my next paycheck month to put money into categories like my car repair and household categories which took big hits in the past few months. In my situation my wife is pregnant with twins so the bulk of the money will be used to fund baby categories that I haven't created yet.

[xraymd]

Greetings, mia.m, you are sure to get a whole range of answers regarding what to do with a three-paycheck month. Here's mine: I have learned to live on what I earn as if I were only paid twice a month (so I am definitely living on less income than I earn). That means the "extra" 2 paychecks twice a year get utilized for goals other than day-to-day expenses. In my case, I am using them towards a combination of boosting savings and some home repair projects. But I am buffered and have paid off my debt, so those goals have been achieved; otherwise, those were at one time my main goals for the "extra" pay.

I learned quite awhile ago to not ever regard the "extra" paychecks as blow money once I realized how hard it was to come by that kind of so-called windfall - there was nothing I craved to buy that would make me want to spend it in one fell swoop. But that is just me. When I first started out budgeting, I thought the best plan was to add up all 26 paychecks and divide that number by 12 so that I could equalize the distribution of my earnings across all months to absorb the "extra" paychecks evenly into my monthly budget. But once I figured out how much smarter it would be for me to simply believe that all that I was paid and should live on was really only 24/26 of my earnings instead of 26/26 of them, the extra cushion brought far better security and peace of mind, and let me pay off my debt ever faster.

Have you ever read the book "The Richest Man in Babylon" - it is a short parable on achieving financial security. Its precept (if I am remembering this right) is that of your take home pay, to live on 70% of it, put 10% towards saving and 20% towards debt repayment. After reading this book, I immediately reviewed how I had been living and decided to adopt these guidelines - that's when I thought it would be best to pretend I was NOT going to receive those "extra" 2 paychecks as base salary. So I reworked my budget to have these divisions apply to each bimonthly paycheck rather than to the entire year. Sure it felt like a pay cut, but the immediate freedom gained of knowing that I was paying off my debt while still allotting some for savings made those "extra" 2 paychecks a year feel like a gigantic gift of respite and relief, even though it really was nothing more than salary. Psychologically, though, it had the huge benefit of allowing me to wall off debt from my life and to ultimately banish it (except for the mortgage, and I am formulating plans for even that).

I'll also mention that during this re-working of how to view my income, it did not continue to go up. In fact it went DOWN by 25% because I altered my working hours and that affected my pay. Yet despite that, since I was no longer living on any kind of edge, I was still able to take advantage of viewing my finances in this new and better way. I've been debt-free since 2006 and have saved at least enough every year to fully fund my Roth IRA. It took time to get all the way there, but the pathway there was in how I decided I would carve out my view of where my income was meant to go, and that has made all the difference. Food for thought.

xraymd

[lautzu]

I used to use my "3rd check" to catch up on the whole I had invariably dug in the previous six months or so. Thanks to YNAB, though, I consider these 3rd checks as windfalls of sorts. In March of this year, I paid off a car loan - felt so good! In September, just weeks ago, I split it more - with about 1/3 going to Christmas shopping, 1/3 to a new car account (not the one I just paid off...), 1/6 to debt, and 1/6 to fill out a few categories that had gotten low. I never use it for "normal" expenses, though, as others have said.

This is a related (older) thread:

the-rules-f1/windfalls-t8236.html?hilit=windfall

[shandsh]

I just made my mini-EF of $1,000 this week and my 3rd paycheck occurs in April and October. I pay my mortgage along with my payroll cycle every two usually but I am canceling the extra 1/2 payment next month and putting that money along with whatever extra into funds called: Christmas, Home Repairs, and Auto Repairs. This money is going to be separate from the $1,000 in the EF. Then I am going to start tackling my debt. I am not working towards achieving a full buffer of one month's income just yet. If I can get $2,000 to just sit still and wait for a need then I will be comfortable to move forward a little bit.

[malisab]

I just made my mini-EF of $1,000 this week and my 3rd paycheck occurs in April and October. I pay my mortgage along with my payroll cycle every two usually but I am canceling the extra 1/2 payment next month and putting that money along with whatever extra into funds called: Christmas, Home Repairs, and Auto Repairs. This money is going to be separate from the $1,000 in the EF. Then I am going to start tackling my debt. I am not working towards achieving a full buffer of one month's income just yet. If I can get $2,000 to just sit still and wait for a need then I will be comfortable to move forward a little bit.

Congrats! Sounds like a good plan.

[sweetums]

Yes you are thinking correctly. I would put some of the money towards my buffer and then use some if it to pay down more debt. You can never pay off debt to early.

[TheGooch]

I get these as well. Since my budge is still in it's infancy, I have plenty of things to fund. Right now I just budget every cent as I get it, since I don't have enough for a buffer. I try to budget bills first, debts second, and living expenses 3rd. Anything I can spare goes into my buffer as I want to get it up to one month's income as quickly as possible. I'd don't treat anything as extra. If I get an extra paycheck , I allocate it into the categories that make sense to me.

[bookman413]

I currently get paid once a week. About four months in the year( about every 4 months) I get a 5 paycheck month. I put the 5th paycheck towards whatever important savings category or categories is at the top of my pile (I have a number of savings categories) and whichever one is highest priority gets the 5th paycheck. I only very rarely will spend the 5th paycheck on anything.

When I was starting out and up to about one year ago, I had credit card debt and put all available money (and, by definition, "extra" checks) to my buffer and to paying off my credit cards, which is what I'd recommend doing if you are in a similar position of no or small buffer and credit card debt and you can spare the extra check. Actually, if you don't have a full buffer I'd allocate all available funds from that extra check (after the funds you need to use for food and such) to the buffer as opposed to the debt. That's because having a decent or full buffer makes such a big difference to your financial stress level that it's worth the small amount of foregone interest savings to use the money for the buffer as opposed to just hacking another $500 or whatever off your debt.