If you want to get out of debt, stash away more for retirement or control excessive spending, making a simple tweak to your budget in 2018 could save you thousands of dollars!
I’ve been using this budgeting strategy for more than a decade to painlessly save two full paychecks a year.
RELATED: My 7 best money-saving tips for 2018
Paid biweekly? Here’s how to set up your budget
Here’s an example: Let’s say that after taxes, health insurance and retirement savings are deducted, your employer deposits a check for $1,000 into your checking account every two weeks.
Since there are 52 weeks a year, that’s 26 checks. Your annual take-home pay is $26,000.
If you’ve always been paid this way, you may not realize that you’re receiving two more paychecks a year than someone who’s paid twice a month.
Twice a month = 12 months x 2 = 24 checks
Every other week = 52 weeks / 2 = 26 checks
If you’re paid every other week, you’ll receive two paychecks a month, except for the two months of the year when you’ll get three paychecks.
March and August are my 3-paycheck months for 2018, but yours may be different depending on your pay calendar.
Treat the third paychecks as ”˜bonus’ money
Here’s where the budgeting trick comes in. With the help of an online budgeting tool, I set my projected monthly income based on receiving two paychecks a month and nothing else.
Because those 3-paycheck months only come twice a year, I treat those checks like bonus money!
Maximize your 3-paycheck months
Need some ideas? When I was paying off my $86,000 mortgage in two years, I would use those “extra” paychecks to reduce the principal balance.
But you could use that money to reach other financial goals as well:
- Pay off a debt
- Contribute to a retirement account
- Add it to the new car fund
- Pay an insurance policy (auto, home, life)
- Grow your emergency fund
- Erase student loan debt
- Start a vacation fund
- Save up for a home renovation
Get a plan together now!
If you decide to use this strategy, the key is to make a plan for your third paychecks well ahead of time so that you spend your money wisely when that direct deposit hits your account.