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.