Monthly budgets are the most common form of budget out there for personal finance. But is it the best one for you? Part of the answer to that question depends on how often you get paid.
The Bi-Weekly Pay Cycle
A bi-weekly pay cycle is a common frequency for pay in the United States. Companies that pay on a bi-weekly basis issue paychecks every other week.
If you are paid on a bi-weekly basis like millions of other American workers, you probably receive your paycheck every other Friday. It can also come on other days of the week, but Friday is the most common.
The quirky thing about bi-weekly pay is that it doesn't really follow a monthly schedule. Twice a year (and once in a blue moon, three times a year) you get three paychecks instead of two.
There are 26 payrolls in a bi-weekly pay cycle instead of 12 for monthly pay cycles, or 24 for semi-monthly pay cycles.
That 25th and 26th payroll causes a bit of a budgeting mess.
The Drift of Bi-Weekly Pay Dates
As the year goes on, your pay date in relation to the due date of your bills drifts earlier into the month, until you are able to skip a paycheck because its drifted so far.
This phenomenon makes monthly budgeting problematic for those with bi-weekly pay.
For example, in March of this year my 2nd paycheck falls on the 24th of the month, and I won't get paid again before my mortgage is due. So I will designate funds from my March 24th paycheck to pay this bill.
By May, my second paycheck is paid on the 21st, and my first paycheck in June comes on the 4th. The 4th is well within the grace period payment date requirements for my mortgage. So technically I could skip paying it on May 21st and send those funds to my savings account instead.
By building a budget with each pay date planned out for the year, you can clearly see where those pay date vs. due dates start to drift, and where you can skip a pay check.
A Plan for Every Dollar
For those of you with bi-weekly pay cycles, a monthly budget doesn't allow you to make a decision on what to do with every dollar, every pay period.
It can get confusing on when you should pay a bill – this paycheck or next? By mapping several months or even a year of paychecks at a time, you can formulate a plan and know exactly when to pay each bill.
A bi-weekly budget allows you to play how to spend each and every paycheck. A budget with this type of precision will allow you to maximize debt payments or savings, whichever one you are prioritizing.
When I was a poor single mother and living paycheck to paycheck, this type of budget saved my life. I had to be super savvy about how and when I paid my bills to make my extra dollars stretch. Those extra dollars fed us every month.
If you come from the min-max culture of optimization (I'm looking at you, gamers and athletes), you will love a bi-weekly budget. Its an uber strategic tool that will let you optimize your heart out.
Building a Bi-Weekly Budget in Excel
Its really easy to build a bi-weekly budget in Excel. I like to use columns for pay dates. The easiest thing to do is type in your next pay date in the first cell. Then in the cell to the right of it, type in = cell reference + 14.
So if you enter your pay date in C3, in D3 type in =C3+14. It will automatically calculate the date in 14 days – the date of your next paycheck!
Copy that formula by dragging the bottom right corner of the cell to the right, and you can quickly pop in pay dates for the rest of the year.
Now you know when you'll get paid each month for the rest of the year, and you can strategically decide when each bill must be paid. And even better, decide when you can save extra dollars.
Should You Budget on a Monthly or Bi-Weekly Basis?
The answer is that you should budget using whichever method helps YOU the most to track and deliver on your personal financial goals.
If you are paid bi-weekly, a bi-weekly budget could be a game-changer for you. If you are NOT paid on a bi-weekly basis, I do not recommend a bi-weekly budget for you.
How do you Currently Budget?
I want to know your thoughts and experiences on budgeting time-frames. Share in the comments below!