In this post, you’ll learn what is budget by paycheck and how to practically use this method to budget your paychecks.
Budgeting money each month is easy. But it is best when you receive income at the end of each month.
If your boss pays more than a month like 2 to 3 times a month, then adopting monthly budgeting isn’t a good option. It’s possible that you may be unable to save or manage money wisely using this strategy.
Here the best solution is the budget by paycheck.
Now what this process is, how it can benefit you, and how to make the budget with this technique are all discussed below.
Let’s dive right in.
What is budget by paycheck?
It is a method to budget income when you receive it multiple times a month in installments or paychecks. You may get paid either each week, after 10 days, or biweekly.
According to a survey, 33.3% of employees are paid weekly, 43% bi-weekly, 19% semimonthly, and only 4.7% monthly.
If you’re doing a job your boss pays you in two or more payments checks each month instead of a single at the end of a month. This way your monthly spending and expenses need to be budgeted according to paychecks.
You may be thinking that why not budget at the end of the month? You can do that also but that isn’t the right option in this case. The reason is that some expenses and bills need to be paid during the month on different dates. That’s why if you budget at the end of a month then you may not have money left to pay them due to overspending.
When you budget each paycheck when you receive it then all expenses are covered inside. You also be able to save for emergency and retirement needs. Because you’re involved in finances multiple times throughout the month.
This method requires you to track your income, expenses, and savings on paper or in an app like Mint.
Why is budget by paycheck important?
Budgeting by paycheck is the best way to avoid overspending. It helps you know how much you can spend on a given day and what is left for the next day. And enables you to set priorities.
It allows you to plan for the future, save more, and have more control over your finances.
As an employee, it is important to know how much money you will be receiving every month so that you can plan accordingly. Budgeting by paycheck is a way of doing this that allows you to plan ahead and make the most of what you earn.
What budget by paycheck is it for?
There are two types of people who can benefit from budgeting by paycheck.
One who lives paycheck to paycheck and is doing jobs in any position. For example, a person doing a job in any company, school, or other private sector.
Second, are those with an irregular income regarding schedule and amount. For example, people doing freelancing, affiliate marketing, or other commission-based workers.
They can use budget by paycheck to take more control over expenses and bills due on different dates. They get used to managing their finances multiple times a month and better analyze how much to save from each paycheck.
The paycheck budgeting method might not work as well for people with regular paychecks because of the way it’s structured.
How to make a budget by paycheck?
The basic way of making a paycheck budget is the same as a monthly budget. But you need to use some extra necessary tools and do some little more things. But I make this process so easy like a cup of tea for you.
Here I’m breaking down this process into six crucial steps. Let’s discuss each one of them in more detail:
1. Grab a budget template
A budget template is the first and foremost thing in this process. It will help you save time and make your budgeting process easy. When you’re receiving more than 2 paychecks or irregular incomes each month then it’s either weekly, bi-weekly, or semi-monthly basis. So it’s good to go with the right budgeting template following your income schedule.
2. Get a hands-on budgeting calendar
A budgeting calendar will help you keep track of bills and fixed expenses with names and payment dates. It can be either in physical form, digital form, or in an application on your mobile. You just need to have one so that it helps you remind the bill payments.
3. Highlight fixed expenses
The third step is to take a highlighter with two to three different colors and highlight different fixed expenses on your budgeting calendar due on their dates. These fixed expenses are normally your bills.
- House rent
- Mortgage Payment
- Credit card payment
- Student loan payment
- Insurance payment
- membership or subscription
- Car payments
These expenses stay constant in amount throughout the year or required time period. So you don’t have to change their amounts.
When you highlight them on a calendar, you can easily play them on time and avoid late payments with penalties. This also helps you set aside money for these expenses in advance.
4. Calculate variable expenses
In the fourth step, you need to list down all of your variable expenses. These expenses are not fixed in amount and change with how much you spend.
Here is the list of some common variable expenses:
- Electricity bill
- Gas bill
- Other utility bills
- Fuel and transportation
- Vacations and parties
- Alcohol and cold drinks
- Movie tickets
When you list them down then you need to calculate their average amount. This can be done by finding the average from the last three months of variable expenses. After that, you divide the amount of each expense by how frequently you receive income.
For example, if you receive a weekly paycheck then divide it by four, and if semi-monthly then with two. This way you get the exact amount you spend on it from each paycheck.
Another good strategy is to divide it by how frequently you spend throughout the month. For example, if your total expense of groceries is $400/month and you shop 5 times a month then divide it by 5 and you get $80 for each tour. Now you can adjust that $80 in the paycheck it needs to be.
Don’t spend all the money from a single paycheck. In that case, you don’t have money left for other crucial expenses and bills. Instead, divide it between multiple paychecks.
5. Don’t forget sayings, sinking funds, and misc
In your budget include these three types of categories. That is savings, sinking funds, and miscellaneous.
Savings: It is used for the amount you put into your emergency account or for investment purposes to generate income. You need to cut a certain portion of the income from each paycheck.
Sinking fund: In which you put a certain amount from each paycheck to save for any big purchase coming after a few months. Because usually, people don’t want to pay for big purchases from a single paycheck or month’s income. The sinking fund distributes this burden over several paychecks until the actual buying.
The big purchase can be, a refrigerator, freezer, washing machine, or air conditioning. You can avoid this category if you don’t have any big purchases coming but having it is a good decision.
Miscellaneous: Includes expenses that are not by chance and are not normally part of your day-to-day life. For example, if you purchase a wedding or birthday gift, Christmas gift, sometimes dry cleaning, and others. This category helps you count these periodic expenses into your budget.
Now you mention these three important categories in your budget by paycheck.
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6. Assign expenses to different paychecks
This step in the budget by paycheck is foremost important. Why because you don’t randomly pay expenses from any paycheck instead assign each expense payment responsibility to a specific paycheck. This way you stay on track with your budget and don’t overspend.
Here you need to follow these tips in order to do it correctly:
First, take different color highlighters for different paychecks. Highlight the expense with the same color as the paycheck in which it is due on your calendar. You can also write down the paycheck number on the budget sheet in front of the corresponding expense.
Second, remember not all expenses will be due in the first half or last half. It’s possible that in the middle of the month, you pay most of your fixed expenses. So you need to save from each paycheck to pay them instead of just depending on a single paycheck. In that case, no money is left for other expenses.
This way most of your expenses will be paid with their respective paychecks. For bigger expenses, you need to save from each paycheck and then pay it on the due date.
How to manage irregular or unexpected expenses?
There are only three ways you can handle unexpected expenses.
The first choice is to have money in savings or emergency funds to pay them. Whenever an unexpected expense comes your way you can take money out of the emergency fund and pay for it. For example, illness, other medical bills, and car repair. For this purpose, you need to save at least 3 to 6 months of savings. If more then better.
The second option is to use the miscellaneous category. You set aside some amount in miscellaneous expenses and when any unplanned expense comes your way then pay for it. For example wedding gifts, birthday gifts, and holidays gift. You set aside money from each paycheck for the whole year and instead of putting the burden on a single paycheck, you use this category.
The third method is to use sinking funds. It’s usually used to fund any unexpected larger purchase common in a few months. When you save for it each month until the actual payments then the burden of expenses contributed to several months’ income. So instead of paying for a $1500 washing machine from a single month’s income, you can disburse it over several months.
These are the three best ways to pay down unexpected expenses. You can use any of them which suits best to your conditions.
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What are the tools for the budget by paycheck?
Like any other budget, you need some tools to make a paycheck budget. They’ll not only make the process easy but saves you time.
Here I’m briefly discussing five different tools that can help you:
It’s the first tool that you should use. The reason is that templates are premade and you only need to insert values. Names of categories are listed and formulas are also pre-inserted. You can customize them by adding and removing categories.
They are available for free and paid. The free templates are good to use as a beginner and do most of your work. You can get these templates in Google Sheets, Excel, and PDF for printing as well. If you want to download some templates here are our two main posts on best budget templates.
As the name suggests that it lists down different dates of the month with names of days. It helps you keep track of your bills and payments so you don’t get late on them. You use this calendar to highlight your fixed expenses.
They’re also available for print, in Excel, and Google Sheets as well. If you want to go more advance then you can download a budget calendar app like “Undebt it”.
For managing variable expenses and making sure you don’t overspend on them cash envelope system is best. You put cash in each envelope for a specific expense and then use it throughout the given period.
If you want to go advance and save more time and effort then budgeting apps are the best option. They do most of your work on automation and download transactions from bank accounts because they sync with the bank. The best ones include YNAB and Mint. The first is paid while the second is free but has enough functionalities to do your work.
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If you want to do a budget by paycheck with pen and paper then having a paycheck budget workbook is a must. It is a physical workbook you can download online and print to use for budgeting each paycheck.
These are the five main tools you can use to budget paychecks. You don’t need to use all of them especially when you’re using apps and templates for budgeting. Just use what best suits your needs.
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What are budget by-paycheck tips?
There are some tips related to paycheck budgeting you must follow to have more control and wise management. You also stay on track and save more money for emergencies.
Let’s dive in.
- Use a budget template to save time and energy while not making a budget from scratch
- Have a budget calendar to highlight fixed expenses and bills so you don’t go late
- Remember to save for emergencies in a separate savings account to avoid credit card
- Use sinking funds to save for big purchases and distribute the expense burden on several paychecks instead of a single
- Use budgeting apps to increase efficiency and make most of the work on automation
- Keep a budget workbook if you’re budgeting with pen and paper
- Don’t pay all the fixed bills from one single paycheck instead save from others to pay it
If you follow these tips your budget by paycheck will help you achieve the end goals and you can easily save more money.
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If your income comes in multiple different paychecks then using a budget by paycheck is a good way to manage your money.
It gets you involved more times with your finances that’s why you will have more control.
But make sure to use the necessary tools like a calendar and template, and follow the process to make it easy for you to make multiple budgets per month.
I hope you enjoyed this post and apply this information to make a budget by paycheck for yourself.
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