Budgeting is hard for most people. And when you get paid in unusual ways, it's even more challenging. Even getting paid more often - particularly being paid once per week instead of every other week - can cause its own kind of trouble for finances.
If you're in this situation, how can you make small, frequent paychecks work better for you? Here are five steps to success.
1. Write Down Your Bills
The first step toward taking control of your finances is to write everything down in one place. Many people can name large, regular bills easily - things like rent or mortgage payments, car payments, outstanding loans, or tuition due dates. But remembering irregular costs is harder.
Don't forget to include such expenses as insurance payments, the average cost of weekly fuel, groceries, and utility bills. Estimate some of these costs if you don't know the exact number, but return to this step regularly to refine your estimations over the next few months.
2. Average Costs by Week
Most months have four full weeks in them, so this is a good number to use for budgeting purposes. Take each monthly bill and divide it by four to come up with the amount you need to set aside each week. The advantage of this method is that it breaks items down into manageable chunks and allows you to save money for monthly bills before you accidentally spend it on something else. In addition, you have fewer transactions to deal with than a monthly budget.
Depending on your personality and situation, you could divide up cash and place it in envelopes for each specific purpose. If cash doesn't work well for you, use virtual envelopes with different prepaid cards or separate bank accounts.
3. Move Due Dates
Do all your monthly bills come at once, perhaps at the beginning or end of the month? Even if there are just two large bills that come too closely together, budgeting weekly can be hard. Call the creditors or companies and ask if you can move the due date to a different time in the month. Many companies will work with you on the timing because they want to get paid. Be sure to have a suggested date in mind when you call.
4. Save the Extra Paycheck
There are 12 months in each year, but you'll receive 52 weekly paychecks. That means you get four extra paychecks each year if you've been dividing your bills into four weeks each month. Use these extra paychecks wisely. One of the best ways to do so is to save them in a separate emergency fund to help smooth out rough spots later in the year.
Other good ideas for the extra check include making budgeting easier by paying one or two regular bills in advance or paying for an item that threw off your finances in the past, such as annual renters insurance or college textbooks.
5. Have a Backup Plan
There are likely to be weeks when the timing of your paycheck along with bills or other expenses gets the better of you. You need a backup plan for when this invariably happens.
If you don't have a sufficient emergency fund, your backup plan could be an emergency credit card or a signature loan to use as a bridge. If you do need to obtain credit as a backstop, prepare now by checking and improving your credit score and lowering your overall debt load to make things easier when you're in a crunch.
While it may take some time to set up your finances to work well no matter how often you get paid, it's worth the effort. For more help getting your budgeting and finances in order, talk to the money experts at The Loan Lady today.