You’re not getting bonus checks, even if it feels like you are. But getting paid biweekly gives you an chance to ensure some serious savings.
When people get paid a regular income, it can happen at various frequencies, but there are three cadences that are most common.
There’s monthly, which is by far the simplest, though it can be challenging if you’re not paying attention to where your money is going.
There’s also bimonthly, or twice a month, which tends to be the most preferred for people who have a preference on these things.
And then there’s biweekly, or every two weeks. This at first seems more or less the same as twice a month, except for one small problem: your payments are “out of sync” with the months.
If you’re managing your money on a monthly basis (which, as I’ve expressed in the past, is the best way to do it), this asynchronous payment schedule can cause problems, or at least confusion, as to how much money you make in a given month, and how to handle it.
So let’s talk about how you can make the biweekly paycheck work for you.
A quick diversion into the solar system
Let’s start by talking about the solar system. (Stay with me.)
You may know how a year lasts 365.24something days, and how the day doesn’t quite fit into the year evenly, which is why we have leap years and other oddities. Well, biweekly paychecks are the payment equivalent of the day/year issue.
In effect, you have “leap paychecks.”
There are 12 months in the year, but you have 26 paychecks. That means that most of the time, you have two paychecks in a month.
But not always.
Two of the months of the year (which months will depend on the year) will have three paychecks instead of two.
Woo! Free money! Let’s go blow it in Vegas!
Hold on, not so fast. You didn’t actually get anything for free. Your yearly income is the same no matter how it’s divided.
You need to first decide how you want to handle these “extra” paychecks. Are they a bonus, or just part of your normal pay?
Option 1: Bonus
Let’s take the first situation as it’s the easiest.
In this situation, you treat the two extra paychecks as a bonus, not part of your normal income. In a sense, by doing this you’ve given yourself a pay cut, because you are now building your financial life based on 24/26ths of your income. It’s not much, only about 8% less, but that adds up.
(This is where the “free money” feeling comes from; you gave yourself a pay cut to get it!)
If you can live on the artificially cut wage, then congrats! You really are in a good place.
So what to do with the bonus check?
What I would suggest is to use the money toward non-monthly expenses. Things like:
- Savings buckets
- Emergency fund
- Paying off debt
You don’t want to treat it like you got a 50% raise, because you’ll more than likely blow the money. It’s just too easy to be unintentional and careless.
Option 2: Interpolation
What if you can’t afford to live on 92% of your income, or just don’t want to?
Another option is to divide up the extra paychecks and add them back into your monthly income.
Here’s how this works. When you get a bonus check, put it in a savings bucket. Each subsequent month, take 1/6th of that money and put it back in your checking account.
Why 1/6th? Because with two bonus checks a year, this means that each bonus check neatly divides (or interpolates) into half a year, or six months each.
By the time you’ve gotten your next bonus check, you will more or less have used all of the previous bonus check.
This way, you’ve restored and smoothed out your full monthly income.
This situation is admittedly more administratively complicated than just treating it as a bonus check, but it might just work for you.
It’s not dissimilar from people who pay for their car insurance once or twice a year, but want to pay into it once a month, and so they use a savings account to store the money until they need it. It’s kind of the same thing, but in reverse.
Don’t go to Vegas yet
Every time in my life where I’ve been paid biweekly, I’ve opted for Option 1, the Bonus method. This was because I was fortunate in that I was always able to live on that “reduced” wage. Were circumstances different, I could see myself doing it the other way.
The important thing to remember here, is that this isn’t free money. It’s your own income, and you should manage it with intention.
So hold off on that trip to Vegas. You’ll never win there anyway.
Originally published at https://empathicfinance.com on January 2, 2023.