The Expert Bi-Weekly Paycheck Budget & Savings Plan

One of the trickiest aspects of financial management occurs when you’re paid every other week. Coming up with a bi-weekly paycheck budget is essential because your monthly expenses won’t line up precisely with the dates you get your direct deposits.

Our Addition Financial members often come to us with questions about budgeting. One of the most common things we get asked is this:

“How can I set up a workable bi weekly savings plan?”

We love that question because it’s an area where we feel like we can help. Bi-weekly payroll is popular and budgeting around “every two weeks” paychecks requires some creative thinking. We’ve compiled some of our best tips and reached out to financial experts to give you the information you need to create a bi-weekly budget and savings plan.

Set a Monthly Budget

One of the trickiest things about being paid every other week is that your paychecks won’t arrive at the same point in the month as the year progresses. Brian Davis, the Founder of Spark Rental, gave us this useful tip:

“When you get paid bi-weekly, you should set your monthly budget based on four weeks' take-home pay, because that's the only money you can count on each month. Occasionally you'll collect a third paycheck in a month – which you can put directly toward a savings goal.”

We agree with this advice. With 52 weeks in a year, you’ll get 26 paychecks. That means you’ll have two months where you have a third paycheck. It makes far more sense to budget for the norm – the 10 months where you receive two paychecks – than it does to try to allow for the extra two paychecks each year.

In practical terms, that means you should take your net take-home pay for two paychecks and add it together to create the starting point for your monthly budget. That way, you won’t be budgeting for money you don’t actually have.

Set Up an Emergency Fund ASAP

With a bi-weekly paycheck, you’ll need to make sure you have some emergency funds to fall back on in the event that you need more money than you earn in a given month. Stacy Caprio is a financial blogger at Fiscal Nerd. She told us:

“My advice to anyone trying to set up a budget on a bi-weekly paycheck is to spend enough under your paycheck for a few months that you are able to build up a nice cushion so you don't have to budget bi-weekly. You should still have a budget and spend less than you're making, but you should save enough overall and each week where you're not worried about what you're spending day-to-day and week-to-week because you know you have enough if something unexpected comes up and that you're spending well under your budget anyway.”

If you’re just starting a job with a bi-weekly pay schedule, we suggest creating a savings plan that will allow you to accumulate six months’ worth of expenses in your emergency fund as soon as possible. That way, you’ll have some breathing room if you have unanticipated expenses.

Manage Bills by Due Date

When you have multiple bills to pay each month, it’s important to manage your money and pay them on time. With a bi-weekly paycheck, there’s an art to budgeting. Steffa Mantilla, a Certified Financial Education Instructor (CFEI) at Money Tamer told us:

“When budgeting a bi-weekly paycheck, list all of your bills and expenses according to their due date. The paycheck that's at the end of the month of the prior month will go towards the bills that are due at the beginning of the month. The second paycheck of the month will go towards the remaining bills.”

George Birrell, CPA & Founder of TaxHub, had similar advice:

“By considering each paycheck, you’ll be able to determine what carries over for the next half of the month and how much can be saved at different intervals. Consider what all your expenses are for each paycheck and what you come away with. If one paycheck (most likely the one at the end of the month) doesn’t cover all your expenses, then look at how much was saved from the first paycheck and how much of that savings needs to be put towards your total expenses for the second half of the month.”

To implement this advice, sit down with your bills and make a list of the due dates. Keep in mind that if your due dates aren’t working for you, you always have the option of either paying early to spread out expenses or, if that’s not an option, calling your service provider or financial institution and asking to change the due date. 

Make Saving a Priority

Regardless of how often you get paid, you should make saving money a priority. In the short term, you’ll need to create an emergency fund and you may need to pay down your debt. In the long term, you might be saving for a down payment on a house or planning for retirement.

Brian Davis also offered us this advice about saving money on a bi-weekly basis:

“When budgeting, set your target savings rate first, then draw up the rest of your budget. Your savings rate is what enables you to reach all of your financial goals, from buying a home to retiring to building wealth in general. It's your highest financial priority, and everything else needs to revolve around it, rather than just setting aside the scraps leftover in your bank account at the end of the month like most people do.”

One of the benefits of putting savings goals into your budget is that they’ll stay at the front of your mind throughout the year. One option is to funnel money directly into your savings account. Brian also recommended the following:

“Talk to your company's HR department about splitting your paycheck's direct deposit. Send some into your savings account, and some into your monthly operating account. If you find yourself blowing your budget and raiding your savings account, open a savings account at another bank where it's out of sight and more difficult to raid.”

The money in your checking account is more likely to be spent than money in savings because you’ll need to transfer savings to spend them. If you’re someone who’s inclined to buy things on impulse, keeping your savings separate can minimize the temptation to spend what you want to save.

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Use Your “Extra” Paychecks to Pursue Long-Term Goals

The benefit of counting on only four weeks’ worth of income to create your bi-weekly paycheck budget is that, two months out of every year, you’ll get a third paycheck that feels like a windfall. If you’re smart about it, you can use that “extra” money to set yourself up for long-term financial success.

Steffa Mantilla also offered this advice:

“Two months out of the year you'll receive a third paycheck. For this income you should have a list of savings goals or items that need to get done. Start at the top of the list and save or pay your way through that list until you run out of money. Keep the list updated and whenever the next third paycheck comes in, start from the top of the list again.”

Here are some examples of ways you could use your windfall paychecks:

1. Make extra payments on debt to save money on interest.
2. Put it into a short-term savings account if you’re saving for a new car or a down payment on a house.
3. Use it to open or fund a traditional or Roth IRA. Remember that if you’re over the age of 50, you can make catch-up contributions to fund your retirement.
4. Open a 529 savings account to pay for your child’s college education.

By saving or investing the money in your two “extra” paychecks every year, you can do a lot to eliminate debt and work toward your

By saving or investing the money in your two “extra” paychecks every year, you can do a lot to eliminate debt and work toward your long-term goals.

Build Some Fun into Your Budget

A lot of us get very strict with ourselves when we’re budgeting. If there’s anything that the COVID-19 pandemic and resultant shut-downs have taught us, it’s that we all need a little fun in our lives.

It’s important to live within your means and save where you can, but we also suggest putting a line item in your budget for entertainment and discretionary spending. There’s nothing wrong with ordering takeout from your favorite restaurant once a week or treating yourself to a new outfit. In fact, research suggests that it can boost your mood to buy something new every once in a while. 

It may feel challenging to try to create a bi weekly paycheck budget and savings plan, but the tips we’ve included here can help you figure it out while working toward your short-term and long-term financial goals.

Do you need a savings account to help you with your bi-weekly paycheck budget? Click here to learn about Addition Financial’s savings options and open an account.