While some people are paid once a month or twice a month and others are paid weekly, many households receive paychecks every two weeks. That means 26 paychecks a year. So for 10 months of the year they get two paychecks, and for two months of the year they get three paychecks — a 50 percent raise for the month! It might be tempting to use this money for a great weekend getaway or to buy the latest high-tech toy, but it might be smarter to use this “extra” money to support your regular annual spending needs.
First of all, if you are not going to use these extra paychecks for normal monthly expenses, let’s look at how best to handle the other 24 paychecks.
Plan on paying your rent or mortgage and all utility bills from the income of two paychecks each month.
Other miscellaneous monthly expenses should also be covered from two paychecks each month, such as car payments, repairs, gas and oil, clothing, entertainment, music lessons, etc.
Here are some useful tips on how to manage your two extra paychecks each year.
The first thing you need to do is use these extra paychecks to cover items that don’t fit in well on a monthly basis. For example, it might be easier to cover grocery costs every two weeks. Daycare costs may also work better on a weekly rather than monthly basis. After accounting for these types of expenses, you should still have a big pile of money to spend.
Christmas spending is usually one of the biggest budget categories people have each year, often reaching $1,000 or more. While it is possible to set aside money from each paycheck throughout the year and designate this for Christmas spending, it is easier to fund Christmas in one lump sum from one of your extra paychecks. No more hassle of saving up for Christmas over 12 months, or more likely, not doing it at all and end up having to pay for it with a credit card.
Vacation spending is another big budget item for the year. Again, you can save up for it a little bit from each paycheck, but you could cover most, or all, of your vacation budget from your other extra paycheck each year. No more paying for your vacation with your credit card or home equity credit line.
Auto insurance companies often give substantial discounts if you pay for your insurance premiums once or twice a year. But who has this kind of money just sitting around? You do. Your extra paycheck is a great way to pay for your auto insurance all at once, so you don’t have to pay for it from your normal monthly budget.
Life insurance companies also usually require that you pay your premiums once or twice a year. Once again, this is a good match for you to pay these premiums from your extra paychecks.
Still have some extra money from these extra paychecks? You can use this money to catch up on some debts, or if you are debt-free, you can use some of this money to add to your retirement savings. Regular readers of FamilyShare Money Wise articles know that it is never too early to start investing for retirement.
Follow these tips and you will probably have fewer of the latest model tech items, but you will be in great shape for your vacation, Christmas, and insurance needs for the year. Here are some other tips for managing money.
Do you have other ideas on how to spend your extra paychecks? Add them in the comments section below.