How To Budget By Paycheck: 5 Key Tips For Success

A quick Google search of budgeting methods will show you that there’s no shortage of options out there. There is, however, one particular budgeting method that could work well if you are just getting started with budgeting and more so if you don’t like the idea of a monthly budget. The method we’ll talk about involves creating a paycheck budget.

Budget by paycheck

Budgeting by paycheck can help take some of the overwhelm out of the conventional monthly budget. You’ll get a super clear understanding of the money coming and going from your bank account. You’ll also find out how to avoid overdraft fees once and for all due to more frequent planning.

What is a paycheck budget?

The paycheck budget is a strategy where, rather than budgeting just once a month, you budget each time you get paid.

Because most workers get paid either weekly or biweekly, according to Patriot Software, courtesy of the U.S. Bureau of Labor Statistics, this budgeting approach can be a good way to stay involved with your finances. Especially since it requires you to think about your finances every time you stop by the check cashing place.

When you use the paycheck budget method, you assign each of your expenses to a specific paycheck.

For example, let’s say you get paid on the 1st and the 15th of each month.

If rent is due on the 1st, you can plan to use the paycheck from that pay period. If your cell phone bill is due on the 20th, you can then pay that bill with your second paycheck of the month. You can also leverage your budget to determine how much to save from each paycheck.

Benefits of a paycheck budget

Using a paycheck budget is a great way to get started with money management and begin embracing healthy financial habits.

You know where your money is going

First, paycheck budgeting gives you a clear understanding of where each dollar is going. You probably know roughly how much money you earn and how much you spend each month.

However, budgeting by paycheck really shows you where the money from each paycheck goes.

Overdraft and late fees can be avoided easily

Next, it helps avoid overdraft and late fees. It can also keep you from running out of money before you get paid again. If you know exactly which expenses will come out of each paycheck, you can make sure you aren’t spending more than is actually available to you before your next paycheck.

Many people put expenses on a credit card and then pay it off each month. Which can become problematic when you’re spending money you haven’t actually earned yet. It gets even worse when you spend more on your credit cards than you’ll earn to pay off.

From Generation X to Gen Zers, over half or nearly half have credit card debt with each generation, according to Bankrate. But when you budget by paycheck, you can better avoid the trap of credit card debt.

You can keep track of your money easily

Finally, this budgeting method forces you to check in with your finances on a regular basis. And when you check your budget regularly, it becomes easier to manage.

Keeping track of your money is key for staying on top of your spending and keeping pace with your financial goals.

As you can see, there are several advantages of budgeting by paycheck.

Who is this method right for?

Personal finance is just that: personal. As a result, there’s no single budgeting method that will work for everyone. The best strategy for any one person is the one that they’ll stick to.

That said, the paycheck budget method is ideal for people in a few specific financial situations.

People who are paid more than once per month

Budgeting is a little easier when you’re getting paid monthly. Monthly is simpler because you always know where the money for your bills will be coming from. But for those who are paid more often, there’s a little more legwork that goes into it.

You have to time your expenses just right to make sure you aren’t spending money that hasn’t hit your bank account yet. With the budget-by-paycheck method, you can divvy up all of your expenses to correspond with a specific paycheck.

People who live paycheck to paycheck

If you are living paycheck to paycheck, which is over half of Americans, according to CNBC, the last few days before payday can be painful. You may be scraping by on your last few dollars.

Budgeting by paycheck can help you make a plan for your income to ensure you don’t run out before payday. It might also be what finally helps you to break the paycheck-to-paycheck cycle.

People who are new to budgeting

Traditional budgeting advice would have you plan out your expenses one month at a time. But this doesn’t take into account the fact that many people aren’t paid on the first of the month.

So, if you’re new to budgeting, following this traditional advice may result in spending money you don’t have yet.

A paycheck budget can help you get into the habit of noticing when money comes in and out of your bank account. This, in turn, can help you manage spending money only after you’ve earned it.

While paycheck budgeting is definitely ideal for some individuals, others would probably do better with a different strategy.

For example, if you have an irregular income, it may be a struggle to assign expenses to a specific paycheck when you don’t earn a regular paycheck.

How do you get started with budgeting by paycheck?

Ready to start budgeting by paycheck? Here are the steps to follow:

1. Grab a blank calendar

You can use a printable calendar, a monthly budget planner, or even a digital calendar. You can also use a spreadsheet. Learn how to create your budget calendar here.

Remember: The best budget planner is the one you’ll actually use. So, if you prefer things digital, skip out on buying the pretty-looking agenda and just use your Notes app since you know this is where you’ll look regularly.

Or, if you know you prefer pen and paper, don’t let yourself get distracted by flashy apps.

Instead, get a dedicated notebook to track your budget and keep it in a place that’s easily accessible.

2. Add your paychecks and bills to your calendar

Add all of your paychecks to the appropriate date on the calendar, along with the specific paycheck amount.

Next, add your regular monthly bills to their due date on the calendar. Regular monthly bills include your fixed expenses, such as rent or mortgage, insurance, debt payments, car payments, student loans, etc.

3. Tally up your total expenses

Calculate your monthly variable expenses, such as groceries, eating out, gas, and entertainment. If you aren’t sure how much you normally spend, go through your last few months of bank statements and find an average.

You can also divide your variable spending into multiple expenses. If you normally grocery shop once per week, you can add a grocery spending category to your cash calendar as a weekly expense rather than accounting for the whole month at once.

4. Include savings and sinking funds

Ideally, you’d be putting money aside each month to fund an emergency fund and sinking funds. These are some of the most important budget categories that you don’t want to miss!

While there’s no specific date that you have to fund these, choosing a consistent date can help you stick to your savings habit. You can even use an automatic transfer to make the commitment easier.

5. Assign each expense to a particular paycheck

You can use multiple highlighters to color code your calendar. Highlight each expense in the same color as the paycheck you’ll use to fund it. Keep in mind that you won’t necessarily pay every expense with your most recent paycheck.

Let’s say that you get paid equal amounts on the 1st and the 15th of each month, but most of your bills are due in the first half of the month.

In that case, you’d probably use some of your second paycheck each month to pay bills in the first half of the following month.

Expert tip: Use cash envelopes

Using a combination of the paycheck budget and the cash envelope system is a great way to help keep your spending in check. With the cash envelopes system, you put cash into different envelopes depending on how much you want to spend on each budget category.

For example, you may put $300 in an envelope for groceries and $150 in another for fun money. Note that the cash envelopes system doesn’t usually work for bigger expenses, like mortgage payments, car payments, or student loans. (Unless you pay these expenses in cash!)

Instead, you can keep track of these bigger expenses in a simple budget template.

How do you handle unexpected expenses?

The budget-by-paycheck method is a great way to get intentional about your spending and ensure that your spending aligns with your income.

However, regardless of the budgeting method you choose, there’s no avoiding the risk of coming across unexpected expenses.

Whether you’re paying for unplanned car repairs or a medical bill you didn’t know was coming, these emergencies are practically inevitable.

So, how do you handle these unexpected costs in the paycheck budget method? You can create two new budget categories: An emergency fund and sinking funds.

Protect yourself from unexpected expenses with an emergency fund

First, be sure to set aside money in an emergency fund. If you don’t already have one (preferably with 3-6 months of living expenses), then you can make room in your budget to start setting aside some money each month.

Then, when those small and large emergencies pop up, you can pull from your emergency fund.

Prepare for unexpected spending with sinking funds

Another way to avoid an unplanned expense throwing off your budget is by creating sinking funds. The basic premise of a sinking fund is that you take an expense that comes up irregularly and set aside money for it each month.

For example, think about Christmas on a budget. Rather than paying for all of Christmas with your December budget, you can set aside a small amount of money each month all year long.

You can use sinking funds to save for any expense that only comes around once in a while.

For instance, use it for annual expenses like Christmas, biannual expenses like car insurance, and irregular expenses such as car and home repairs.

Add a buffer to your budget

The final way you can handle unplanned expenses with this method is to include a buffer in your budget.

In other words, allocate a set amount of money as a buffer for each paycheck. If a small emergency pops up, you can use that money to cover the cost. If nothing comes up, you can put that money into your emergency fund.

Best tools for setting up a paycheck budget

There are tools available for just about every budgeting method you can imagine, and a paycheck budget is no exception. Let’s talk about a few tools that might be particularly useful for this type of budget:

A monthly calendar

The entire premise of this budgeting method is assigning expenses to a specific paycheck based on the date they come out of your bank account.

Because of that, a calendar lends itself particularly well to this type of budget. You can use color coding to make this method especially easy to keep track of.

Budget templates

There’s no shortage of the best budget templates and printables available these days. No matter what budgeting method you use, you’re sure to find several free and paid options on the market for your method of choice.

A budgeting app

If you prefer digital tools, a budgeting app might be the right choice for you. There are many apps that lend themselves especially well to the paycheck budgeting method.

You can find them by searching in your phone’s app store, filtered by best reviews. Some great ones include YNAB (You Need a Budget) and the Every Dollar app.

How much of your paycheck should you budget?

You should budget your entire paycheck.

In other words, every dollar of your paycheck should be accounted for! This means keeping track of how much you spend on fixed expenses (like rent), how much you spend on discretionary expenses (like restaurants), and how much you save. Using dedicated budget templates and tools can help you stay on track.

What is the 50-30-20 budget biweekly?

With the 50-30-20 rule or budget, you divide your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for saving. You can combine the 50-30-20 budget AND the paycheck budget by following the 50-30-20 budget biweekly. You’ll divide up your after-tax income every time you get a paycheck.

If you found these budgeting ideas helpful, check out our other posts next!

Creating a budget by paycheck may work for you!

The paycheck budgeting method is an easy system to start with. It is also an effective way to be intentional about where your money is going so you can make more progress towards your financial goals.

For anyone who lives paycheck to paycheck or struggles with spending money before you’ve earned it, this is a great strategy to help you get back on track. Be sure to check out our top budget quotes to keep you inspired as you work on your budget!

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