Guest post by John @ The Best Money Blog
After reading J’s article on Lifestyle Inflation, I began to think of ways lifestyle inflation applies when you technically aren’t bringing in any new money.
I read an article a while back that listed sources of unexpected income, one of which was the bonus pay checks you already receive every year.
Do you want to know how you can get a bonus four times a year, on top of Christmas or performance bonuses? The answer is simple, do exactly what you are doing now.
You Already Get Bonus Pay
I am going to use my personal pay schedule as an example, but the concept applies if you get paid either weekly or bi-weekly. For those of you getting paid once a month, like teachers for example, well…better luck next time.
I get paid 1 time a week. That’s 52 paychecks per year. There are 4 weeks in each month, or are there? Four months out of the year, I receive 5 paychecks. How can this be? Am I just that good of an employee that I warrant a quarterly bonus? I like to think so, but alas, that is not the case. 12 months X 4 paychecks each month = 48 paychecks a year. So what about the other 4 weeks of the year?
Believe it or not, the majority of people never even think of this, but there are certain months where you will receive an additional paycheck. It’s almost as good as being in 2nd grade again and finding a $20 bill on the ground at recess.
The majority of people make a budget based on receiving 4 paychecks per month, so when the 5th one comes in, it should be considered bonus cash.
What to Do With Your New Found Bonuses
There are plenty of things you can do with the extra money:
- Buy some toys
- Give it to charity
- Go out to eat
- Burn it for warmth
- Put it into savings
- Invest it
- Add it to your retirement fund
- Put it towards paying off debt
- Cash it for $1 bills and roll around in it
The possibilities are as plentiful as oil in the Gulf of Mexico.
As I’ve said many times on this blog already, this is where your attitude and self-discipline towards your finances come into play. You need to learn to think of this money as if it does not even exist. Immediately put it to use in a way that will benefit your financial standing.
Those of you who are paid bi-weekly will only see 2 of these bonuses, but they will obviously be double the amount as if you were paid weekly.
When Is Your Next Bonus?
Mine is at the end of July. I will put some of it in savings, some towards paying off my truck, and probably use some of it for home improvement projects to increase the value of my house. I might even spend it on something stupid like a late night McFlurry run, but by acknowledging the fact that this surplus amount exists, I will be able to make a conscious decision to use it wisely.
Think of where you want to put your next bonus paycheck before the fact. Then figure out when you will receive it. That way, you are expecting it when it comes and already have a place for it to go. This makes spending it wisely a much more simple process.
What are your new plans for your non-bonus bonus?
John blogs over at The Best Money Blog which exists to share tips and ideas for managing your personal finance, frugality, saving money, and earning passive income.
(Doodles by Lauren Manning)
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I am one of those teachers who is out of luck! But hubby is going from a job with twice a month pay to a job with biweekly pay. I am looking forward to those extra checks! They will really help us pay down our debt.
Ugh, I’m so over these “extra paycheck posts”!
I understand that most everyone in the PF world is American, though, and that most of them budget monthly.
Up until we moved here earlier this year, I’ve always paid rent weekly, now I pay it fortnightly. No bonus money for me :(
I like this article because I also get paid once a week and I have in the past used it as a bonus. I am placing the extra money in savings at the end of July. Its all about PRIORITIZATION! When I moved to DC (now in VA), I wasn’t budgeting my money correctly and missed out on plenty of bonuses….Wait a minute, I take that back, I SPENT it on clothes, EATING OUT (90%) and random crap…All in all, once you have a hold on your finances (as J Money does), he is prioriziting and organizing his bonuses for his benefit.
I didn’t realize so few people took this into account! I just had my “bonus” last week and I finished paying off my debt! I’m DEBT-FREE! My next “bonus” check is in December, which I’ll use to buy Christmas gifts and add to my emergency fund.
My next one is in october. Unfortunatly I used my last one to buy a big toy basically. I do know where they are and account for them but not quite a boost to the savings. At least I don’t plan to burn them for warmth, it is too hot here already!
My next one is in October. Can’t wait to put part of it in the Germany trip fund and buys some toys with the rest :)
last one paid for an all-cash trip to vegas and my next one (30th of this month) will pay off my car loan and pay for a badly needed laptop replacement :)
Mine was tossed into my kitchen fund, which will be drained this November when I trash my nasty cabinets and upgrade to a functional and efficient kitchen!
Shelly @ Coupon Teacher: That’s great! Bimonthly would be tough on the budget.
eemusings: Sorry to hear that. The good news is that there are plenty of other methods of saving out there, so you’ll find something that works for you.
Micki: Great to hear! It’s all about attitude and it sounds like you have one geared towards future financial success.
Sarah Fowler: Congratulations. It will be nice to not be forced to use that extra check to pay somebody back.
Philip: I’ve done the same thing, many times actually. It can be difficult to resist new toys, that’s why planning ahead is so important.
Miss Jane: That sounds like a good way to spend your money. Have fun! ;)
kimmie: Way to work your way out of debt. I’m glad you could utilize the ideas in this article.
Melissa: We are doing remodeling ourselves. It is tough work but definitely worth it when you see the finished product.
I’m paid monthly, so this just never happens. There is non-bonus bonus. Real bonuses are discretionary and haven’t happened for over 2 1/2 years. So, what I get each month is pretty predictable.
DD: I would agree you are kind of missing out, but really you aren’t making any less, you just get it at different times. There are plenty of other saving methods you can try to find one that works for you.
I didn’t realize so many people get paid weekly, I thought that was an outdated practice. However, both my husband and I get paid semi-monthly; no bonuses for us.
But back in the day of bi-weekly pays the 3rd paycheck of the month was quite the event – usually used to catch up on debt.
Michele: I too thought that weekly paychecks were a thing of the past until I started working where I am now. I think from an employee perspective that it is the best way to get paid.
I budget this way (paid bi-weekly) and am looking forward to my non-bonus bonus this month. :-) I’ll put some of it away to cover some unexpected medical expenses, and the rest will go towards paying off student loans. “Bonus” aside, it helps me to budget for only 2 paychecks a month because it keeps expenses/savings contributions exactly equal to my income in most months and I don’t have to worry about spending more than I have coming in because that additional fraction is coming in some far-off month.
I love the bi-weekly bonus months! (Happens twice a year for us every other week people!)
I do find though that since you end up with a big gap you still have to juggle your budget a little. I mean, it’s not like you just cant go without gas or food for two weeks. I usually take all three of the checks for the month and spread the bills out a little farther so each check has a few hundred more than it normally would. That works pretty well for us.
Jenna: It’s good to hear another successful usage of this tip.
Rachel: Sometimes the bonus comes just in time for bills, or allows us to save a little more of each check and spread the bills out like you. Either way it helps.
This “bonus paycheck” actually helped improve my budgets a great deal.
Because I basically had in my head “two paychecks a month” when I budgeted, those bonus checks came in handy to speed up savings goals, and pay towards infrequent expenses (infrequent pay for infrequent expense, it made sense!)
Here’s the killer though, I was counting on that bonus paycheck to pay off some pretty hefty end of the year expenses that I put on my credit card. It would work out perfect.
Well it would have if my job didn’t switch us to a twice a month paycheck instead of bi-weekly right at that exact moment! That extra paycheck dried up and put me in a spin. I moved some money around and survived it but it taught me a valuable lesson: budget on money in the hand for those sorts of things, because you can’t always count on money you’re expecting.
Made my budget 10x better and made us much more financially secure. So these bonus checks did help my financial situation greatly, just in a different way.
The dude at the comic book store does miss me saying “Extra paycheck month, break out the good stuff!” though.
Kevin I: That is an interesting way to look at it. At least you knew your budget was changing because of your paycheck change. Many people don’t even know about it so they think they are doing great, then the next month they are short on cash.
I get paid biweekly, and I’ve been doing this for years! My next one is in August. I will be adding some of it to my savings and paying a little extra towards the mortgage with the rest.
Andrew: Congrats on being able to pay extra towards your mortgage! You are in the minority.
I wonder what percentage of people get paid on a weekly or bi-weekly schedule. I thought this was mainly for companies with a large blue-collar populations that had trouble budgeting their cash and were better off having their income paid out in many small chunks. I have only ever received monthly pay checks (not a teacher, but white collar kind of stuff) and my wife is on a bi-monthly program (also white collar).
Maybe somebody can do a survey…
The extra check isn’t extra money – – if you work on salary, you know how much money you make a year. It doesn’t matter when it comes.
To figure out my budget, I took what my bi-weekly check was, and multiplied it by 26, since I will get 26 checks in one year (52 weeks a year/2). Then, I took whatever that number was, and divided it by 12 (months in the year) to get my monthly amount.
i.e) $1800 * 26 = $46,800. / 12 = $3900. So every month, my average intake would be $3900.
Then it doesn’t matter when I get paid, just that I make $46,800 a month.
Another thing to be cautious about is rent. Let’s say your rent is $1,000 a month, paid on the first every month. Or, maybe you pay $500 on the first, and $500 on the 15th. BUT – sometimes, $500 rent is collected every two weeks. All of a sudden, your yearly rent goes up to $13,000. An extra $1,000 the landlord gets because of the way he’s charging you. If you pay $1,000 a month – that’s $12,000 a year. Same as $500 on the 1st and 15th.
Think about what you do buy for that extra $1,000!
Jake: it really would be interesting to see some hard facts about it.
Robin: Technically it isn’t “extra” money, but many people budget weekly or bi weekly rather than annually and averaging it out, so it’s kind of a way to trick yourself into saving money.
I get paid weekly and my husband gets paid biweekly. He works for a large fortune 500 company and I work in our small family business(13 employees). Most of our employees don’t even have checking accounts and go to the local cash checking place on Friday after work. I have made a suggestion about getting paid biweekly to save money but I know the workers would revolt. Its a completely different environment than a fortune 500 company.
As far as the “extra” paychecks go, I have never included these in my budgets. They go to debt repayment, savings, unexpected expenses, and Christmas presents. I basically use them as forced savings.
Lynn: That’s how it is where I work. If you even mentioned bi-weekly paychecks to the minimum wage workers they would riot.
Interestingly enough, our workers are paid a lot more than minimum wage (but they are paid hourly with overtime) and we have a lot of long term employees (average time working here is at least 15 years or so). But that means they have been getting paid weekly and know nothing else. They also do not react to change very well (as seen in our experience with health care coverage) so being paid weekly is what it is.
Lynn: I can totally understand that. I think a lot of it also has to do with people that are paid hourly compared to salaried workers. Maybe not necessarily that they ARE paid hourly, but a certain type of person that is content working an 8-5 hourly job for 15 years.
I’m using my bonus paycheck this month to buy myself a new outfit for my 20th high school class reunion next weekend. Am also gonna ‘treat’ myself to a few things that I’ve been wanting as well.
Kelly: Sometimes you just have to splurge. I often use “extra” money for purchases as well, but often times I try to save at least 50% of it.
The husband gets paid bi-weekly and I get paid twice a month. I pay all my bills online so all our loans (mortgage, cars, credit cards) get paid every four weeks (mortgage from one and cars & cc from the next). All our monthly bills get paid from my check once monthly. After two years, you guessed it, we are four months ahead on our mortgage not counting the extra we pay just to get is over with, and our cars will be paid off early saving a few bucks in interest.
Since I’m a 10 month employee I don’t make as much in the summer. I put money aside each paycheck for the summer but it’s nice to have the option of skipping a mortgage or car payment during summer recess if I absolutely have to.
MamaLoca: Thats awesome. Sounds like you have a great plan going there.
Thx for the great post and follow up my man! This was awesome :)
J. Money: Any time! It was a great response from your readers.
i found out from a article i read awhile back about free checks and has worked for me the past few years.i pay all of my bills on time,the check i get at the first of the month i pay rent the one i get in the middle of the month i pay everything else.if you do this you will find out that twice a year you will have two checks free to do what you want.my next one falls right before xmas.it works just have to be ontime.i also make a list of all bills and leave money in bank for when the one’s come in 2-3days after payday.believe me it works
nice! once you get a good system down ya gotta stick w/ it! :)