0

I'm tackling a problem with budgeting in that I'm unsure if I should be making a budget from my weekly/monthly/yearly expenses and income. My income is paid bi-weekly on Friday but I have rent and other expenses on the 1st of the month.

If I look at a 4 week period for my expenses and income it could be drastically different depending on the 4 week period. I have the same problem if I look at multiple 1 month periods.

I've included some simple math examples below pretending that my income is $150 every pay period and my rent is $100 on the 1st of the month.

4 week periods Jan 3-30 2021 Jan 31-Feb 27
# of Bi-weekly payments 2 2
# of rent payments 0 1
Leftover Money $300 $200
1 Month periods Jan 1-31 2021 Feb 1-November 28
# of Bi-weekly payments 3 2
# of rent payments 1 1
Leftover Money $350 $200

My leftover money is totally different in many of those examples. Should I use data from a longer period of time like 8 weeks/2 months? I'm using excel and like to use exact figures so averaging income/expenses doesn't really reflect what's happening in my bank account. I could theoretically do a years worth of past data but that's seems a tad excessive because my income changes quite a lot month to month and will change a lot for the foreseable future.

4
  • What are you actually trying to achieve with your budget? Do you need to make sure you don't go into the red at any time? Or are you just trying to work out how much you can spend/save over the longer-term? Jul 19 at 23:57
  • A bit of both if possible but I guess more importantly not going into the red.
    – guanciale
    Jul 20 at 0:05
  • You say your income changes quite a lot, but how much variation is there in your income? A good way to communicate this is percentage above/below average for highest and lowest month in a year or longer. Is there a base amount you can rely on?
    – Hart CO
    Jul 20 at 0:49
  • Well I'd say based on an average figure It could drop around 20% or rise maybe 15%. This year I know will be much higher based on last year and the year before but I don't know specific figures yet.
    – guanciale
    Jul 20 at 1:52
3

Most of us have that same problem, since most people (in the US, at least) are paid bi-weekly.

My suggestion is to "live monthly", and act as if you only get two paychecks per month. Thus, you'd be living on 24 paychecks per year

For all those bills which are due on the first of the month, pay them at the previous EOM (end of month) (either literally or figuratively, by having letting enough money "carry over" in your checking account at EOM (end of month) to the next BOM (beginning of month).

That's how I do it, at least...

Twice a year, you'll get a third paycheck per month. Save that money. What to do with it? Preferably save it "far away" (investments, emergency fund, accelerated debt payment, house DP, etc); however, if you can't live on 24 paychecks per year, then dribble that "third" paycheck into your checking account in equal 1/6th parts over the next six month.

EDIT: the critical part my budget is having enough money in my checking account to last through the 14th of the month (which is of course the longest you can go without being paid). This works well, since I pay for as much as possible with a CC -- and the of course pay the CC in full.

5
  • Interesting idea for sure! So in your budget or at least your finances you mostly have 12 periods every year?
    – guanciale
    Jul 20 at 0:09
  • @guanciale yup. For me, in recent years, July is one of the months with three paychecks, along with December. It varies, though.
    – RonJohn
    Jul 20 at 0:13
  • @guanciale added more details.
    – RonJohn
    Jul 20 at 0:16
  • Ys, that's the winner. 12 periods is the only sane thing to do since virtually all recurring bills are monthly. And you ought to have a great deal more than 1 paycheck in your bank account. Emergency funds are serious business. Jul 20 at 1:30
  • @Harper-ReinstateMonica of course, it can take time to build up that much money if you have lots of debt, low wages, or both. Rome wasn't built in a day...
    – RonJohn
    Jul 20 at 1:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.