How to budget when you are paid every two weeks

Why monthly budgets break on biweekly pay

Most budgeting advice assumes income arrives once a month, or twice on fixed dates like the 1st and 15th. Biweekly pay arrives every 14 days, so the dates move. One month your paychecks land on the 2nd and 16th, a few months later on the 13th and 27th.

Your bills do not move. Rent is still due on the 1st and the car payment on the 20th. As the paydays drift past the due dates, a bill that one paycheck used to cover comfortably suddenly lands before that paycheck arrives, and the pay period that has to cover it runs short. People often read that as overspending when it is really a timing problem.

Step 1: work out what one paycheck really is

Use your take-home pay, the amount that actually arrives in your account after taxes, retirement contributions and insurance premiums. If it varies with overtime or tips, use a typical low paycheck rather than an average, and treat anything above it as a bonus.

Resist converting it to a monthly figure by multiplying by two. That undercounts your yearly income, because 26 paychecks is two more than 24, and it hides the timing problems the rest of this guide is about.

Step 2: put every bill on a calendar

List each bill with its amount and due date: housing, utilities, phone and internet, insurance, loan and credit card payments, subscriptions, childcare. Include anything that comes out automatically.

Then mark your paydays for the next couple of months. Seeing both on the same calendar is what makes the rest of the method work: you can see at a glance which paycheck arrives before each bill.

Step 3: assign each bill to a paycheck

Each bill is paid by the paycheck that arrives most recently before its due date. Rent due on the 1st is paid from the last paycheck in the previous month, not whichever one lands in the same month. Add up what each paycheck has to cover.

You will usually find the load is uneven: one paycheck carries rent and the other carries almost nothing. That is the source of the "tight week, loose week" feeling. You have a few ways to even it out:

• Ask providers to move due dates. Many card issuers, utilities and lenders let you choose a due date, which lets you move bills into the lighter pay period.
• Set money aside from the lighter paycheck. Transfer half of the big bill into a separate account from each paycheck, so it is ready no matter which one arrives first.
• Pay large bills in two halves where the provider allows it.

Step 4: plan for the two extra paychecks

Because 26 paychecks do not divide evenly into twelve months, two months each year have three paydays instead of two (and in the occasional year with 27 paydays, three months do). If your regular bills are built around two paychecks a month, the third paycheck in those months is not needed for them.

That makes it one of the most useful pieces of money in the year, as long as you decide in advance what it is for. Good uses include a lump sum toward your highest-priority debt, topping up an emergency fund, or pre-funding a large annual bill. Look up your next two three-paycheck months now and give each one a job, or it tends to disappear into ordinary spending.

Step 5: spread irregular bills across every paycheck

Some costs come once or twice a year: car insurance, registration, holidays, back-to-school, an annual subscription. On biweekly pay the simplest method is to divide each yearly cost by 26 and set that amount aside every paycheck.

For example, $780 of car insurance due twice a year is $1,560 a year, or $60 a paycheck. When the premium arrives, the money is already there. These set-aside pots are called sinking funds, and they are what stop an otherwise working budget being derailed every few months.

Step 6: know what is left for everyday spending

Once each paycheck has its bills and set-asides assigned, the remainder is what you can use for groceries, gas and everything else until the next payday. Divide it by 14 for a daily figure if that helps you pace it.

This is the same idea as safe to spend: not your balance, but what is left after the bills that have not come out yet. If you track only one number during the pay period, make it this one.

Common pitfalls

A few things trip up most people in their first couple of months:

• Budgeting from gross pay instead of take-home pay.
• Forgetting that a bill due on a weekend or holiday may come out a day or two early.
• Letting the third paycheck in a month disappear without a plan.
• Leaving out annual and semi-annual costs until they arrive.
• Building the plan once and never checking it again. Paydays drift, so glance at the next two months each time you are paid.