Thursday, May 17, 2007

Budgets with Semi-Monthly Pay

I remember when I used to work at a job where I was paid bi-weekly instead of semi-monthly. For those of you who are not payroll nerds like I am, bi-weekly is when you are paid every other week. Semi-monthly means you are paid twice per month. People generally think of them the same way, but they aren't. The semi-monthly people are the ones who get the short end of the stick, in my opinion.

If you are paid semi monthly, most often it is on the (1st and 15th) or the (15th and last day of the month). This means that you need to make your money last for that period of fifteen days and cover all of the bills for the next period with that paycheck. Personally, I've found that the best way to do this is using excel.

Setup a spreadsheet in excel (or any other spreadsheet application) with a column for the title of your bill.
The next column will be for the date your bill is due each month.
The third column is how much the bill is for. Obviously, this is just an estimate since you are going to see different amounts on utility bills etc, but it gets the job done.

When the first comes and you get paid, just add up all of the bills that you need to pay before the fifteenth. Subtract that from your total, and write out the bills (assuming you are above zero!). Then what you have left is your extra.

If you find that you have too many bills due in the beginning or end of the month, call your creditors and ask for a change in due-date. They will usually oblige. Since your checks are coming in evenly, its usually best if your bills come in evenly as well.


David said...

I don't understand. How does getting paid every two weeks (at random days of the month) help you out?

If my bills are:
Mortgage - 1st.
Credit Card - 7th.
Electricity - 17th.
Car Loan - 20th.

Then I know that the 1st paycheck always pays the Mortgage and the Credit card, The 2nd the Electricity and the Car Loan.

Getting paid biweekly means that the paycheck might land on the 3rd instead of the 31st, or on the 10th. And then on some months you get three paychecks (which I guess forces you to save money)

Anyway I don't see how semi-monthly is the short end of the stick.

EasyChange said...

That extra third paycheck is why I think that it is better. Essentially, on a bi-weekly schedule, you budget to handle your bills monthly (at least I did).

So, if you make 1000 per check and have 1400 in bills, you would know that you have an extra 300 per check left over. This means that you can budget yourself more consistently. You know how much driving you will be doing every week - it is generally constant. So is the number of lunches and other expenses. In the end, you have it easier when it comes to budgets. And on months that you get the 3rd paycheck, it is a windfall.

When you look at semi-monthly paychecks, it is tougher. You might have really anywhere from 14-16 days between paychecks depending on how the holidays and such fall. As a result, you have more variance in your spending and its harder to make the money last. Furthermore, there is never a "windfall" built in because the number of checks and amount for each check is generally the same (unless you can do overtime).

So obviously, the net amount you get is the same each year regardless of how often you're paid, but from a budget standpoint, I find bi-weekly to be better. I hope that explains it.