Pay cycles tend to be controversial: some employees prefer more frequent paychecks, while other enjoy longer pay-periods. For employers, longer pay periods saves time and money. This article is not meant to address this complex topic. Instead, we’re taking a look at how employees can successfully budget for a monthly pay cycle. These tips assume that employees are already familiar with the basics of personal finance and budgeting and are meant to enhance an employee’s ability to manage their cash-flow.
Tip #1: Set Your Budget
A budget alone will not protect you from financial emergencies, but having one can help employees prepare. Everyone (regardless of pay frequency) should create a budget based on your actual monthly expenses. The easiest ways to do so are to take copies of your credit card and bank transactions from the previous month or use a tracking app such as Mint. Using this, you should be able to easily see what major expenses you have each month. Fixed monthly expenses such as subscriptions, utilities, insurance, loan payments, and rent/mortgage payments should immediately be budgeted for. The rest of the funds available with each paycheck should be considered a “pool” of unbudgeted funds to allocate to other expenses each month.
Start by breaking down a “typical” month into 4 weekly segments and determine what your weekly bills look like. Total your weekly expenses in budget categories such as groceries, gas, restaurants and similar. Getting paid once a month can increase your financial discipline. Do not forget to include any amounts you want to be saving each month! As long as you stick to your well written budget plan, you will notice a change in your financial stress and an increase in your knowledge of financial health; you have to be honest with yourself. Include in your budget only income that you expect to receive, not what you hope to receive (i.e. lottery, inheritance).
Tip #2 - Create an Emergency Fund
Emergencies happen and the impact that follows is something most Americans are not prepared for. According to an article published by CNN Money, only 29% of Americans keep and maintain 6 months of emergency expenses. So if you have monthly pay cycle, it is even more important to have an emergency fund. Ideally, you should be setting a goal to have three to six months of expenses in a savings or checking account before you start investing or saving towards any other major goals. This is enough to cover a job loss, unexpected emergency, or similar. This may take a while to achieve, but setting aside any amount is better than nothing.
Tip #3 - Align all your Payment Due Dates for you bills.
Try to keep your bills as simple as possible—missing a payment can negatively affect your credit score or result in late fees. An easy way to simplify this is by setting all (or most of) your bills to be due by a single date or small range. Many companies allow you to change the due date online, but often a call to their accounting/billing department will do the trick. If you are paid at the beginning of the month, set up your bill due dates early in the month (about a week later in case your paycheck is delayed)
Tip #4 – Consider Automatic Payments (Autopay)
Many companies allow you set up automatic payments for your bills. Doing so can greatly simplify your life and reduce the risk of missing a payment (especially if you set up your autopay to happen not long after you get paid!). However, our personal finance team recommends not doing autopay with your water, gas, or electricity if you are not able to specify an autopay ceiling: billing errors with utilities tend to be challenging to reverse and also can be extremely expensive. For bills that are the same each month and do not have an autopay option, your bank may offer a bill payments feature. We also suggest setting up your credit cards to pay the minimum each month (just in case you forget!). You may also have the option to have bills autopay on a credit card— this offers chargeback protections and may offer perks. However, be sure to note whether there are any fees incurred by using a credit card. The benefit is that you will only have to remember to pay one bill (your credit card) rather than many and may be able to improve your credit score! As always, avoid carrying a credit card balance on your due date.
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