I have a budget. Sometimes, I even keep to it. It’s written with pencil, on paper. I calculate all of my scheduled payments, make estimations for my utilities, and try to account for all of those things we forget about: walking money, groceries, how much I need to put on my SmarTrip card every two weeks. A fiver here and there for the laundry card. But that’s only part of a budget: that’s just calculating the red, the money you’re spending each month. The second part is calculating the black: how much you’re bringing in.
There are a few ways to estimate your monthly income. You may, in fact, know it, especially if you’re one of those poor bastards who gets paid once a month. You might think it’s even as easy as taking your yearly salary, taking out what you estimate you owe in taxes, and dividing by twelve.*
Of course, you shouldn’t do that, because it isn’t that easy.
Let’s do some math. But first, let’s make this assumption: let’s assume you are paid every two weeks.
This leads us to Assumption B: If you get paid every two weeks, and there are fifty-two weeks in the year, this means you will get paid twenty-six times by your employer.
Which brings us to Assumption C: Since no month can accommodate more than four complete weeks, this means that two months out of the year, you will receive three paychecks. (Since I work two jobs, there is no month out of the year where I receive less than four, but since they’re both on the same pay schedule, I only have twenty-six paydays per year).
Except B & C aren’t assumptions, they’re facts (if you’re paid bi-weekly). Yes, twice a year, you get a third payday in a month. Congratulations. If you’re on my pay schedule (last checks came on May 21st, next on June 4th), you might pull up your calculator and note you’ve got three paychecks coming in July, on the 2nd, 16th, and 30th. Party time, right?
Well, not so fast.
Let’s make some further assumptions: let’s say you’re like me. You put money into savings every time you get paid, but you do your best not to touch your savings account for any reason. So you pay rent out of the paycheck closest to the fifth of the month, and with your following paycheck, you pay your utilities, and your credit cards, and student loans, and whatever else. Meanwhile, you’ve decided to buy a Nintendo Wii with the Wii Fit to work yourself into shape, but you want to wait for that month with the extra pay day so you don’t have to dip into your savings.
“July,” you think. Because today is May 26th, and you know you’ve got three paychecks in July.
Well, but hold on a moment.
7/2 – Payday: pay your July rent.
7/16 – Payday: pay your utilities
7/30 – Payday: pay your August rent
See how that works? Because you don’t touch your savings to pay rent (or if you don’t have a savings account, or if you don’t have enough in it), you’ve got to use your third paycheck to cover your rent, as you won’t get paid again until the middle of August (the 13th, at which point your rent’ll be waaaaay overdue). But, somewhere along the line, you’ve got to be able to benefit from the bonus paycheck, right?
8/13 – Payday: pay your utilities
8/27 – Payday: pay your September rent
9/10 – Payday: pay your utilities
9/24 – Payday: pay your October rent
10/8 – Payday: pay your utilities
10/22 – Payday: BONUS
Because the next day of the pay cycle is the fifth of November, you can use that paycheck to pay your November rent. Which means that the paycheck for either October 8th or 22nd can be utilized as your bonus check from July. I mean, for that matter, you could pay your rent with your check from the 22nd and use your paycheck on the 5th to go celebrate Guy Fawkes day. There’s flexibility.
Yeah, you could look at it and say, “Damn. I was so excited for July, too.” Or you can say, “Woohoo! Just in time to buy all my Christmas gifts!”
This was pretty cool to sit down and figure out. I never really thought about when the bonus payday would actually impact my wallet, I had sort of assumed it would be immediate, y’know? I think most people would. It’s also a good reminder why it’s so important to budget yourself and plan things out — just because things seem to rationalize well in your head doesn’t mean they’ll survive the unforgiving brutality of pen and paper.
As for me, with my bonus payday, I’m looking forward to settling some outstanding debts, and putting quite a bit of green in my still fledgling savings account. Yeah … after much consideration, I opted to forgo to the Wii (for now, anyway).
FYI: The next three paycheck month following July is December, but guess how long you have to wait for that bonus? May 6th, 2011.
*Dividing by twelve doesn’t work because the bonus paychecks aren’t distributed evenly by month. Here’s what I mean: if after taxes your earnings are $30k, dividng by twelve fools you into thinking your monthly income is $2500. But if you’re paying bills in a month with only two pay days, your actual earnings are only going to be $2307. Hope that $193 difference wasn’t your grocery or transportation budget for the month.