Budgeting Bi-Weekly: 26 pays - a Relook

A while back I wrote about how to budget for a bi-weekly paycheck. The best part of getting paid every other week is the same as the problem with it… the consistency.

From one point of view it is great to know that every two weeks you will be getting another paycheck. Every 14 days, like clockwork, your bank account is filled up. But that is also the downside.

Your monthly bills do not always line up with your pay dates. Let’s say you have a large bill due on the 15th. One month your paycheck might land on the 13th and another month it could be the 17th. Regardless of the day you get paid your bill will still be due on the 15th.

This can get you into trouble those months where your paycheck comes after the bill is due. It is very hard to budget, especially to create an automatic budget, when there is no consistency of the due dates to the pay dates.

Solution
One solution to this is to keep extra money in your checking account so that you will always have enough. By keeping the equivalent of a half a month’s bills in your checking account you will create a buffer that protects you during those months that the check comes latter. See this post for the details: How to Budget on 26 Pays.

Another Solution
I am hesitant to mention this solution because it involves the use of a credit card and credit cards can get people into financial trouble fast. However, they are a tool, and like all tools, it is how you use it the matters. As long as you are careful, you can use a credit card to your advantage. Here is how.

Instead of using cash stashed away in a checking account to cover you those months when the bills are due before the paycheck arrives the bills can be charged and your available credit can be used to float the cash. The trick is that you need to pay the card off each month.

So instead of paying cash for each bill, you charge them, and then use the cash all at once to pay off the credit card. I recently tried this with two of my bills, totaling roughly $500. The companies I owe, my car insurance and a storage unit, charge the card automatically each month. I don’t have to think about them.

Now I get paid every other Friday, and I set up an automatic bill pay through my bank to pay $250 every other Monday. In this way, the bills get paid without needing my involvement and the credit card gets paid off each month.

So Why Did I Do This
Now I had my entire finances running fine with the first method I wrote about, but I had two reasons for trying something new. The first reason was because I wanted to see if it would work. I am the first to admit… that is a stupid reason. But we are all entitled to do stupid things every now and then.

The second reason I think is a better one. The credit card I chose to use gives me 1% cash back. I though that as long as I had to pay the bills anyway, why now give myself a 1% discount on them.

Now keep in mind, this theory can only work if you pay the card off each month. If you don’t, the finance charges will quickly add up and wind up costing you more then if you had ditched the credit card to begin with. Remember, a credit card is a tool, you can use it to your advantage or to your demise. Be smart.