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What if twice a year you opened your wallet and found someone had put several hundred dollars in there? I bet you just started picturing what you’d do with it.
Well, if you get a paycheck every two weeks, that’s essentially what happens to you twice a year. You get an “extra paycheck.” This hidden money can be a tool towards achieving any number of financial goals.
In this post, I’ll outline for you what precisely this extra paycheck is, how to find it, and what it can do when you put it to use as your secret weapon.
What Is The "Extra Paycheck"?
It's Only For Specific Pay Schedules
The four most common pay schedules are monthly, semi-monthly, biweekly, and weekly. It’s essential to understand the differences between these schedules since half of them get an extra paycheck, and the other half doesn’t.
In a monthly schedule, you receive your paycheck once per month, usually on the same date. You’ll get twelve paychecks throughout the year. If you are on this schedule, like I am now, you won’t get the benefit of the extra paycheck.
Semi-monthly refers to being paid on the 1st and 15th or 15th and 30th of every month. Although your employer could set two other days in the month to do payroll, the dates above are the most widely seen. In this schedule, you’ll collect twenty-four paychecks during the year. Since your check arrives on the same set dates, you only get two every month. There’s also no hope of the extra paycheck on this schedule.
A biweekly pay schedule means your paycheck comes every two weeks on the same day. When you get paid like this, you’ll get twenty-six paychecks throughout the entire year. Two months of the year you’ll get three paychecks that month! This is the golden extra paycheck.
If you’re on a weekly payroll, you get your check on the same day every week which gives you fifty-two paydays annually. Some months have more than four of a specific day of the week. Because of this, you also have the advantage of having the extra paycheck in a weekly pay schedule. However, in this schedule, you’ll get four smaller extra paychecks every year.
It's A Built-In Savings Method
Whether your job pays you twelve, twenty-four, twenty-six, or fifty- two paychecks in a year, it all adds up to the same amount in the end. Your salary doesn’t change.
It’s just broken up into different amounts depending on how often it gets deposited into your account. Each paycheck is smaller, the more frequently your employer does payroll.
That’s my reason for putting quotation marks around the words “extra paycheck.” You and I both know it’s not extra, but the important thing is that it feels like it’s extra. Three paychecks during a month feel like lagniappe. Five checks feel like a lot if you usually get four.
These pay schedules make it easy to save a portion of your annual net income without much effort on your part. You could set aside a similar amount if your boss paid you on a monthly or semi-monthly basis. However, that takes much more intent than having this “extra” amount you can put to work.
Two Ways To Take Advantage Of The Extra Paycheck
#1. Stop Living Paycheck To Paycheck
If you keep living paycheck to paycheck, you can never take advantage of the extra paycheck. You base your expenses on the short term goal of stretching a check to cover you until the next one comes. There is no extra because you always need the following payroll to keep you afloat.
Living paycheck to paycheck now doesn’t mean you will never be able to use the extra paycheck as your secret weapon. It just means you aren’t to this point in your financial journey yet. You have some steps to take before you get there, and that’s okay.
If this is where you find yourself, don’t be discouraged. Use your want of the extra paycheck as a motivator towards financial betterment. It’s one of many things to look forward to as you progress down this path.
#2. Base Your Budget On Two Paychecks Per Month
Or in the case of a weekly pay schedule, you’d base your budget on four paychecks per month.
To make the extra paycheck work, you want to base your monthly budget off the same number of checks each month instead of your annual net income.
For example, say you get paid biweekly and make $52,000 net income annually. That means every two weeks you get a check for $2000. If you use your annual income to decide your monthly budget, it looks like this:
$52,000 net income / 12 months = $4,333.33 (budgeted for each month)
The problem with setting up your budget this way is since you get paid biweekly, you receive twenty-six paychecks a year. Even though you make $52,000, for ten months out of the year, you get two paychecks in a month, bringing home $4,000 in total most months.
To make your budget work better as a whole, add up what you make in two paychecks and use that as the basis for your monthly income in your budget. For the example above, you’d set your monthly income as $4,000 per month instead of the $4,333.33. Again, for the weekly pay schedule, you would calculate what you make in four paychecks and use that.
That way, during the majority of months where you get the two (or four) paychecks you aren’t strained. This ensures when you get that extra paycheck, you don’t have to use it to replenish any savings you used from basing your budget off your total annual income.
How To Ensure This Extra Money Stays In Your Pocket
So now that you know how to start taking advantage of the extra paycheck, how do you ensure it doesn’t slip through your fingers once it arrives?
Identify Which Months You Get It
Know when to expect those extra paychecks. Identifying when these checks are coming will help you decide how you’ll want to use it. Maybe you get it a month before your family vacation, and you want to use it to enjoy your trip more.
I like to identify when our extra paychecks are coming when we do our annual financial check-up at the beginning of a new year. We can see the timing of when this extra money is coming.
Marking the dates for when it arrives means you will have the time you need to make a plan, and you can always change it as the year progresses.
Decide A Specific Way To Use It
Just like anything else financial, money goes further if you are intentional with it. If you leave your extra paycheck in your checking account thinking you’ll come up with a place for it later, think again. It will get absorbed into your budget and disappear.
Money with no purpose slips through your fingers.
Decide far in advance what you want to do with it and put that into action as soon as the paycheck hits your account.
The Power Of The Extra Paycheck
Having extra paychecks not built into your budget gives you a secret weapon. It’s a tool you can use to further your finances or enjoy your life more in any number of ways.
Reach Financial Goals Faster Than Ever
Improve Your Ability To Withstand Financial Crisis
Handle unexpected bills with less stress. Life happens. Whether your fridge broke without warning or your medical insurance covered less of your hospital stay than you thought, there will always be some curve ball life tries to throw at you. Your extra paycheck can help offset some of those costs.
Stock your Emergency Fund. A rain cloud not over your head now? Good, but that rainy day will come and when it does, you’ll be glad you prepared. If you don’t have enough set aside to help you financially deal with emergencies, use your extra paycheck to pad that cash cushion.
Afford Luxuries You Never Thought You Could
Take a vacation. Depending on the size of your paycheck, you may choose to go on a budget vacation. Or you could always save more on top of this for your trip. It’s harder to save up for a vacation month-to-month. The extra paycheck lets you set a chunk aside all at once.
When my pay was biweekly, I’d use one of my extra paychecks to pay for our vacation every year. It took all the pressure off my monthly budget.
Don’t think you can’t do this because your extra paycheck is too small. I no longer get an extra paycheck because I’m paid monthly now, but my husband still does.
His paychecks are a little over $800. This year we are using one of his extra paychecks combined with our travel points to take a nine-day road trip around northwest Georgia. A nine-day vacation for about $800!
To see everything we did on this road trip, check out 4 Amazing Places For Your Georgia Road Trip Itinerary.
I haven’t done anything out of the ordinary to get travel points either. I put all our regular monthly spending on our travel credit card, and the points rack up.
Splurge at Christmastime. I am one of those people who loves Christmas and still finds it magical even as an adult. I love the cheesy Hallmark movies, the colder weather, the baked goods everywhere. My favorite thing is making Christmas special by finding the perfect gifts for my family. Sometimes the perfect gifts cost a little more money.
Setting an extra paycheck aside for a Christmas fund can allow you to splurge a little. Or maybe you don’t necessarily want to splurge, but using the extra paycheck keeps Christmas from throwing off your finances once a year.
Upgrade Your Life And Your Net Worth
Make vehicle upgrades. You most likely drive your car every day, and you’ll probably be driving the same car for years. Since you use it so often and will be driving it for so long, why not make it into something you’ll enjoy more with a few tweaks?
Change out the sound system for a better one. Have the windows tinted. Cars do depreciate over time, but adding such upgrades could help increase the value from what it would have been had you left it as is. Just keep in mind some improvements are very personalized, and not everyone would see those as an added value.
Make home improvements. Unlike a vehicle, homes tend to appreciate over time. Taking out outdated countertops, painting over unpopular paint colors, and other such home improvements will help increase the value of your home and as a result, your net worth.
Not every home improvement has to be a forty thousand dollar kitchen renovation. Many DIY home improvements only need one extra paycheck to fund the entire project.
If you already knew about this trick or figured it out on your own, then great! I’m glad you’ve been using this secret weapon all along.
But if you didn’t know about the extra paychecks, I want you to get your calendar out right now, write down when your next extra paycheck is coming, and decide how you will put it to work for you.
Now that you know about this extra cash in your pocket, what are you going to do about it?