Biweekly pay, how to make it fit monthly goals

Hello all,

I survived the first month of YNAB and I've faced up to the fact that I'm using the CC float to get from month to month. I have a plan for that.

I have set up my spending plan based on my pay, following the principle that you only spend money you have. So I transfer money to retirement savings and budget for my sinking funds and cash (groceries, spending cash) the day after payday.

The monkey in the plan comes about with the 26 pays in 12 months and trying to set monthly goals. 

For example, I withdraw $40 every 2 weeks for spending cash. For 10 months of the year, it will be $80, but twice a year it will be $120. So do I set my monthly goal as $80 and manually adjust it during the months with 3 pays, or do I set it as $86.67 a month?

As I write this, I think the best way to go is to keep the budget set to the 2 pay amounts, and manually adjust during the 3 pay months. This keeps the budget accurate, and it's not going to be telling me I've under budgeted 10 months a year. Because the funds come out as the pay goes in, I don't need to be saving up, and I won't feel like I'm always behind.

I think just having this space to write down and explore my concerns helped a lot, but if there is a flaw in my thinking, please let me know. 

Thanks everyone!

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  • There are a couple ways you can manage this.

    1) Try to live off 2 paychecks each month. In months with the third paycheck, push it forward to the next month. Do this twice and you'll be budgeting a month ahead, which allows you to budget one month at a time, which makes for better decision making.  Later on, those third paycheck months will be like having a min-windfall.
    2) When you have a month with a third paycheck, use 1/6 of it, and put the rest in a Deferred Income category. Then for the next 5 months use another 1/6 each month in your budget.

    Reply Like 3
      • Couch Cat
      • Lavender_Violin.3
      • 4 mths ago
      • 3
      • Reported - view

      nolesrule thanks so much! I think I can live off 2 paycheques each month, but it never occurred to me that the 3 pay months would get me ahead! 

       

      Happy dance!

      Reply Like 3
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
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      Couch Cat Also, option 3, which is a combination of 1 and 2. Do Option 1, and then when you get a month ahead, do option 2.

      My preference is for option 1, because I like the windfall twice a year, rather than dishing a little out every month, but some people still like to pace out the extra check and will do option 3 (aka 1 then 2). I think getting a month ahead is the most clarifying.

      Reply Like 1
      • Technicolor Cheetah
      • Not sure when I became a cheetah...but I'll run with it
      • technicolor_cheetah
      • 4 mths ago
      • Reported - view

      nolesrule 

      We're doing #1.  The last 3 paycheck month got us buffered (we also used our tax refund and money from Christmas).  The next 3 paycheck month is in November and I will be using it for an extra mortgage payment, adding heavily to our vacation fund, and adding to multiple other funds whose target balance I've not yet made.  

      Reply Like
  • I have some bills and payments that I switched to bi-weekly, so that this is less of an issue (retirement investing, mortgage payments and car payments are the 3 big ones).

    Reply Like 1
      • Couch Cat
      • Lavender_Violin.3
      • 4 mths ago
      • Reported - view

      Ivory Piccolo oh, I never thought of switching the mortgage! 

      Off to find my login.

      Reply Like
      • Couch Cat
      • Lavender_Violin.3
      • 4 mths ago
      • 5
      • Reported - view

      Couch Cat 

      And just like that, it's done!

      Logged into the mortgage company website, changed the frequency. Starting in August, the mortgage will come out the day after payday - and because we're going to a biweekly payment, we just cut 2 years and 2 months off our mortgage!

      Wow!

      Reply Like 5
      • dakinemaui
      • dakinemaui
      • 4 mths ago
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      Couch Cat Once you get ahead (as nolesrule described), the occasional extra/third payment is best handled as a True Expense. Stash an additional 1/6 of a payment in the category each month or even use a dedicated category for clarity.

      Personally, I wouldn't have switched to bi-weekly. It will delay the progress toward getting a month ahead, which will allow you to focus on priority assessment. As expenses change over time, it's also far easier to see the impact on other needs/desires.

      Reply Like 3
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
      • Reported - view

      dakinemaui 

      dakinemaui said:
      the occasional extra/third payment is best handled as a True Expense. Stash an additional 1/6 of a payment in the category each month or even use a dedicated category for clarity.

       We don't. We treat it as a windfall, but then again we are a dual income houshold and only one of us is on the bi-weekly pay cycle, and we already live well below our means on dual 2-paycheck months.

      Reply Like
      • dakinemaui
      • dakinemaui
      • 4 mths ago
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      nolesrule Windfalls can work for the extra income check, but I was talking about the extra mortgage payment. 😉  

      Reply Like 3
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
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      dakinemaui Understood. I misread it.

      Reply Like 1
    • Couch Cat dakinemaui I've been able to get a month ahead and have bi-weekly payments for the mortgage.  The thing about the extra mortgage payment, is that as soon as you make it, you save interest over x number of years.  That is the reason why more payments quickly adds up to reduced mortgage years. if you save up for a lump sum payment instead of doing bi-weekly payments, you don't reap the benefits of saving the interest as much as you do with bi-weekly. If you want to really see the numbers, a good mortgage calculator shows how it all works.

      Reply Like
      • dakinemaui
      • dakinemaui
      • 4 mths ago
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      Ivory Piccolo No question if you throw money at the mortgage, you'll finish sooner with less interest. The question is how/when or even if that should happen. There obviously needs to be a balance with the rest of "life" expenses.

      My personal feeling is getting ahead first is worth it because it provides far greater clarity. There have been numerous reports from people who have prioritized budgeting in month-sized chunks first (i.e., getting ahead) that have felt they then made FASTER progress toward debt reduction because it's so obvious what is "extra". The simplified process also yields greater peace of mind.

      On the flip side, there have been various people who regret the forced additional payments because they couldn't really afford it in hindsight. Had they had the clarity of a consistent (including True Expenses) and realistic monthly plan, the impact of such a commitment would have been immediately obvious.

      Reply Like 2
      • dakinemaui
      • dakinemaui
      • 4 mths ago
      • Reported - view

      Ivory Piccolo I should also say that there's no requirement of bi-weekly payments to accelerate debt reduction. If you make a larger than required monthly payment, you'll finish early as well.

      Reply Like
    • dakinemaui I think this is where we can agree to disagree. I am not right and neither are you. If something works for someone, let it work. I offered a suggestion to someone who was struggling to sort out bi-weekly payments. They seem to be happy with the suggestion. 

      Reply Like 1
      • dakinemaui
      • dakinemaui
      • 4 mths ago
      • 1
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      Ivory Piccolo No worries, it's called "personal finance" for a reason. 🙂  We're both trying to highlight considerations so the OP can make an educated decision.

      Reply Like 1
      • Couch Cat
      • Lavender_Violin.3
      • 4 mths ago
      • Reported - view

      dakinemaui and Ivory Piccolo  

      I appreciate seeing this conversation and the different approaches. Thank you both.

      One of the deep-down fears that has brought me here is that I will need to work into my seventies to pay off our mortgage and a new business construction project loan. I fear never being able to retire.

      Just seeing those 2 years come off the mortgage was so worth it. I also know myself enough to know that I'll find a way to work around the extra payments, but would be less likely to commit cash to payments.

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
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      Ivory Piccolo 

      Ivory Piccolo said:
      That is the reason why more payments quickly adds up to reduced mortgage years. if you save up for a lump sum payment instead of doing bi-weekly payments, you don't reap the benefits of saving the interest as much as you do with bi-weekly.

       Depends on the mortgage. Pretty much all US mortgages calculate the interest based on your end of month principle balance. Imagine the year is 12 days long, and each month is one day, and interest is compounded monthly. It doesn't matter how many payments you make throughout the month or when (as long as the payment is not late), because interest is not calculated on a daily basis.  With this kind of mortgage you are better off making one payment per month with additional extra principal as part of the monthly payment.

      Sending bi-weekly half-month payments just results in an extra half-payment toward principle once every 6 months, with interest calculated as if this were the case (and if you are paying a fee to do this, you are being scammed).

      Reply Like
    • nolesrule My bank charges no extra fee for this and the bi-weekly payments result in substantially less interest (again, using a country-specific mortgage calculator or talking to your bank directly are the best ways to see all the costs).  

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      • Technicolor Cheetah
      • Not sure when I became a cheetah...but I'll run with it
      • technicolor_cheetah
      • 4 mths ago
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      Ivory Piccolo 

      Our mortgage payment has been biweekly for the last couple of years.  That and the little extra we pay to principal each month will cut about 7 years off of our 30 year mortgage.  

      Although as nolesrule says, they hold our biweekly payments and only apply once a month.  So twice a year there are 3 half mortgage payments in the month.  I might consider switching back to monthly payments after our next 3 paycheck month in November, just adding an extra half payment to the mortgage category with each 3 paycheck month, and changing our monthly payment to reflect an increase of 1/6 a mortgage payment.  

      Reply Like
    • eloquentz
    • Numbers Wizard (Accountant), Acoustic Artist (Musician) and Jill of all Trades (Wife & Mother)
    • eloquentz
    • 4 mths ago
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    I'm not ahead enough yet to evenly fund my weekly/biweekly expenses, but my goal for the month is to do the whole year divided by 12, but how it ends up being is the months with the extra weeks end up with a lot higher than the other months.  Ideally, I will be ahead enough to budget this evenly.

    Reply Like 1
      • Couch Cat
      • Lavender_Violin.3
      • 4 mths ago
      • Reported - view

      eloquentz 

      That was one of my problems, too. The '5 week' months weren't always the 3 pay months and I couldn't keep things smoothed out. So the 3 pays got spent and the 5 weeks ended up putting us in the hole.

      By going biweekly, I'm focused on 'what needs to happen before the next pay' rather than the month as an arbitrary unit.

      Reply Like
      • eloquentz
      • Numbers Wizard (Accountant), Acoustic Artist (Musician) and Jill of all Trades (Wife & Mother)
      • eloquentz
      • 4 mths ago
      • Reported - view

      Couch Cat Before I found YNAB, I used to budget in 2 week chunks and I found that my 3 pay day months were actually offset by about 2 months to my expenses happening 3 times in a month. My husband and I are paid on opposite weeks, so we get 4 months a year when we get 5 pay deposits.

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      • dakinemaui
      • dakinemaui
      • 4 mths ago
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      Couch Cat I'm actually a big fan of budgeting entirely on a paycheck basis until one can make the switch to monthly. That means, for example, that even monthly expenses are split -- half from each check in the case of a single bi-weekly pay stream. (Two bi-weekly streams are easily handled on a proportional basis. The occasional extra check can be handled as a "one-off" and applied toward a high-priority goal. Getting ahead might be a good high-priority goal to consider as it can greatly reduce the ongoing effort.)

      This is simply the True Expense concept applied on a paycheck basis, which I find quite a bit more natural than the strictly "monthly" basis taught by YNAB which doesn't consider your actual income arrival.

      This also has the benefit of increased clarity (similar to being ahead) as priorities/timelines/amounts inevitably change. I think focusing solely about priorities/timelines (reducing the actual budgeted amounts to simple calculations) is far easier than the common approach of trying to identify check-specific subsets of categories to fully fund. Obviously opinions will vary, but I've tried both ways and certainly have a strong preference as a result.

      Reply Like 3
  • It should also be noted that paying down the mortgage isn't always the best choice. You can look into a refinancing if the rate is high (including shortening the term to get a lower rate), or choosing to invest for the long term, which usually beats mortgage rates significantly.

    Reply Like 1
      • Technicolor Cheetah
      • Not sure when I became a cheetah...but I'll run with it
      • technicolor_cheetah
      • 4 mths ago
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      nolesrule 

      Our financial advisor told us to add to our kids' college funds first and if there's extra, apply more on top of what we're paying to the mortgage as our retirement funds are about where they should be for our age.  But every situation is different.  My in-laws won't pay off their mortgage until my MIL retires in a few years.  The weirdness of clergy tax law means that salary used to pay the mortgage doesn't get taxed and they save more in not paying taxes on that amount than they would lose in interest paid.  

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
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      Technicolor Cheetah If you save more for retirement you can retire early. Alternately there is the risk that you will get forced into being underemployed at some point and will fall behind. You can take out loans for college, but you can't take out loans for retirement. We do set aside some money for our kids, but we also max out all our tax advantaged accounts every year and invest in taxable for the long term.

      Reply Like 1
      • Technicolor Cheetah
      • Not sure when I became a cheetah...but I'll run with it
      • technicolor_cheetah
      • 4 mths ago
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      nolesrule 

      If my husband gets a raise this year, I want to bump his retirement contribution. or maybe start a Roth IRA for him, I don't know what would be more advantageous.  We do have an emergency income replacement fund and I'm in the process of investing a similar amount in a brokerage account in my name from an inheritance.  I'm contributing to a Roth IRA for myself, it's the best we can do while I'm not working.  Our oldest is high needs and at this moment, having me home gives us more flexibility to manage his care and the needs of our other children.

      Reply Like
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