Anybody know about a 2x a year "EXTRA" paycheck ?
My friend swears that there is a trick that a lot of people don’t know about and that is an “extra paycheck” that occurs twice a year. She states she’s been doing this for years and the extra paycheck may not necessarily fall on the months where we have 5 weeks in a month. She states this is for people who get paid bi-weekly. She states she uses this extra check money to get ahead and she already has her budgeted bills accounted for in the 2 paychecks. So this 3rd or "extra check" is hers to do whatever with... like Christmas or vacation. However, she said she hasn’t hipped her hubby (making him in the know) on to it because he will somehow magically have plans for the money, whereas or otherwise had he not known about it, there wouldn't be a need for his newfound plans to spend this "extracheck". I have been working all of my life and getting paid biweekly of which I have NEVER been able to see an “extra check".
Please let me know if this is really true and how I can benefit $$$ from this. Please and thank you!
If you are paid biweekly, and manage a monthly budget based on 2 bi-weekly paychecks, the pay funding each month will gradually creep forward because 28 days is shorter than a month 11 times out of 12 (and all 12 in a leap year.) When the pay funding the month gets 2 weeks ahead, this creates an illusion of an extra paycheck. This phenomenon is caused by managing a month on 4 weeks' pay, and is independent of whether you use YNAB.
People without formal budgets tend to use the extra paychecks to fund non-monthly expenses, for example car insurance that is due every six months. In YNAB, where you give every dollar a job, you have the choice of getting further ahead or using the 3-paycheck months to put more money into True Expense type categories like that car insurance. There's nothing magic about the extra paycheck; it's just a way of looking at budgeting and getting paid. It's not the only way to look at budgeting and getting paid.
Not a trick, just a fact. There are 26 two week periods in a year and only 12 months. So two months there are three two-week periods ending.
If you are a “spend everything in my account” spender, you won’t notice much different in those weeks over others. But if you budget a month using your pay from two checks, that third one won’t be needed when it rolls around and can be used for whatever your major financial priority is at the moment.
In practice this isn't really extra - it's more a side effect of the accounting method. Lot of interest bearing accounts are based on a "4 week" definition of a month that makes it easy to calculate intervals without having to consider things like the number of days in a particular month! This is why a lot of due dates move around throughout the year - they are adjusting for the difference in methodology.
If you have are paid in a similar fashion and most of your expenses are using calendar days (like rent which is always due on the 1st), your budget will have a small amount of money left over most months. If you are strict about setting aside that money, you'll end up with exactly 2 paychecks worth at the end of the year! In my case I tend to allocate everything, so it washes out in the end.
This kind of situation is where budgeting ahead is really valuable - it dispels the illusion that we suddenly have a extra paycheck to spend by forcing us to consider the reoccurring expenses right around the corner!