Struggling with managing payroll change...
My wife and I have been YNAB users for several years. She gets paid monthly (1st of the month), and I got paid on the 1st and 15th of every month (24 pay periods per year). It made it super easy to set up a monthly budget because our monthly income was always the same. For annual expenses, we budgeted monthly and socked away funds every month, so at the end of the 12 month cycle we had the funds available to pay our expense.
My company payroll recently switched to biweeekly pay period, so now I get 26 pay periods per year instead of 24, so my take-home has been reduced $250/pay check, or about $500/month, until July (and December) when I get my "extra" paycheck.
We're really struggling with how to adjust our budget to accommodate this payroll change. We are also half-way though a Chapter 13 BK, and we are basically living paycheck-to-paycheck for the next 2.5 years until we finish our payment plan, so this has cause us a lot of stress. Any advise to better handle this transition would be appreciated.
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My wife and I used to be on the bi-weekly payroll and the way we did it was to look to cover all of our monthly expenses first (the things that you write a check for every month), then cover the non-monthly expenses with what we called the "lucky checks" (like car insurance, taxes, or whatever.) Not sure if this fits your situation or not, but hope it helps.
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Dan S Thanks for the tip. This makes sense. We've had everything so well organized in YNAB by category, and this payroll really threw a wrench into things. As I started re-sorting all our expenses, I essentially started by creating a new "Monthly Expenses" category, and "everything else" is in a separate "Intermittent" category. I was getting a little overwhelmed, then the kids woke up from nap time and all hell broke loose, and haven't had a chance to go back and finish resorting. I like your idea, and it makes me feel like I'm on the right track.
MsTJ BK is a savings challenge in and of itself! LOL I got a 12% pay increase last year. 100% of that increase goes to the trustee (since our expenses didn't change). Annual bonus check that I get next month - goes to the trustee. If my payroll shortage was $50-100 a month, it would be less of a hassle, but we're talking in the neighborhood of $400 per month on a torturous BK managed budget with two small kids. I wouldn't wish this BK on anyone, but we got ourselves here, dealing with it, and taking steps to never be in this situation again. We're half-way through the 5 year process next month.
Our annual income isn't changing, so I'm confident we can work through it, but the change in payroll timing is just creating a huge paradigm shift to the way we have become accustomed to managing our budget. Oh well. Adapt and overcome.
Thanks again to both of you for the feedback!
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Not sure if this will help and I would see this as a savings challenge. Can you reduce monthly spending by the amount your monthly income has actually reduced? You say things are tight now, and I understand they are. And can you reduce spending just a little more? Your monthly income will actually be short so what are your other options? That way the extra checks can be used for something fun. Maybe pay a little extra toward the bankruptcy? Or a small reward for actually making things work with reduced income or some extra toward a vacation or some other reward? I can always find a little to cut in my monthly spending, when necessary, and am looking for motivation to cut spending, just a little more.
Hope you find something that works for you.
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Until your first 3-check month, you have to get by on 2 of your paychecks per month. Yes, you're going to have to prioritize, cut costs, and/or possibly bring in side income. If you work it right, you can go back to your original monthly budget after that.
I would not put non-monthly expenses on hold. Prioritize -- including the True Expenses -- and make those contributions from most important to least. Stop when you're out of money. That means you have to forgo the less important things.
When you get your 3rd check, put 4/5 (* see note below) of it in a Deferred Income category. Each month thereafter, release 1/5 of the original check back to the budget. This gives your monthly budget a raise back to your original monthly outlay. Using a relatively consistent budget is much easier to deal with.
(Hopefully it's clear that if you put off True Expenses and fund them out of the third check, the check will not be available to use on a continuing basis. You will have to change up your budget 4 times a year, continuing to work with 2 bi-weekly checks 10 months out of the year. My preference would be to tighten my belt, get over the hump, and return to your "normal" amount to budget from them on.)
(*) Your next 3-check month (December) is only 5 months after July, which is why you store 4/5 and release 1/5. Usually there will be 6 months between the 3-check months, so you would normally store 5/6 and release 1/6.
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dakinemaui My company just switched from bi-monthly to bi-weekly and your suggestion about how to manage the 3-check months is exactly what I've been looking for. Thank you!!
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dakinemaui Would you suggest this method for those that are already on a bi-weekly pay schedule? I never thought of needing to break-up the way our money comes in because it's actually different throughout the year. I don't know if my husband and I are really in a position to do this right now because we still have hourly jobs. Our income fluctuates minutely every paycheck. But it still seems like a constant struggle knowing how much overhead we have every month.
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PeculiarBella Ultimately, targeting a consistent income on a monthly basis will be easier. I suggest you get to where you can budget monthly first (all income received is budgeted in next month's area), as that advance notice affords the most options and lots of convenience.
After that, what I described for bi-weekly pay is really a simplification/specialization of a "deferred income category" approach that has long been the recommended way to handle variable income. (A bi-weekly income is merely variable income with a regular cycle of about 6 months.)
The general idea is that you normalize out the variability by targeting your average income level in the budget. Do this by stashing any income above the average level in a deferred income category, hopefully building up a surplus you can pull from in the below average months. Obviously, if you haven't built up a surplus, you can't draw on it, and you'll have to get by with less until then. (This is the first phase I described above where you have to live on 2 checks.)
It works when hours fluctuate during the month or even when you're not working part of the year (e.g., a teacher that receives no income over the summer). The benefit is you don't have to continually rearrange most of your budget (less chance of error). The impact of the income variability is confined to a single category.
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I know this won't work for everyone, but when I signed up for YNAB I sat down and made a spreadsheet of what categories to fund with each paycheck. My husband gets a military pension on the 1st, I get a check on the 5th and 20th which can have anywhere from 80-96 hours depending on how many work days are in that pay period, and my husband gets paid biweekly, which is a fixed amount.
I based our budget on the lowest possible check for me (80 hours), and based on two checks a month for my husband. For my husband's two extra checks per year and if I have a pay period with more than 80 hours, the extra money goes into building our buffer.
