If you’re new to budgeting, the paycheck method is one of the simplest ways to get started.
And if you’ve been budgeting for a while but want a change, the “budgeting by paycheck” approach offers a practical alternative to the traditional monthly system.
Rather than creating one budget for the entire month, budgeting by paycheck has you build a new budget each time you’re paid.
This means that if you are paid weekly or bi-weekly, then you can have a budget that works better for you!
Here’s how to make it work.
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Choose a Calendar or Planning Tool
A monthly budget planner, a printable calendar, or a digital calendar app all work well for a paycheck budget. If you prefer spreadsheets, that’s a solid option too.
Whatever tool you choose, make sure it’s easy to access and something you’ll actually check and update regularly.
Log Your Income and Bills
Once you’ve chosen a planning tool, add your paycheck dates and fixed expenses.
This typically includes rent or mortgage payments, car payments, debt payments, and loan installments.
Now, take that amount and divide it by the number of paychecks you expect to get each billing period. That might sound confusing, but if you get paid every other week and pay rent every 4 weeks, you will divide your rent payment by 2.
Then, each paycheck, set aside half for rent.
For things like debt payments or car payments, or even sometimes a mortgage, you can pay the amount every time you get paid. So every two weeks you will pay half the bill. This will not only help you keep on top of your bills, but it can also lower your interest charges and overall bill (since you are prepaying).
This also works well for bills that are more infrequent. For example, insurance or taxes.
Track Your Spending
Next, account for variable costs like groceries, pet care, and other necessities. Then set aside a portion for discretionary spending, such as subscriptions, vacations, and time out with friends.
If you’re not sure how much you typically spend in these categories, reviewing last month’s bank statement can help you calculate a reasonable average.
Build in Savings and Sinking Funds
Ideally, you’ll have money left over after covering your bills and expenses that can go toward a savings account, an emergency fund, or a sinking fund. These reserves are essential for covering unplanned or infrequent costs without derailing your finances.
How much should you save?
The right amount depends on your income and existing financial obligations, including loan payments, rent, and mortgage costs. As a general guideline, aim to save at least 20% of your income each month if your budget allows for it.
Match Each Expense to a Paycheck
Color-coding your expenses can make it easier to assign them to the correct paycheck.
For example, if you’re paid weekly or bi-monthly, your final paycheck of the month will likely need to cover most of the following month’s bills.
Monitor Your Budget Over Time
Consistent tracking is one of the most important parts of any successful budget.
Reviewing your budget over several weeks or months will help you identify areas that need adjustment and find opportunities to save more toward long-term goals, like investing or buying a home.
