Welcome to my world! I am a paycheck to paycheck budgeter. I am a true believer in zero-based budgeting. In fact, I believe it is one of the main reasons I was able to take control of my financial beast. If most or all of your income is entirely focused on your paychecks, shouldn’t your expenses also be focused on your paychecks too? Like I have said before, this is the game of life, stuff happens and things are not neatly packaged into perfect monthly expenses. You need to be able to roll with the punches and make changes that are necessary due to life’s unexpected presents.
Paycheck to paycheck budgeting is a perfect tool if you get paid bi-monthly. Breaking up your expenses to focus on your paychecks works like a charm and allows you to also deal with life’s mishaps. So how do you go about starting a paycheck to paycheck budget?
Using the calendar method with paycheck to paycheck budgeting is simple and great for people who like to visualize the month. It is also a great visual to decide what bills you have to pay with what paychecks. The example below is a simple visual to show you the power of the calendar method for paycheck to paycheck budgeting. Knowing what expenses you have to pay with the upcoming paycheck and learning how much “extra” money you have left over for variable expenses allows you to allocate your money more wisely.
Any “extra” money you have left over from each paycheck needs to have a job. You will need this extra money to pay for your variable expenses such as gas, food, clothes, and those morning coffee runs. After you allocate your extra money to a “job”, you should end up with income – expenses = $0 (hence the name zero-based budgeting).
One of the advantages of paycheck to paycheck budgeting is being able to plan for that annual or semi-annual bill you might have. For example, you might decide to pay your car insurance every 6 months and not every month. Take the amount of the bill and divide it by the number of pay periods you’ll receive until the next bill is due. This will allow you to set aside that amount each pay period until you have accumulated enough to pay the entire bill. You may not realize it, but when you don’t have enough to cover a big expense or annual bill, it is usually because you earned the money in another pay period; it was just never set aside.
I have learned over the years that this budgeting method is not something I do because I am poor or because I can’t live on last month’s income. I do it because it makes the most sense. When you type “paycheck to paycheck” into Google, you will see results such as Stop living paycheck to paycheck, how to step away from paycheck to paycheck budgeting, and how to break the living paycheck to paycheck cycle. So you have to ask, why is it so frowned upon? Most of the time, the term “paycheck to paycheck” is associated with being poor. It used to suggest or hint that the person using this method has to stick to a “strict” budget to survive. This is far from the truth. Some of the wealthiest people use the paycheck to paycheck method because it gives them the freedom to allocate their money the way they want. If you budget paycheck to paycheck knowing that a huge chunk is going towards a future financial goal, that’s a success. A lot of people tell me they don’t even know where their paycheck goes, it just disappears. Just because you are rich with money, doesn’t make you rich when it comes to funding future financial goals. Making $900,000 a year doesn’t fund your retirement, or pay for your child’s education. It does not put money into savings or invest it in your future – it’s just money that you earn and you choose how to spend it. Paycheck to paycheck budgeting will allow you to achieve what it truly means to be rich.