Latest posts by Kumiko Ehrmantraut (see all)
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Let’s face it – living paycheck to paycheck is beyond frustrating! Does it seem like you keep trying to get out of debt, but you always fall short? Does saving money feel like an impossible goal? Does the money always run out before you reach the next payday? If this sounds like you, the Half-Payment Method can be a very tool to help you make your monthly payments stress-free.
Most Americans say they live paycheck to paycheck, regardless of their income level. Even people who bring in six figures a year struggle with debt and bills and saving money. You’re not alone in this struggle!
The key to getting out of debt and living within your means comes down to one word: BUDGET.
Now, before you roll your eyes or make excuses, this really is the core concept to financial success, regardless of your income. Without a budget, the phrase “the more you make, the more you spend” really is true.
Learning how to budget changed my life, and I KNOW it can change yours too.
There are many ways to budget, but it’s essential to find the one that works for you. If you’re ready to take charge of your finances and regain control of your life, the Half-Payment Method may be the method that will help you do it.
What is the Half-Payment Plan?
The Half-Payment method is where you take your regular, recurring bills and divide them in half. Every time you are paid, you set the money aside, so you have the full payment ready when the bill comes due. When you pay bills using this method, you don't pay half the bill each paycheck, but instead you hang onto it and pay it on the due date.
Let me give you an example of an average budget and a half-payment method budget:
Example Budget
Monthly income: $2400
Monthly Bills:
Mortgage/rent: $800 due on the 1st of the month
Car payment: $300 due on the 5th of the month
Auto insurance: $115 due on the 15th of the month
Utilities: $175 due by the 10th of the month
Cable: $90 due on the 15th of the month
Loan debt: $230 due on the 10th of the month
Childcare: $400 due by the 1st of each month
Average Budget Method
Mid-month
Auto insurance: $115
Utilities: $175
Cable: $90
Loan debt: $230
Mid-month paycheck: $1200
Total payments due: $610
Money remaining: $590
End of the month
Mortgage/rent: $800
Car payment: $300
Childcare: $400
End of the month paycheck: $1200
Total payments due: $1500
Money remaining: – $300
It’s not hard to see why this doesn’t work! Half the month you can’t even afford to pay what’s due, much less buy gas and food. The other half of the month, you’re inclined to think you have extra when you really don’t.
And the way many people handle it is to pay one or two of the end of the month payments on a credit card while spending the middle-of-the-month surplus because it feels like there is money leftover.
The Half-Payment Method helps you balance this, so it works for your overall benefit.
The Half-Payment Method
Mid-Month
Mortgage/rent: $400
Car payment: $150
Auto insurance: $60
Utilities: $85
Cable: $45
Loan debt: $115
Childcare: $200
Mid-month paycheck: $1200
Total budgeted payments: $1055
Money remaining $145
End of the Month
Mortgage/rent: $400
Car payment: $150
Auto insurance: $55
Utilities: $90
Cable: $45
Loan debt: $115
Childcare: $200
Mid-month paycheck: $1200
Total budgeted payments: $1055
Money remaining $145
The first thing to notice with the half-budget method is that nothing is in the red. That means you don’t need to pay your bills on plastic. The second thing to notice is that there is no significant surplus to fool you into thinking you can overspend.
Pros and Cons of the Half-Payment Method
The pros of the half-payment method are:
- This is a steady and straightforward way to track your budget
- Relieves the financial burden for the half of the month that is bill heavy
- You are not tempted to overspend
- You are less likely to charge anything to credit
- Helps you set a budget for your cash envelopes (gas, food, fun, savings, etc.)
- This method still works if you are paid weekly, you’ll just use a quarterly plan
- Seeing your bills on paper make you more aware of where your money goes
The cons are:
- You have to find a way to keep track of the half of each payment that is waiting in your budget before it comes due
- You have to exercise discipline to not touch these waiting half payments
- You need to get a half a month ahead to begin this process
- It’s not the most practical method if you are paid monthly
As you can see, you take your regular, recurring payments and divide them in half. Then with each paycheck, you set aside the money needed out of each check, so you will have the full payment ready when it comes due.
When you use the half payment budget method, you are still paying your bills the same way, you are just managing your finances a little differently. Your paycheck is always the same. You always have the same amount of money leftover. You have only dispersed it more evenly.
How to Begin Using the Half-Payment Method
The easiest way to begin this method is to ease into it over a few months. Begin with half of the month that has the fewest bills due, and save half toward one of the next bills. The following month you can transition a second bill, and so on until you have it balanced out.
How you set aside the money is up to you. You can open a separate account at your bank, or you can use the simple envelope method, I teach and live by. You will be proud of the self-discipline you learn while doing this.
Why the Half-Payment Method Works
The beauty of the half-budget method is that it teaches you to be more disciplined with your spending. The curse is that it requires you to be. But this is what makes it work. It helps you visualize your budget, which in turn, helps you see and improve your spending habits.
Regardless of how often you are paid, I’m a firm believer that you should break your budget into bi-weekly or even weekly amounts to help you get a grasp on your financial status. It is not enough to just know in your head how much your bills are or to estimate in your head how much you’ve got leftover for groceries. Guessing and estimating will not work the same way as having a good ol’ visual written down with paper and pen. Seeing is believing. Seeing is life-changing.
Financial freedom isn’t about making a higher income, or even about the right techniques for managing your money. It’s about deciding what you want out of life and making the necessary changes to reach your goals.
If you are having a hard time paying big bills with your paychecks, the Half-Payment Method can help reduce stress and help curb spending. You don't gain any more money, but you distribute the burden of more significant bills across your entire budget.
I love this info. Do you have a video where you show some examples of how to get started with this? I get the theory of taking a few months to ease into it, but I struggle with application.
I use this method with my paycheck budgeting, keeping a second checking account for the money I set aside. I haven’t totally figured out how to track what denominations are designated for what bills, but as long as I don’t touch it I know it will be there when the bills are due. It also makes it plain to see that whatever’s left in my main account is available for extra debt payments.
I appreciated reading your tips because whenever I try to explain my method to friends and family they look at me like it’s odd or maybe unnecessary. Thank you!
I follow this method; for my utility bills I actually make the pymt instead of holding on to it. So I make 2 pymts a month instead of 1. We are a month ahead with these bills. My mortgage and car pymts were set up as biweekly pymts from the start.
How do you do this if your bills are not ever the same amount? I would love to do the half-payment method.
I love this method, I am 22 and I saw I was having no money on my first of the month pay check. Now that I do the half-payment method I can have balance. One thing that may help is that i have a separate account for my bill. This way I am not tempted by the money of my bills.
I love this idea. My app Prism actually pays the bills for me and then reminds me to pay the rest on the due date! I love it!
Thanks for a great article Miko. Any suggestions on how to get half-a-month ahead to start this method?
I’ve been using this method for years. How I started it was using my tax return money to get that “payment ahead”. I have half the bills amount deposited into my credit union every paycheck and all the bills are auto paid from that account. I keep an excel spreadsheet (similar to a check register) to calculate the deposits and payments over a couple of months so I can make sure the balance never will be negative. It’s great because it runs itself and is pretty hands off. I estimated the bills on the high side of their average. I monitor the account weekly (sometimes more!) to make any adjustments. After a while, I accumulate a few extra dollars and can use that for a treat! The problem I have had is how do I implement the half payment method using the Budget By Paycheck system? Can you do a video about how to transition over? Thanks!