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How do you budget for a three paycheck in a month?
This is a question that many people have asked themselves when they get an extra paycheck.
Many people assume this extra paycheck can be put to savings, but the truth is, unless you are on top of your budget, doing so can be disastrous.
In this post, I’ll walk you through why your third paycheck might not be extra money and the steps you need to take so that it can become extra cash.
Table of Contents
How To Budget For A Three Paycheck Month
What Is A Three Paycheck Month?
The first question you might ask is what exactly is a month with three paychecks?
In order to answer this question, we first need to look at the two most common paycheck cycles.
Bi-monthly paychecks are when you get two paychecks a month.
For many people their pay periods are the 15th and 30th of the month.
You know that no matter the month, you are getting paid twice a month on these two days all the time.
To figure out your paycheck amount, you simply take your annual salary and divide by 24.
For example, if you earn $40,000 annually, you divide this by 24 to get $1,666.67.
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This is your gross pay before taxes and other deductions are taken out, so your take home pay will be less.
If you get paid this way, you will never see three paychecks in a month.
A bi-weekly pay schedule is when you get paid every two weeks, or 26 paychecks a year.
In this case, if you make $40,000 a year, you divide this by 26 to get $1,538.46 as each gross pay amount.
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The issue with biweekly pay periods is that two magical months of the year, you will have 2 three paycheck months.
Each year the month of your third paycheck will change, so it is not something you can rely on, like Thanksgiving is always in November.
For 2022, the 3 paycheck months are April and September.
Now that you know when and why you might get a third paycheck, it is time to budget for it.
The Biggest Mistake People Make With The Extra Paycheck
Getting an extra check in a month sounds amazing and many people fall into the trap of thinking they can do anything with this bonus money.
Some use it to boost their emergency fund, pay off debt, as an extra mortgage payment, building wealth, or other financial goals.
But here is the problem.
Unless you have been budgeting your money, you can’t simply save this money.
In fact, it is not extra money at all.
This is because your monthly bills are still coming in and you need to pay them.
If you do something else with the check, you aren’t going to have enough money to pay your bills at the end of the month.
Look at it this way.
If you take this entire third paycheck and save it, you now have to go close to 30 days from your last paycheck until you get paid again.
For example, let’s say that this month you get paid as follows:
- First Paycheck: 1st of the month
- Second Paycheck: 15th of the month
- Third Paycheck: 29th of the month
The following month, your first paycheck will be on the 13th of the month.
If you save that third paycheck, you are going from the 15th of last month until the 13th in the next month without income.
Do you see the problem here?
During the second half of the month you still need to buy groceries, buy gas, pay your mortgage or rent, make a car payment, etc.
Then you have to go a few weeks at the beginning of the month and pay all those bills as well.
Chances are you aren’t going to be able to make it financially saving the money.
Ignoring Your Third Paycheck Example
Here is a detailed example to make this clear.
To keep things simple, let’s say each of your biweekly paychecks is $1,500 of take-home pay.
During a typical month, your monthly income is $3,000 and you have the following bills:
- Rent: $1,200
- Car payment: $300
- Cable & internet: $150
- Student loan: $250
- Groceries: $100 per week
- Gas: $25 per week
In your 3 paycheck month, you get paid on the 1st, 15th, and 29th.
Your next paycheck is on the 13th of the following month.
You can easily cover all your monthly expenses with your paychecks you get on the 1st and the 15th.
You have $3,000 worth of income and $2,400 worth of expenses.
But when the next month rolls around, your rent is due on the 1st of the month.
You only have $600 in your checking account because you decided to treat the third paycheck as a bonus.
In addition to the rent, you also have your weekly grocery bill and you need gas for your car.
Chances are one of the other bills is due before the 13th, the date of your next paycheck too.
Suddenly you have $1,600 of bills due (rent, cable bill, two grocery trips, and two gas fill ups) and you only have $600.
Sure you could eat peanut butter and jelly sandwiches, but you still are in financial trouble.
My Experience With Extra Paychecks
Years ago I was working a job where I was paid biweekly.
Money was tight and I was struggling to get by.
I kept a monthly budget and thought like many others that this third check was free for me to do as I pleased.
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So I put the money into savings.
Fast forward a few weeks and I noticed that my checking account balance was getting low and when I saw when I was getting paid again, I realized I was going to run out of money.
Luckily I had the money in my savings account to pull out of.
The next time I got my 3rd paycheck, I again put the money into savings and again, ran out of money before I was paid again.
I ended up leaving that job and worked for a company that paid me on the twice a month pay cycle so I never dealt with the issue again.
But I never solved the problem until years later.
And since 43% of people are paid bi weekly, most never solve this problem either.
How To Budget For Three Paychecks
So how to you solve this issue of triple paycheck months?
The good news is you don’t have to toss out your old budget and start a new budget.
You just have to use this budgeting trick to plan ahead.
The best way is to simply work to get one month ahead on your bills.
When you have 1 month of month to cover monthly expenses in your checking account, when your third paycheck come, you can treat this as an extra paycheck.
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You can safely use them to fund a vacation, make extra payments on your car loan or mortgage, pay for upcoming Christmas gifts, or just put it into long term savings.
And since this money will likely be $1,000 or more, you can make big strides in funding your goals.
Ideas For How To Use The Extra Money
When you get ahead financially and can do whatever you want with the extra income from three pay periods, you might be tempted to spend the money.
But if you use the money wisely, you can make major strides in improving your financial situation.
Here are a handful of ideas for how to use this extra money.
#1. Boost Your Emergency Fund
Many people have no emergency savings in the event of unexpected expenses.
Use the extra money along with regular monthly savings to build a healthy savings in case of emergency.
#2. Pay Down Debt
Whether you have student loans, credit cards, car loans, or other high interest debt, you can use this cash to pay it off.
You can even use it to pay extra on your mortgage.
Any debt you use the money for is a good use of it.
#3. Retirement Savings
If you are behind on saving for retirement, you can put the money into a Roth IRA or other retirement account.
While this isn’t the most fun idea on the list, it will set you up nicely.
And if you are saving as much as you can, this extra paycheck twice a year can help you achieve financial freedom one day.
#4. Planning Ahead
Maybe you know you have to replace your washer soon or there is another major expense that you are going to have soon.
You can save money for this expense so you don’t have to alter your budget or finance the purchase.
By making it a point to plan ahead, you can save yourself from potential headaches and stress.
#5. Vacation Fund
Is traveling your thing?
If so, put the money into a vacation fund so you have money to take a trip somewhere you’ve been wanting to go.
#6. Other Long Term Savings Goals
Maybe you want to buy a house.
You could put this money towards a down payment.
Or maybe you want to start your own business one day.
You could boost your savings so you have a cushion when you decide to take the leap.
#7. Spend It
As great as this option sounds, I’m not suggesting you blow all the money.
But spending money on anything you want might be the thing you need.
To make this work, take 5% or 10% of the extra paycheck and spend it on anything you want.
Then take the remaining amount and use it towards one of the saving ideas.
This will allow you to enjoy some of the money now, while also planning ahead.
At the end of the day, there is a trick to learning how to budget for a third paycheck month.
Unless you are on top of your finances, chances are you can’t treat the third check as free money.
If you do, you are going to find you run into financial issues before the end of your next pay period.
Work to get ahead on your finances and then you can take advantage of this extra income to improve your financial future.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.