Is your company switching up payday cycles this year? It doesn’t seem that a change should be too difficult, but that isn’t always the case. The adjustment can cause havoc for many families. Today, I have tips you can share with your employees about adjusting to a change in payday cycles. This advice is offered by our financial counseling partner, Balance Financial Fitness Program:
Examine your budget
No matter whether you get paid once a month, twice a month, or every two weeks, it all comes down to having a plan for your money. Once you know where your money should be going over the course of a month, it becomes a lot easier to figure out the timing aspect. So begin by tracking your income and expenses and creating a budget. A good budget not only allows you to meet your expenses, but also helps you save for your goals and know how many “treat yourself” expenses you can afford. For worksheets to get started, download this free Build-a-Budget eGuide.
Once you have a budget, the next step is figuring out what you want to achieve with your money. Write down your short-term, mid-term and long-term financial goals and how much money they require. Next, figure out what you have in your savings, the pay periods or months until the target date, and the savings you’ll need per pay period or per month to achieve your goal. You can make your own worksheet or use one of ours. Instead of just trying to make the money last or cover your expenses, think of your paycheck as a way to get you closer to achieving those goals.
Put your paycheck to work
One potentially difficult aspect of multiple paychecks in a month is having bills due on different dates and not having a lump sum at the beginning of the month to divide among the bills. To combat this problem, open a calendar and record all your bills’ due dates for next month. Then you can use the timing of the bills to determine which bills will be paid with which paycheck. It is best to try to even out the total amount due for the bills for each paycheck. If it seems like too many bills might be falling in the period for one of your paychecks, try to pay some early in order to spread them out to make them more manageable. If it helps, set up an account specifically for bill payment money, or use different accounts for different bills. To make it even easier, set up automatic payments of the bills from your dedicated account.
Set up a cushion
This is the easiest technique to manage once you get it going, but it can also be the toughest to start. The concept is to get enough money in the account you pay bills with to not have to worry about potentially overdrawing. Ideally, you would want to have at least half your total monthly living expenses as a floating balance in the account you use to pay bills. That way, if you get multiple paychecks each month, you should have enough to cover your bills for the month when you get your first paycheck. Then you don’t have to stress about making it to the next paycheck.
Avoid salary advance or “payday” loans
Be aware of the consequences of having to pay extra money to get caught up on bills. Needing salary advance loans more than once a year is generally considered a sign that your personal financial plan needs some adjustments to create more savings for unexpected expenses.
Try the above methods before turning to salary advance loans. If you find that none of these techniques work for you, contact your financial institution to see if they provide loans with relatively low interest and other terms that make them a better option than cash advance companies.
Switching to smaller paychecks more often or larger paychecks less often can take some adjustment. But developing a plan for your income will help you take the change in stride and may even lead to a better personal system for maximizing your money.