What to Do with Your 50 Percent Raise
Getting a third paycheck this month? Follow our tips to make the most of this “extra” money.
While some people are paid once a month or twice a month and others are paid weekly, many households receive paychecks every two weeks. That means 26 paychecks a year, so for 10 months of the year they get two paychecks, and for two months of the year they get three paychecks — a 50 percent raise for the month!
It might be tempting to use this money for a great weekend getaway or to buy the latest high-tech toy, but it might be smarter to use this “extra” money to support your regular annual spending needs.
First of all, if you are going to not use these extra paychecks for normal monthly expenses, let’s look at how best to handle the other 24 paychecks.
- Plan on paying your rent or mortgage and all utility bills from the income of two paychecks each month.
- Other miscellaneous monthly expenses should also be covered from two paychecks each month, such as car payments, repairs, gas and oil, clothing, entertainment, music lessons, etc.
Here are some useful tips on how to manage your two extra paychecks each year.
Extra Paycheck Use #1
Pay for items that don’t fit in well on a monthly basis. For example, it might be easier to cover grocery costs every two weeks. Daycare costs may also work better on a weekly rather than monthly basis. After accounting for these types of expenses, you should still have a big pile of money to spend.
Extra Paycheck Use #2
Christmas spending. This is usually one of the biggest budget categories people have each year, often reaching $1,000 or more. While it is possible to set aside money from each paycheck throughout the year and designate this for Christmas spending, it is easier to fund Christmas in one lump sum from one of your extra paychecks. No more hassle of saving up for Christmas over 12 months, or more likely, not doing it at all and end up having to pay for it with a credit card.
Extra Paycheck Use #3
Vacation. This is another big budget item for the year. Again, you can save up for it a little bit from each paycheck, but you could cover most if not all of your vacation budget from your other extra paycheck each year. No more paying for your vacation with your credit card or home equity credit line.
Extra Paycheck Use #4
Auto insurance. These companies often give substantial discounts if you pay for your insurance premiums once or twice a year, but who has that kind of money just sitting around? You do. Your extra paycheck is a great way to pay for your auto insurance in full so you don’t have to pay for it from your regular monthly budget.
Extra Paycheck Use #5
Life insurance. These companies also usually require that you pay your premiums once or twice a year. Once again, this is a good match for you to pay these premiums from your extra paychecks.
Extra Paycheck Use #6
Pay off debt or fund retirement. Still have some extra money from these extra paychecks? You can use this money to catch up on some debts, or if you are debt free, you can use some of this money to add to your retirement savings.
Follow these tips and you will probably have fewer of the latest model tech items, but you will be in great shape for your vacation, Christmas, and insurance needs for the year.