Cash Flow and Saving the Third Paycheck of the Month
For many people, this is the time of year when paychecks begin to “even out”, so that net amounts appear as they will for most of the rest of the year, and take home pay becomes a more consistent amount.
At the end of the year, you may have gotten a raise or a bonus. Congratulations for that! But you may also begin to pay increased charges for benefits like health care. Or you may have diverted part or all of your raise and bonus into savings (good for you for “paying yourself first”!).
With all these changes affecting your bottom line, it may take a few pay periods to get comfortable with your new cash flow. Here are some things you can do to ease the transition:
- Keep track of every cent you spend, whether it’s cash, checks, or automatic payments. How else can you know what you spend, if you don’t track it? A low tech method, like jotting down expenses in a small notebook or your paper planner might work for you. If you use an electronic calendar, this could be your method to keep track of your spending every day. You might prefer to use software like QuickBooks or Concur, or smart phone apps for tracking on the go.
- Make a monthly spending plan, based on the spending information you tracked. Consider your overall financial goals and your needs vs. wants. Identify your fixed expenses like house payment or rent and your car payment. Then plug in the necessary but variable expenses like utilities, food, gas and clothing. Make sure to include savings (an emergency fund as well as for long-term goals). What’s left can be used for entertainment, repairs, gifts, and fun. A spending plan can be as simple as a handwritten plan on a piece of paper, an electronic spreadsheet, or your tracking software. Your bank or credit union may have a free tool for you to use to develop your budget.
- Implement your spending plan by continuing to track your spending, and following your spending plan closely. Make adjustments as necessary to ensure you have the cash flow to meet your top priorities, fixed expenses and savings.
But here’s the best part — once you’ve mastered your monthly spending plan, you can take the next step to managing your cash flow. Remember those months (usually twice a year, once at the beginning of the year, once mid-year for those on a bi-weekly paycheck schedule) when you actually receive three paychecks in a month? You could begin to save the entire third paycheck that month by following your spending plan, because your spending plan is for a typical month, when you usually get only two paychecks.
Think of what you could do with that “extra” paycheck! Pay down some credit card debt. Add it to your emergency fund. Save it toward a vacation.
It may take a bit of adjusting at first to not automatically incorporating your third paycheck into your cash flow. You may have missed the opportunity already at the beginning of this new year. But you’ll have another chance mid-year when you receive three paychecks in the month. So by starting to track your spending and following a spending plan NOW, you’ll be ready to save that third paycheck in the middle of the year. Won’t that feel great!