Budget Basics:
Budget by Paycheck

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Inside: Learn how to establish and utilize the budget-by-paycheck method.

Wouldn’t it be great if you could receive a monthly notification forecasting your cash influx down to the penny? In theory, that would make budgeting a whole lot easier! No more worry about weekly cash flow or fluctuating income threatening to derail your estimates. Even though monthly pay periods and consistent paychecks are common for many, the majority of the workforce is paid on a weekly or bi-weekly basis. Yet, budget conversations often center on forecasting income and expenses at the beginning of the month rather than around a personalized payment schedule. 

On the dollar side, what if your income is irregular? Or your paycheck is delayed due to the nature of your small business? What if you receive a large portion of your income from tips? In these instances, irregular paychecks are the norm. Creating a budget once a month, with a regular income, just doesn’t work for everyone. So how do you adapt to a weird pay schedule or irregular income? If you fit into these scenarios, you will likely benefit from the budget-by-paycheck method. 

Budgeting by paycheck

The budget-by-paycheck method changes the frequency of your budgeting throughout the month. Instead of creating your spending plan once at the beginning of the month and tracking expenses from there, you work through a series of mini budgets each time you get paid. In doing so, you review your income for the pay period and decide which bills to pay within that timeframe. When you get your next paycheck, the process starts again. Look at the income in your account, subtract the bills that are due, and use the remaining funds for discretionary spending. 

This method can be used for any pay interval that you have, whether that is weekly, monthly, or something in between. It’s also helpful for tackling large bills at different intervals. When you have large bills due, you can utilize this method to split up payments across multiple paychecks. This helps decrease any strain on a single paycheck throughout the month. For example, if you are paid twice a month, and your rent is due on the 1st, you can use this method to put aside half of your rent with your first paycheck, then use the second paycheck for the remaining portion. Now, you have enough funds to effortlessly pay rent on time without feeling like your entire paycheck is going toward one bill.

Setting up your paycheck budget

We’ve created a Paycheck Planner to help guide you through this budget-by-paycheck method. This planner also pairs nicely with our Budget Calendars to visualize your monthly inflows and outflows. 

Budgeting by paycheck involves two parts. First, you’ll look at the upcoming month at a high-level view. What income and expenses are coming up? Any special considerations for this month, like an irregular expense or a change in your pay frequency? Then, part two involves breaking those monthly obligations into those mini budgets each time you get paid. 

Part 1 — Planning the month

Before you complete the Paycheck Planner, identify and consider the following budget components.  

Determine pay frequency. How many paychecks do you anticipate receiving this month? Whether it is one or four paychecks, keep that in mind when you are dividing expenses in Part 2. 

Estimate income. How much net income from those paychecks do you anticipate? If your income is irregular, take a look at the last three months of paychecks you received to determine what an average paycheck looks like. Or if you know how many hours you are guaranteed this month, you can calculate your anticipated income by using a base hourly estimate. If you know you will work at least 25 hours per week, use those paycheck totals as your income estimate. 

Estimate expenses. List out all of your bills and obligations for this month with due dates. If you’ve budgeted before, you likely have a starting list to reference. Consider anything out of the ordinary that you need to plan for, like a quarterly expense or spending money for an upcoming trip. 

Goal check-in. What are your current checking, saving, and debt balances? Will you be allocating any funds towards your financial goals this month? Your budget is your roadmap to reaching your financial goals. Regular goal check-ins keep you moving in the right direction.

Part 2: Planning the paychecks

Now that you have all of the data for the month, let’s get practical and divide up the obligations between your paychecks using the Paycheck Planner:

  1. Starting with your first paycheck, record the paycheck source, anticipated amount, and date. 
  1. Record the actual income received and note your current bank account balance after you receive your paycheck. 
  1. List the items that need to be paid between now and your next pay period. Any remaining funds can be used for discretionary spending and savings. Subtract the expense from your bank account as you pay a bill. This helps you keep an eye on your account and cash flow until the next paycheck.
  1. Repeat this process for each paycheck that you receive. Don’t forget to refer back to your monthly expense list often to ensure you don’t miss a bill. 
  1. At the end of all of the pay periods for this month, review the budget and your goals. Use this data to make any necessary tweaks to next month’s paycheck cycles. Do you need to reevaluate your estimated income? Do you want to increase savings or pay down more debt?

Benefits of budgeting by paycheck

The pros of this system are heavily weighted in the ease of use and the flexibility it provides throughout the month. 

Anyone can use it. Even if you are paid the same amount each month on a regular schedule, this method helps you keep a close eye on your finances. You won’t be tempted to create a budget at the beginning of the month and then forget about it. You’ll always be on watch for your next paycheck and next round of expenses to divide up and pay.

It relies on close watch of cash flow. When you only budget for a short period of time, you must keep careful watch of the cash on hand. This requires you to utilize the money in your bank account and not rely on anticipated future income to cover overspending.                                                                                                   

It potentially increases savings rates with irregular income earners. If you have an irregular income, you will use the average net income amount for your budget estimate for each paycheck. If you underestimate, there is room to send those excess funds you receive straight to savings. 

It doesn’t dictate categorical budgeting. This method has a heavy focus on the “needs” section of your budget. For each paycheck, you divide up your income based on the upcoming expenses, which are often bills with due dates or weekly necessities like gas and groceries. Outside of that, you really don’t have to monitor any other categories!  Whatever funds are left over are free game to put toward discretionary spending.

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Ways to stay on budget

A budget is only as good as your behavior! Consider incorporating these quick tips into your budget routine to set yourself up for success.

Use cash. It is so easy to charge an extra expense on your credit card when temptation hits. Cash helps you stop spending leaks by providing a physical barrier to spending. Once the cash is gone, you are out of funds until the next payday. 

Establish a payday routine. Each time you get paid, make it a routine to budget that paycheck and review your financial picture. Grab a snack and make it a date with your wallet!

Track expenses. As noted earlier, this budget method relies on a close watch of your cash flow and bank account balance. Because you are focusing on dividing your necessities across your paychecks, the remaining funds are available for discretionary spending. Ensure that this spending doesn’t get out of hand and you are taking care of your necessities each pay period by tracking expenses. Review your expenditures often throughout the month. 

Monitor your financial priorities. The budget-by-paycheck method is a great start for managing your budget each month. But, focusing solely on necessities and spending cash won’t drive your financial future forward. When utilizing this method, make your savings and financial goals a priority. Consider creating “bills” for your financial goals with due dates to make them happen! If you want to save $500 this month, create a savings “bill” with a due date to remind yourself to budget savings into your paycheck budget.

Need help establishing a budget? 

Budgeting is not a one-size-fits-all approach. It takes work to find something that seamlessly integrates into your life. If you have tried a few methods without luck, reach out to our financial counselor! Financial counseling can be a helpful resource to get organized, establish a budget method, and work out any hiccups along the way. Our financial counselor is happy to connect with you, create a personalized budget and cheer you on as you work toward your financial goals. 


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DISCLAIMER: Although I do have experience in the personal finance field as an Accredited Financial Counselor® professional, I am not a registered financial planner, advisor, or investment agent. Budget Blueprints and any content or resources made available on this site is for informational and entertainment purposes only. I am sharing my personal experience which may not be applicable to others. I am not liable for any losses or damages related to actions or results related to the content in this website. If you need specific financial advice, consult with a licensed professional financial advisor/planner who specializes in your specific need area.