A huge factor in the success of my debt free journey has been to budget every paycheck. I have tried many different budget plans over the years and it never worked out well. Each time, I would begin a new plan with a monthly budget but would be way over budget before the end of the month. It’s really hard to plan a full month of expenses when I only had enough money for two weeks at a time. It was stressful trying to figure out how to stretch money until the next paycheck. It made me feel like a giant failure.
Unfortunately, I was living paycheck to paycheck and relied on credit cards when the cash flow dried up. So, I was in a continuous cycle of debt and couldn’t see a way out. Until one day, when I became completely fed up with being tied up in debt.
I began researching methods to budget and pay off debt. There were a variety of methods I read about. However, one in particular stood out to me. It was the budget by paycheck method and it was clear that this would work for me. I was already living paycheck to paycheck so it made perfect sense to budget every paycheck rather than trying to budget for a full month. I don’t know why I never thought of it in this way before. But, it’s better late than never.
How To Budget Every Paycheck
The budget by paycheck method is exactly what its name implies. It is a budgeting method where you create a budget and plan for every paycheck. For example, if you receive a bi-weekly paycheck then you will create a budget every two weeks. Similarly, if you are paid weekly then you are creating a budget every week. Paycheck budgeting is a great way to stay informed and on track by knowing exactly where your money is going as you get paid.
Personally, I’m paid every bi-weekly and my husband is paid weekly. Therefore, I create a paycheck budget plan for myself every two weeks and my husband’s paychecks are budgeted each week. We combine several methods and tools to manage our finances. In addition to paycheck budgeting, we utilize a budget calendar and a zero based budget approach.
Enhance With The Budget Calendar
The budget calendar is a great visual representation showing paychecks and expenses due for the entire month. You can use the calendar as a visual aid to identify all of the payments due during each paycheck period. Thereby, helping to avoid late fees and penalties from missed payments. The Budget calendar also gets updated when expenses are paid by placing a check mark next to the expense name. The check mark is a quick visual identifier to show that the expense is paid and you are done with it for this period.
In this example, the first paycheck in January is on 1/8. That paycheck will pay bills for Credit Card 4, Student Loan 1, Cell Phone, and Student Loan 2. Those expenses and the paycheck date in the Paycheck key are highlighted in orange. Color coding allows quick identification for the group of bills to be paid with this paycheck because they are highlighted in the same orange color.
The color coding used on the budget calendar contains the same color coding scheme used on my Debt Payment Strategy worksheets which keeps it consistent and easy to manage.
Combine With The Zero Based Budget
The Zero Based Budget is a method that takes income minus all spending to equal zero for each budgeting period. However, this doesn’t mean that you will end up with $0 in your bank account. Only that your income subtracted by all expenses will equal zero. Every dollar is accounted for and has a job in the budget plan. Your incoming money is assigned to areas such as debt payments, expenses, savings, giving, and investing.
Combine the zero based budget with the budget by paycheck method to plan and account for all income and expenses each paycheck. For example, if you earn $1,000 each paycheck then all spending, debt payments, and savings should add up to $1,000. The total will equal $0 when income is subtracted by spending.
|Variable Expenses||– $680|
During the planning phase, if you have a negative balance in your projected budget amounts then you’ll need to identify areas where you can minimize expenses, find additional income or both. If you have a positive balance with extra money leftover then you’ll need to assign that money a job. Put the extra money to work and tell it where to go by adding it to your emergency fund or other savings funds, paying debt, and other expenses.
In addition, all expenses must be tracked regularly to ensure that you know where each dollar went to avoid overspending. Utilize the Expense Tracker worksheet to keep track of incoming and outgoing money each paycheck.
Putting It All Together
So far, we’ve talked about what budgeting every paycheck means and how to combine it with the budget calendar and zero based budget. Next, we’re going to review how to plan a paycheck budget.
I use the Paycheck Budget Planner worksheet to help create my budget. The worksheet contains several sections to track income, bills/fixed expenses, variable expenses, savings funds and sinking funds. Each section has a budgeted (estimated) amount to assist in planning and an actual amount to track how much was actually spent. The budgeted and actual amounts will help if spending is off track by identifying and applying needed adjustments. Eventually, as you use the Paycheck Budget Planners more frequently, you will be able to review and analyze past spending to develop better habits in the future.
How To Fill Out The Paycheck Budget Planner Worksheet:
As you plan your budget, you will be filling out the Budget column in each section. Estimated budget amounts for expenses and savings should equal the estimated budget amount for income. If you have too little or too much money then depending on the situation, you’ll need to reduce expenses, add it to savings or make extra debt payments. Then, the Actual column will be filled out when spending occurs, bills are paid, and savings are deposited.
- Note all income in the Income Source section
- Use the Budget Calendar to identify the bills due and list those bills in the Fixed Expenses section. Utilize the Debt Payment Strategy worksheet to gather the budgeted payment amounts for all fixed expenses.
- List variable expenses such as groceries, pet food/supplies, and gas in the Variable Expenses section
- List savings funds in Savings section
- Note sinking funds in Sinking Funds section
- The math portion takes place at the end of the paycheck period to calculate actual totals from all sections. Income is subtracted by bills/fixed expenses, variable spending, savings and sinking funds. The total should equal zero.
Budgeting is Life Changing
I have been budgeting every paycheck in the last year successfully. I started this plan in February 2020 and within one year, I paid $13,000 in debt, met my initial goal to save $1,000 in an emergency fund plus additional savings in other funds and minimized unnecessary spending. Having a budget plan has been life changing. I’m going to stick with it for the long haul!
Get the Budget Planner
Access the Shop to get the Budget Planner! The Budget Planner includes the Budget Calendar, Debt Payment Strategy, Paycheck Budget Planner, Monthly Expense Tracker and many more helpful worksheets.