Imagine getting ‘bonus’ paychecks twice a year? Would that help you pay off your debt or save for your next car, a remodeling project, a vacation, or your kids’ education? If your company pays you biweekly (every two weeks) instead of bimonthly (twice a month), you’ll receive 26 paychecks per year, versus only 24. That means two months per year will have three paychecks instead of only two. How you handle the ‘extra’ paychecks can make a huge difference in your finances.
I’ve had jobs that pay twice per month as well as those that pay every two weeks. I actually prefer the biweekly paycheck to the bimonthly paycheck. Here’s why. Regardless of the number of paychecks, obviously your annual pay is the same; however, other than the deductions taken directly from each of your paychecks (such as for medical insurance), pretty much all of your other bills are monthly. Think about it: mortgage/rent, car payments, credit card bills, utilities, phone bills, etc. I’ve never had anyone bill me on a biweekly basis. It has always been monthly, annually, or some integer multiple of months (3, 6, 36, whatever). So use that to your advantage.
The Magic of Biweekly Paychecks
Personally, I love receiving a biweekly paycheck. The magic occurs if you plan your budget based on receiving only two paychecks per month instead of budgeting based on dividing your annual pay by 12. This has two benefits. First, it forces you to live well below your means since each biweekly paycheck is less than each bimonthly paycheck for the equivalent salary. Second, twice a year, you’ll get a ‘windfall’ equivalent to one full paycheck! If you put that towards paying down debt or towards one of your major saving goals, each ‘bonus’ paycheck makes a sizeable contribution to your financial goal. It’s a huge morale boost!
As an example, assume you make $50,000 per year. With a biweekly paycheck, that’s about $1,923 per paycheck (versus $2,083 if you’re paid bimonthly), excluding deductions for taxes, benefits, 401k, etc. For gross estimating purposes, assume roughly half your paycheck goes towards taxes and other deductions (it’s probably actually less than that). That means you’re left with an ‘extra’ $1,000 (or more) that month. And that happens twice a year! What could you do with a $1,000 bonus every 6 months or so?