By Christian Messemer, The Stewardship Shepherd

 

Are you paid bi-weekly? If so, a small change in how you budget could dramatically impact your savings account. I call this the 28-Day Budget. Below I’ll discuss a significant problem most individuals have with budgeting, my solution to that problem, how I made the change, and the benefits I received.

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Most people, regardless of how often their employer pays them, create a monthly budget. When paid monthly, the budgeting process is relatively simple. Your employer pays you one check per month, and the amount you receive is the amount for which you budget. This system works well for the twenty-four percent (24%) of the population who fall into the paid monthly or paid bi-monthly category. For the seventy-six percent (76%) of the population paid weekly or bi-weekly, the monthly-focused budget may create some difficulties.

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Every month, except for February, has thirty or thirty-one days. The lack of consistency in the number of days each month results in every third check (in the case of bi-weekly) becoming a hybrid check, i.e., a paycheck that must account for budgeted expenses in two different months. If this concept is new to you, let me explain. 

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The Hybrid Check

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You receive your first bi-weekly paycheck on January 1st and the second on January 15th. Paycheck One takes care of expenses from January 1st through January 14th, while Paycheck Two pays for expenses from January 15th through January 28th.  If you budget monthly, you are short three days (January 29th through 31st). It is not until January 29th that you can balance your January budget and allocate the rest to pay for your February 1st through 11th expenses. When your employer pays you bi-weekly, and you budget monthly, the third check will balance the current month and prepay the following. 

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This imbalance exists because fourteen (the number of days in a bi-weekly pay-cycle) does not evenly divide into thirty or thirty-one. As a result, there is always an extra two or three days at the end of every month for which you must account. For me, those extra days mean that my paycheck was continually fighting to catch up to my budget. 

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The 28-Day Budget

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To remedy the hybrid check problem, I created the 28-Day Budget. All that means is that I cram a month's worth of expenses into twenty-eight-days of pay (two bi-weekly paychecks). Now, I do not have to worry about those extra days and stretching funds to keep my budget on track. 

We decided to make the the transition to the 28-Day Budget at the end of 2019. To do so, I had to change how I allocated our incoming paychecks for the upcoming 2020 year. Here is how I broke them down. 

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There are a few things to note. First, I began our Month One budget with the check from December 20th. Since I budget using a full calendar month, I selected a check we would receive BEFORE our budget’s January 1st start date. Second, twice per year, or roughly every six months, we receive a FREE CHECK. How does this happen? By switching to a 28-Day Budget, we pay for a year’s worth of expenses with twenty-four (two checks per month times twelve months) checks. I’m sure the light bulb just went off for you, especially when you realize a person paid bi-weekly receives twenty-six, not twenty-four, checks per year. By FREE CHECK, I mean that there are no budgeted expenses tied to this income.

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The question you probably want to ask is, “What do we do with the extra two checks?” That is the fun part, “Whatever you want.” Right now, we use the funds to grow our savings account. Once we hit our savings goal, we will shift from saving to investing and debt repayment (an extra mortgage payment each year).

 

Once you are on your journey, you will notice the varied ways to use these funds. Do you want to pay off your mortgage more quickly? Use your FREE checks to add one or two additional payments per year. These extra payments will cut three to six years off your mortgage. Do you send your children to private school, or are they about to enroll in college? Structure the timing of your free checks properly, and funds will be available for tuition in June (Fall tuition) and January (Spring tuition). You might have similar goals, or you may decide to use that money for travel or to increase your charitable giving. Only your dreams, goals, and creativity could limit how you use your FREE checks.

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Making the Switch

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The transition from a twenty-six to a twenty-four-paycheck budget may appear to be an easy switch, but it will take more work than you may think. The change will require you to decrease your monthly expenses by 7.9%. It is tempting to cut the giving, repayment, or savings categories to free up the necessary cash flow. However, it is crucial to remember why you chose to switch. The key objective of the 28-Day Budget is to free up more cash for saving/ investment and repayment. If you reduce the giving, repayment, or savings categories to allow you to make the change, you are not holding to this goal.

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Cutting 7.9% of your living expenses is no easy task. Something that helped us transition was to allocate a portion of the FREE CHECK to pay for giving and food (dining in and out) for that pay period.[1] This way, we were not trying to pay for twelve months of giving or food with eleven months of income. By doing this, I realize that these FREE checks are no longer entirely free, but they sure were close. Depending on your giving and food budget, this slight adjustment may make the change more manageable by pushing the amount you need to cut to 3-5%. 

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Finally, remember that checks seldom arrive on the 1st of the month, making the initial transition costly. In my case, we started our January budget with our December 20th paycheck. That required me to dip into savings and cut December expenses (where I could) because I was unable to spend any of the December 20th check on December’s monthly expenses.

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Why Make the Change?

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The most common question I receive is, “Why make the change? Could you not have chosen to increase your contributions to saving or repayment and avoided the whole thing?” That is a valid question. I could have. However, my time with budgets has taught me that our expenses tend to creep up over time unless we are willing to create rigid boundaries. As you increase the constraints on your budget, you will often find areas where spending has crept over time, or discover creative ways to hit your goals. For us, freeing up two checks per year forced us to reevaluate our spending decisions and cut in certain areas to hit our goals.  

 

Recap

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Seventy-six percent (76%) of Americans receive a paycheck weekly or bi-weekly. Since most budgets account for expenses monthly, the current system creates a hybrid check, which divides income between one’s current monthly and future monthly expenses. By making the change from a monthly budget to a 28-day Budget, you could free up as much as two full paychecks a year. 

 

For more information on how we transitioned, see my “Transitioning to the 28-Day Budget.”