Trick Yourself into Saving More of Your Biweekly Paychecks
I know this doesn't apply to all of us, but if it does apply to you, here's a neat little trick:
If you are paid biweekly (rather than once monthly or exactly on the 1st and 14th of the month), the Gregorian Calendar is structured in such a way that you will be paid 26 times per year (as opposed to 24 for those paid on exact dates, like the aforementioned 1st and 14th). That is, twice per year, you will receive three paychecks in one month.
Most people have certain expenses that come out of their 1st paycheck of the month, and others that come out of the 2nd. Well, what if you just mentally "skipped" the two extra paychecks? You could save an extra few hundred dollars (or more) per year! Here's how it works, in broad terms:
Identify your "Big Bills." For example, mine include rent, car payment, student loan payment, and LASIK payment (yay for no contacts!). Distinguish which bills come from which paycheck. For example, my rent and car payment are due near the 1st of the month, so they come from "paycheck 1." Student loan and LASIK are from "paycheck 2." Then, identify recurring expenses. Mine are groceries, gas, and entertainment money. Paycheck one rolls in July 1. Pay rent and car payment. Paycheck two comes about July 15. Pay student loan and LASIK. On July 29, your "extra" paycheck comes in. Subtract recurring expenses (let’s say $500 for me) from that paycheck and transfer the remainder to savings! Finally, mentally shift from thinking that this is "paycheck one" of the month to make "paycheck one" your next check, August 12.
Can't pay your rent 12 days late? Me neither. But consider this: if I am paid on January 1 and every two weeks thereafter, the way the calendar falls inevitably means that my "first" paycheck will fall earlier and earlier in the month. By my July 16 payday, I am receiving my "first" paycheck (i.e., the paycheck for rent and car) 16 days before the end of the month! My next paycheck will come on July 30. Suppose I use that as my "extra" paycheck—the following paycheck would fall on July 13, or in time to still pay student loan and LASIK on time. (See also: Why Can't You Ever Make On-Time Payments?)
Result: no payments made late, and tons of money saved! The same thing will happen again in December. I personally have saved a few thousand dollars doing this in the past couple of years at my job. Give it a try!
Other Cool Things to do Biweekly
By the way, many people use this same schedule to pay off their mortgage far sooner than they would by making just monthly payments. According to MortgageCalculator.org, biweekly mortgage payments allow a homeowner to pay of his or her mortgage nearly eight years ahead of schedule – a savings of 23%! Whether you see the full benefits of paying extra is dependent on whether your lender credits that payment toward your loan immediately, however. Many lenders hold partial payments in an account until your regularly scheduled payment is received.