Trick Yourself into Saving More of Your Biweekly Paychecks

By Janey Osterlind on 20 October 2010 (Updated 14 October 2011) 9 comments
Photo: Paha_L

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.

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Guest's picture
zimmy

I do pretty much the same thing. It's a great idea. In my case, I get an "extra" check in November so that money is going towards a little out-of-town Christmas shopping trip for my family. Probably wouldn't be able to afford that trip if I saved a little here and there from each check.

Guest's picture
Guest

I tricked myself into thinking I make less money than I do.

I used to make around $15 an hour, now I make about $21 an hour. However, when I was making 15, I was able to pay the bills and get by. Now at 21, rather than spend that much more, I put the excess into a long term savings acct. and I still get by on 15. It's a sacrifice in that, I have less money now but I still get by, and I save $5,000 a year(that's the maximum savings allowed in Canada without being taxed). Just an idea that works for me, maybe it can work for you too.

Guest's picture
Jordan

Good tip on the bi-monthly mortgage payment. This is the easiest way to turn a 30 year mortgage into essentially a 15 year mortgage, with the flexibility of making only one payment if needed. Keep the tips coming!

Guest's picture

Love this idea. It's sort of like paying yourself automatically. You can't miss what you can't see, right?

Guest's picture
Gen

I tricky myself too. I get paid weekely, so on Fridays i automatically have money transfered to various accounts. I treat it as an expense that has to be paid every week this way i don't count on that money.

Janey Osterlind's picture

Good to see that a lot of other people are taking advantage of this idea, too! Ramit Sethi writes a lot about automating your finances on his blog, www.iwillteachyoutoberich.com, which is another extremely helpful way to sock away extra money.

Guest's picture

Oh, I get my 'extra' paycheck this month and am trying to figure out which debt I want to pay down, while putting the half into my savings account. Can't wait till this payday! :)

Guest's picture
Janet

This is how my husband and I plan our budget each month. I just made out our November budget since we got the first paycheck for November yesterday. We love getting those 2 extra paychecks each year that don't have to go to bills.

Guest's picture

Math is amazing. But I think the real trick is to badly want something.

If you do have clear goal, than it will be great motivator. This is how we did it on our way to financial independence.