When my beloved employer, the Great Desert University, decided to switch from bimonthly to biweekly pay, I was faced with the prospect of not always having enough in the bank to pay bills due monthly (which meant almost all my bills).

At the time, the system I had in place worked pretty well: set aside cash in a money market checking account to cover all discretionary spending, leaving enough, after monthly transfers to savings, in my main checking account to cover automatic payments of utility and insurance bills. Everything (with the exception of the occasional plumbing or yard clean-up bill) not paid automatically was charged on Visa or American Express, and the charge card bills were paid in full each month.

In the evil new biweekly environment, this happy arrangement had some drawbacks.

1. • First, the smaller biweekly paychecks would not support my $1,600 monthly set-aside. I simply would not have enough after utilities and repair bills to spend that much on food, gasoline, auto maintenance, the dogs, and any other incidental costs.
   

1. • Second, my bills are not due every two weeks. They’re due once a month. It remained to be seen whether biweekly paychecks, which precess over the year so that they arrive at different dates each month, would come on time to cover charge-card bills and recurring automatic payments.
   

1. • Third, I often overran my $1,600 discretionary budget, requiring me to raid savings to pay the credit-card bills. What would happen when I no longer had $1,600 to spend?
   

On reflection, I realized that the billing cycle for American Express, the kick-back card on which I make most of my charges, closed on the twentieth, but the bill was not due until shortly after the start of the following month. This meant the costs I was covering on AMEX actually were not associated with any one month: they ran from the twenty-first of Month A to the twentieth of Month B. Because the bill wasn’t due until 10 days or so after the end of the billing cycle, by the time a payment had to reach AMEX, two paychecks would have hit my checking account in time to cover the full cycle.

Insight!

The trick is not to run the credit card budget from the first to the first, but instead to run it from the twenty-first to the twentieth. Charges between, say, January 21 and February 20 would be covered by February 1 and February 15 paychecks; starting February 21, the next two paychecks would cover the following 30 days of charges. This would ensure that by the time a bill was due, the credit-card checking account would contain enough cash to cover charges.

Providing, of course, that I managed to stay on budget . . . and therein lay a problem. My monthly income was slated to be cut by $220. If I couldn’t stay on budget at $1,600 a month, how was I going to get by on $1,380?

Well, step 1 was to divide the shortfall between the recurring-charges budget and the discretionary funds budget. It meant $120 a month less for utilities, insurance, and workmen and $100 per billing cycle less for food, health care, clothing, dog care, household expenses, yard care, and the like. This established $835 to cover utilities, savings, loan payments, insurance, and other regularly recurring expenses and $1,500 for all other costs, to be charged on AMEX and Visa.

Step 2 was to set up a weekly credit-card budget. Instead of measuring my expenditures and savings against a monthly $1,500, I divided that amount by 4 and assigned the resulting $375 amounts to four “chunks” of the 30-day AMEX billing cycle. As I charged things, I kept the receipts and, in an Excel file, subtracted them from the week’s $375 minibudget. So: if I was spending too much in, say, the second week, I would know to cut back in the third week. This strategy would get me back on budget (I hoped) before the end of the billing cycle.

Understand that a “week” is not actually a seven-day week: it’s ¼ of a 31-day period: 31 ÷ 4 = 7.55.  Think of them as seven- to eight-day “chunks” or “periods” of the billing cycle. The way I’ve set up my version of this scheme, the shortest period is seven days and the longest is eight. Placing the shortest period at the end of the billing cycle increases the odds that I will catch up with any overexpenditures that happen earlier in the cycle.

This turns out to be a powerful tool.

Since I started tracking my spending on a weekly basis, I’ve overspent my $1500 four-week credit-card budget only a couple of times, and those resulted from extraordinary expenses that I would have had to pay from savings, anyway. 

Here’s how the most recent weekly billing cycle budget looks:

As you can see, I overran the budget in two of my four budget-cycle “weeks.” In the first week, I made a Costco run, which almost always overspends the budget. Because of that, I restrict major Costco shopping trips to the first week of  a cycle, giving me three weeks to catch up. The budget-buster in the second week was $105 for dog medications; Anna’s eyes had deteriorated

to the point where she thought the shower stall was the doggy door, and so I was forced to pony up for some breathtakingly expensive eye meds to treat her hereditary condition. I carried each of these overruns—shown here in red type—into the following “week.” While the extraordinary expense in the second week kept me in the red two weeks running, the system allowed me to see how far I had fallen behind and alerted me to how much I needed to economize to stay on budget.

So, by the end of the billing cycle I not only had managed to catch up, I actually finished $151 to the good.

Take-home Message

Don’t budget monthly. Budget weekly. This gives you the versatility to deal with a variety of pay schedules, and it loads the dice in your favor: you’re a lot more likely to stay on target.

budgeting, biweekly pay