Pros & Cons of the Four Different Pay SchedulesMar 09, 2023
Have you ever thought about how your pay schedule might affect your budget?
Let's take a look at the four primary pay schedules, how they interact with a budget, and the disadvantages and advantages of each schedule. Being aware of how our pay schedule impacts our budget and our finances and our cash flow has a huge part in how confident we feel in both looking at our finances and planning ahead.
The four pay schedules that most people operate under are:
- twice monthly,
- and monthly.
There may be other odd scenarios or self-employment or commissions that come at other intervals, but for the most part, when people receive a paycheck, it's coming on one of those four schedules.
Now, when you look at a budget tool, most of them are going to force you to budget by month. It will start on the first day of the month, and the budget will end on the last day of the month, and you can't adjust it for when you are paid. So we need to know how our specific pay schedule interacts with a monthly budget.
The Bureau of Labor and Statistics has done studies on how frequently people are paid, how often companies pay their employees. 95% of United States businesses do not pay their employees once a month, yet most budget tools we interact with are once a month budgets.
Today I'm gonna present you with these advantages and disadvantages of your own individual pay schedule, and show you why building a budget according to that pay schedule might help you feel confident and understand your own numbers better.
#1 Weekly Pay Schedule
A weekly schedule comes on the same day of every week, so someone might get paid every Thursday. The advantages of this pay schedule are that you have incremental cash flowing into your bank account very regularly. This is the most frequent of all the pay schedules, which means that your amount you receive on your paycheck is smaller because you're getting it in more frequent pieces.
Now, some people like this schedule because it gives them a constant influx of cash. Not only are you paid on the same day of the week, but you're paid on every Thursday or every Monday, so you don't even have to remember is this a pay week or not? It's always a pay week. The main disadvantage or difficulty with this pay schedule is that large bills do not fit nicely into one paycheck. So for a larger bill, like a rent or a mortgage or a large car payment, you have to prepare in advance to spread your money out across different pay schedules. When you get paid this Thursday, you can't use all of that paycheck between this Thursday and next Thursday, because you actually need to pace yourself with your income so that some of the previous paychecks can be used for that upcoming larger bill. This kind of schedule takes planning and looking into the future beyond just your current pay period.
#2 Biweekly Pay Schedule
Now, similarly to weekly, we have biweekly. This is when you're paid every other Friday, every other Monday. One of the pros of this pay schedule is that it's frequent, but not too frequent. I personally love this pay schedule. We spent about nine years on an every other Friday schedule, and I enjoyed budgeting on this schedule. Here's why: it's always 14 days and it always resets on the same day of the week.
So I got into this rhythm. I built my life around this rhythm of every other Friday, on payday, we would always eat out. I always grocery shopped on weekends because it was either the start of the pay period or exactly halfway through the pay period, and I had this even rhythm of time. So when I was budgeting for some of those categories like gas and groceries, I always knew that it was gonna be 14 days. So as long as I knew what our family needed for 14 days, I could budget that category.
Now one of the disadvantages with this pay schedule is that the checks come on different days of the month, every single month. So you are not paid on the first and the 15th every single month. Your dates of your paychecks are constantly rotating. The same group of bills is not always paid together. Bills may hop around from the beginning of the month, paycheck to the end of the month paycheck, depending on the dates of those pay periods. So as we are budgeting, if you are paid biweekly and you're trying to budget on a once a month budget, you're gonna have to look at what the dates of your bills are and the dates of your paychecks are to see how those two things interact, because it's not always the same every month.
So to sum it up, weekly and biweekly are similar because they are following a day of the week schedule. They're always paid on a specific day of the week. They are also the exact same length of time. Your pay periods are always seven or 14 days.
#3 Twice Monthly Pay Schedule
That's distinct from the second group of pay schedules, which is twice a month or once a month. These are different from the first two pay schedules because they follow a date of the month, like the first of the month or the 10th and 25th, and they are different lengths of time. So a month could be between 28 and 31 days, and a twice monthly pay schedule means that your pay periods are going to be between 13 and 17 days long, but it's going to change. So that makes some of those rotating categories more difficult to plan for, because sometimes you're budgeting for a 14 day period of time, sometimes budgeting for a 17 day pay period.
Now, this might not sound too different, but the difficulty comes when it has three weekends instead of two. So for example, if you always grocery shop on Saturdays when these pay schedules are different lengths of time, some of your pay periods are going to have two Saturdays and some of them are going to have three. So when we're planning, we might assume that we're going to grocery shop twice every pay period, but what actually happens is that sometimes we're going to end up shopping three times in that pay period. Planning your budget out according to pay period can help you identify by looking at a calendar as you plan what needs to be covered in each individual pay period.
So twice monthly pay schedules, like first and 15th have a nice even rhythm to them where all the bills that are grouped together are always going to be together. So if you're paid the first and 15th, all your bills that are paid, the first and 14th are always going to be on the same paycheck, and the 15th through the 29th or 30th is always going to be the same group of bills. This is different than biweekly. Biweekly, as they move throughout the month, have different bills that are grouped in different orders based on when your paychecks come, but a twice monthly pay schedule will always have the same group of bills together.
Just like biweekly, I also like twice monthly pay schedules because they're smaller chunks of time. So sticking to a plan for a full 30 days is actually a really long period of time to stick to one set of numbers, track one long list of expenses and spending, and just be committed to one plan. I like twice, monthly and biweekly because they give us a frequent fresh start. Halfway through the month, we get to push the reset button, start with a clean slate and move on to a next set of numbers.
#4 Monthly Pay Schedule
Monthly is the last pay schedule. This is actually the least common pay schedule for United States businesses. Only 5% of United States businesses pay their employees their full amount of income once per month. If you're paid once per month, you've probably already found a budgeting tool that works for you because your pay schedule aligns with what most budgeting tools offer. However, some people who are paid monthly but not paid on the first of every month might also encounter difficulty planning their budget because the budget resets on the first of every month, but they're paid, let's say on the 10th of every month.
The other challenge that people have who are paid once a month is that this amount of money has to last them a full 30 days. So it's the extreme opposite end of the spectrum from a weekly budget who is receiving small amounts of money all throughout the month. This person paid monthly is receiving one large amount of money, but they have to make it last a full 30 days.
Often when I work with people who are paid once a month, I recommend splitting the month in half and allowing themselves to have half month budgets. They plan the first set of numbers for like the first through the 14th, and then the second set of numbers for the 15th through the 30th, giving themselves half the income for half the month and the other half of their income for the other half of the month. This just allows themselves to have a shorter period of time to stick to the plan, and as things get messy, they know that their reset is just a few days away instead of several weeks away.
Every Pay Schedule Offers You a Fresh Start
So that's it. Those are the four pay schedules that most people are operating on when they're looking at their budget. As you read about your own pay schedule, you might be relating to some of these challenges and some of these perks of each of these different pay schedules.
This is why I love the concept of budgeting by pay period, because we tailor the plan to you so that we start day one of a new budget with a new amount of money. Every time there's a paycheck, it's a new chance to start over, have a plan, and stick to it.
If you want to learn more about what makes some budgets fail while others succeed, I have a free workshop that will teach 4 key factors to look for in your personal budget. You can register for free right now at debtfreemom.co/workshop.