[00:00:00] Welcome to a special episode of the Debt Free Mom Podcast. This is a recording of an Instagram live sharing with my audience, why a monthly budget might fall apart, even when it looks right on paper and why a pay period budget might be better instead. So the audio might sound a little different than what you're used to here on the DFM podcast. And you'll hear me answer a few questions from audience members. So just know that this was originally a live video. I'm your host Carly Hill, and this is the Debt Free Mom Podcast.
So the first thing I wanna talk about is what is a monthly budget? Why is that the thing that we see everywhere? So, most budget tools that you come across, whether it's a basic pen and paper or a spreadsheet template, if you look on Google Sheets and type in a budget, they'll even have some Google made templates for you or apps, uh, softwares, QuickBooks, Mint, Every Dollar, YNAB, will all default to the first day of the month, to the last day of the month.
And what they do and [00:01:00] what you know very well is that they will ask you, what's your income for the month? What are all your planned expenses and bills for the month? And then it'll basically subtract those and, and tell you how much extra you should have. Is there a gap between your income and expenses? And then you get excited when you see a gap of any kind, as we all should. And then you make a plan for what you're gonna do with it. What goal do you want this money to go towards? Uh, do you need to be adding to your savings? Do you need to be paying off debt?
So towards the end of the month, you start to plan the next month. We're just a couple days into May. So maybe you experienced this at the end of April, where you went ahead and wrote out how much income are we gonna receive in May? What do we think we need to spend on? What are all of our bills in May? And then do we have a gap? Do we have a difference between our income and expenses? And maybe it's said that you had $400 extra leftover in May. So you're thinking okay, in the month of May, whatever big goal you have that you're planning towards, [00:02:00] we're gonna have a gap of $400 that we can put our money to.
Then May starts and sometimes the problems, the breakdown in this monthly budget, you don't have to wait for it. Sometimes it happens right away, first day of the month. What often happens is that you are excited by the anticipation of a new budget because it means a fresh start. It means that whatever happened in the previous month can be left behind no matter how messy it got. It means that you have new goals and new plans for your money, and then you have that excitement, that anticipation, that high, and it's immediately followed by a crash in the first couple days of the month because there's no new money there.
So you made a plan and you're thinking, I can shift my focus from the previous month to the new month to the new plan, to a fresh start. But the things that you wrote down that you expected to be able to do in the new month, you're automatically having to distance yourself from your budget because you're, you need to start saying, [00:03:00] I can't actually do those things yet because my paycheck's not here yet, so I need to wait.
So it creates this internal struggle between the budget that you just made and were excited about and the way you feel in the first couple days of your month. So that starts to automatically break down our enthusiasm, our motivation, our, uh, our belief that the numbers that we wrote down are actually going to work out. And as we start to distance ourself from the plan that we thought would be able to happen, we pretty quickly start to walk away from it and say, well, there's really no point in this. This is not matching what is actually happening in my bank account. When there is a mismatch between your budget and your bank account, we can't walk away from the bank account. We can't walk away from the bills, we can't walk away from the groceries, but we can walk away from trying to follow a budget. And so we often do.
So in a monthly plan, we feel [00:04:00] this frustration that the numbers that we wrote down are correct. So that is one of the biggest problems with this and with. With people's frustration is that you didn't write down any wrong numbers. You wrote down the income that you will actually receive during May. You wrote down all of the expenses that you will actually receive during May, but you don't have any ability to actually put those into practice. So what we're missing is the question of when will this money be available? And when we ignore, when the money that we're planning for in a month is going to be available, we create this gap between our budget and what's actually going on in our bank account.
But that is a fixable problem. So in a monthly budget, what we've actually created without realizing it, is a summary of what will happen to your money by the end [00:05:00] of the month. It's basically a net effect. So at the end of the month when everything is all washed out, what will my income be larger or smaller than my expenses? Will I have extra by the end of the month? So this is giving you, in like business terms, what's called a profit versus loss. You're writing a report of are we profiting or are we losing money when it's all said and done. But we're not creating a cash flow plan, which is identifying will we actually have the money available when these purchases and expenses and bills are going to come due?
And that's a totally different report. That's a totally different plan than a profit and loss, which tells us what will happen by the end of the month. So the monthly budgets that you have built in the past that seem to fall apart were probably accurate. They probably really did tell you what will happen to your money by the end of the month, [00:06:00] but they didn't tell you would the money be there when you actually need it.
So almost all budget tools are built this way because it seems like a nice plan. It's a nice even amount of time. You were like, oh, I, I get a month. I can stick to a month. I can do this plan for 30 days. So many of your bills are paid once a month. Your mortgage, your utilities, your cell phone, your subscriptions are all on a once a month plan. And so it seems like the right thing to do to go ahead and budget by month. However, we're ignoring the fact that the constant variable expenses like groceries, gas, shopping, personal spending, household items, fun are going to greatly affect what we're doing during the month.
So they might not take up most of your income. Most of your income might be going to those once a month bills like the mortgage, the utilities, the car payment, but they probably don't represent most of the transactions. [00:07:00] So if you actually looked at each individual transaction throughout your month, that either goes onto your credit card or out of your bank account, most of the individual transactions are probably making up those constant variable categories. So we need to actually build budget and ask ourselves, will the money be available at the time that I actually need to spend it? Which is not a question that a monthly budget asks. A monthly budget simply asks you, during this entire month, what is the income you'll receive? And you write that at the top, and then you write down all your expenses, and you're like, yep, income is larger than expenses. So I'm good. When we ignore, when that money is gonna be available, we create unnecessary stress, frustration, and confusion for ourselves.
So let's talk about what a pay period budget would do, because a lot of times that seems to be more confusing simply because it's more unknown, it's unfamiliar, it's not as common. You're not [00:08:00] gonna see it in an app or on a template. So first I wanna encourage you that the pay schedules you have are most likely not following a once a month agenda. So most of you are not getting paid one time per month. The uh, US Department of Labor and Statistics does a study every year asking employers how frequently are they paying their employees, what's their payroll schedule like? And in February of 2022 businesses in the United States, 45.7% of the businesses surveyed said that they pay their employees biweekly every other Friday, every other Monday. And then the next biggest schedule was 31.8% of employee employers pay weekly. So between those two pay schedules alone, 77% of United States businesses either pay their employees biweekly or weekly. And yet here we all are [00:09:00] trying to make a once a month budget.
So if we're all out here getting paid weekly, biweekly, semi-monthly is the other, is the third largest schedule. Most common, and the least common pay schedule in the United States is once a month, 4.4% of businesses surveyed pay their employees just once a month, but 99.99999% of the budget tools that you will find only ask you to make a monthly budget.
So why is it important to try and follow our pay schedule versus a month? There's a few things that change. If we start to set up a budget where every time we are paid, we start a new budget. A few things change. Number one, you get the reassurance that day, one of a new budget equals new money. So that is a main problem in the monthly budget that we [00:10:00] can solve by budgeting by pay period. So we ask ourselves what days are we paid? And I wanna clarify right now that. But being paid multiple streams of income does not disqualify you from getting from setting up a pay period budget. Most households have more than one stream of income, whether it is one person with a full-time and a part-time job, or two adults working mul, multiple full-time jobs, one full-time, one part-time, five different streams of income. It is more common than not to have multiple streams of income, but we still want to budget according to the pay periods so that we're matching the flow of money in and out of your bank account.
So when you do this and you identify a primary income, the income that's either the largest in your household or just the most reliable, the most consistent, and then we say, okay, I'm going to, instead of budgeting by a full month, I'm going to start a new budget on payday and then figure out exactly what [00:11:00] needs to be done with this money until I'm paid again, what bills are due, and then what constant variable expenses can I expect to spend during the course of this pay period.
The reason this increases our confidence is because we now know for a fact that the money that we're planning for is available, is there, which is not something that we can assume when we have a monthly budget. So a lot of us are coming to budgeting with these past experiences where we say, I cannot trust that the numbers that are in my budget are something I can actually follow. I don't trust the budget to tell me what is available. I have this automatic doubt that the money I can transfer into savings is actually going to stay there, or I have this sinking feeling that if I buy something, even though it's in the budget, that later I'm going to regret it and wish I could get it back and get that cash back.
We turn that completely [00:12:00] around in a budget by pay period because we're only making a plan for the dollars that we currently have. So if you start a new pay period and you know for a fact that those dollars are sitting in your checking account right now, you don't have to doubt and second guess and walk on eggshells through your budget, wondering if anything is going to jump out at you that you didn't expect. You can say this is the plan for these dollars right now, and then when I get paid again, I have another plan for that set of dollars. And that can start to grow your confidence and. Heal the doubt that you have about your budgeting experiences, and start to remind you that there is actually a way to have a budget and follow it without finding yourself seeing these numbers in your bank account that don't match your budget.
So we wanna fix both the numbers problem and the confidence problem. And both of them tend to be at play [00:13:00] when someone is budgeting by month, especially people who have primary incomes getting paid either on a biweekly schedule or on a weekly schedule. And those two have the most consistent issues with a monthly budget, and here's why. They are attached to a day of the week, so a biweekly will be an every other Tuesday and every other Friday, and a weekly will be every Wednesday, every Monday. When we're trying to budget by month, we are operating on a completely different timeline than something that's operating by a day of the week.
So for example, in a monthly budget, a biweekly schedule will normally receive two paychecks a month. But sometimes twice a year, they'll actually get three paychecks during the month instead of two. A weekly, same thing, normally four, but sometimes five. The other main issue is that a monthly budget will always start on the first of the month and end on the last day of the month. But when you are paid weekly or biweekly, [00:14:00] there is no guarantee that your first paycheck will come towards the beginning of the month.
So I took a look at the next couple months of every other Fridays. That tends to be one of the most common schedules, and I looked for if someone is paid every other Friday, starting in May. What are the dates of their two paychecks in May, June, and July, and I'm just gonna read the dates to you and think about why this might be contributing to some issues in a monthly budget. In May, you would be paid the 12th and the 26th. Then in June you would be paid the ninth and the 23rd. And in July, you would be paid the seventh and the 21st, so that's three months. That's a quarter of the year where the first paycheck of the month comes either on the 12th, ninth, or seventh of the month. That means that at minimum, if you're starting your new budget on the first day of the month, you wait at least a [00:15:00] week or more before your pay first paycheck arrives. But you know, what does not wait? Your bills and your expenses and your groceries that are running out, which means that you're gonna go at least seven, if not nine or 12 days without a new paycheck, but with the responsibility of these new bills and expenses, creating an automatic gap between what you thought you could do and what you, you actually can do.
When you start to budget by pay period, you know that if the bills are planned during this pay period, there's also money to go along with it. That's one of the major reasons that I want to shift people away from monthly budgets when they tend to say it's falling apart, it's not matching my bank account and my budget never line up, is I wanna give them the gift of starting day one of their budget with money, with cash available so they don't have to say, Did I actually plan for that or can I do that? Do [00:16:00] I have to wait? We're creating unnecessary problems when we create those monthly budgets if we're not paid in the monthly timeline, and we can answer some of those questions for ourselves, if we start to budget according to pay period, where we don't have to say, is the check actually there or not? Do I need to wait a few days? We are budgeting according to when those checks have come in, so all of our plans for our money have taken into account that the cash is available.
So a little bit of my story with this, my problem with budgeting happened in the summer of 2016. After we were debt free. So that's kind of a unique quirk of our story, was that I did not even find a budget system that worked for me until after we had paid off about $26,000 in debt. And what we had done was we had just put blinders on to everything else, to every other expense that we thought we would be able to buy, and we just went ahead and paid off all of our debt. I put so much [00:17:00] stock into being debt free, solving all of my money problems, that as long as I paid off that debt, I wouldn't have to worry about where the money was going. I wouldn't have to triple check my bank account before I bought something. And oh boy was I wrong. We paid off that debt in April of 2016, and then spent the next couple months being quite disappointed by our experience. And I really quickly learned because I hadn't yet been debt free, so I didn't know what to expect, but I had very high hopes that being debt free did not actually solve all of my problems. I still found myself second guessing what I could do with my money, or I still found myself logging into my bank account and being highly confused about the balance that I was seeing when my once a month budget told me all was well, everything was there, everything was covered, and I would be able to have extra this month.
And that frustration continued after we had become debt free. We were trying to build our [00:18:00] savings, and I was finding myself probably like many of you, making a transfer into savings and then pulling it right back out, even though I hadn't overspent. So I was like, I am sticking to this plan. I am doing what I'm supposed to do, and yet I'm still finding myself needing to pull this money back out of savings in order to cover just our basic bills and expenses. And I feel like my budget lied to me. It told me that this money was extra and for some reason it's not. And the some reason was that I was not taking into account when our paychecks would arrive. I was assuming I would be able to pay for all the expenses throughout the month without worrying about when the paycheck was actually going to be available, because we were paid every other Friday.
So at that point in our lives, Kyle was paid every other Friday and he was the primary income in our home. I had a small tutoring job that I was paid cash each week, but it was like $150 and I used it for my grocery budget. And then I was [00:19:00] just about to end a, uh, administrative assistant job where I was paid once a month. And again, that was a small part-time job. So every other Friday was the bulk of our income, and yet I continued to try to budget monthly. And then I came across something called an allocated spending plan in the summer of 2016. They asked, what's the date of your paycheck? How much is your paycheck? And what do you need to do with that paycheck? Not during the month. What do you need to do with that paycheck? And I just felt the light bulb go off. I was like, this is what I'm missing. I was not taking into consideration when the money would actually be available. I was basically assuming I could front the cash for myself, right? Like I can go ahead and rack up all these charges and pay for all these bills, and eventually the cash will come in to cover it and it'll be fine.
Well, when you have two very small kids and you work part-time and your husband works in a non-profit ministry, you can't front yourself a couple thousand dollars throughout the month to cover everything and be like, eh, it's fine. My paycheck will come a few [00:20:00] weeks later. Shifting my budget into a biweekly format where I made a individual plan for each paycheck and could see how they connected over time to know whether or not we were making progress with our goals was when I actually solved the problem of my frustration and fear about my money. I thought it would be solved by paying off all of our debt. I was wrong. And then a few months later, I found what would fix it. Which was a plan that actually matched the way we were paid, actually matched when money was available. So I found myself, the more I gained confidence with each pay period, the more I relied on my budget to identify what was available and stopped even worrying about the balance in my checking account because the balance in my checking account cannot tell me what's going to be available after all of my expenses are paid. It can only tell me what's currently available. So as I began to rely [00:21:00] on the budget instead of the bank account to inform my decision making, that's when my confidence grew. That's when the transfers to savings were realistic enough that they could actually stay in the bank account, and that's when I started to calm some of my fears about the future with my money.
I am not someone who looks to the future with this big idea of excitement and believes that everything ahead is gonna be great. I find the future to be so unknown that it's scary. So when, when I would be faced with large financial decisions like leaving a job, I felt this feeling of jumping off a cliff. Of, I think in this current month, it would be okay if I left this part-time job and stayed home with my kids, but beyond this current month, I have absolutely no idea if it will continue to be okay. As I built a budget by pay period where I could go much farther than 30 days in advance, which is all I had been doing up until that point. I never looked to the next month, even though I [00:22:00] could have, I totally could have built a current month budget and a next month budget, but I just did one little month at a time, and then I went through this cycle of excitement at the beginning of the month, frustration in the middle of the month, fear towards the end of the month, and repeat, repeat, repeat.
As I built the budget by pay period with specific dates in mind, a paycheck that would come at the beginning of the pay period instead of at the end, or beginning of the budget instead of at the end, and then multiple pay periods at a time so that I got an idea of not just what's currently happening with my money, but how my money is gonna trend over time. I started to transform from someone who was highly afraid of the future of my money to someone who made confident decisions about the future of my money because I felt like my budget was actually a window into what was going to come as much as I could actually see and anticipate. We cannot anticipate and see everything that's gonna come our way with our money, but there are ways to, as much as possible, make a plan for what we're gonna [00:23:00] do with those future paychecks.
From the time that we started budgeting by pay period to now is when we have continued to actually drop our family income over time, because I've been more and more confident in what we were able to do so we could save up our emergency fund. We moved in 2017 from a very small townhouse rental to a standalone house rental. It was before we moved here. Um, And I no longer felt like my only security blanket in my finances was the idea that I needed to chase a larger and larger paycheck. So that is what I had felt before that the reason we must be frustrated it must be because we make too little, so we need to continue chasing higher income, additional part-time jobs. I can't stay home. I need to work. I thought that the higher paycheck would solve these problems from 2016 when I started pay period budgeting to now we have made choices to [00:24:00] leave part-time jobs, to abandon a paycheck that felt familiar, to go from a salaried job to a self-employed job. Not because we were making so much money, but because of our confidence.
So in this current job that we're doing now, this what, right? What I'm doing with you right now, I make about the same as what we made five, six years ago because we were both working jobs at the time then as well. So this is not a way to get a in, uh, income that is just skyrocketing. It's a way to continue having confidence and momentum with my money that isn't tied to, or doesn't depend on a larger income being my only ability to see growth.
So that is my, both my story and then also my experience having taught other people and walked other people through this shift from a once a month budget to a budget by pay period. Whether they are paid weekly, biweekly, twice a month, or even [00:25:00] once a month. And I'll tell you why. I still help people that are paid once a month, number one. You're not always paid on the first day of the month, and sometimes apps like mint or every dollar lock you into the first day of the month. So you're still dealing with a little bit of when do I actually get this money available? Number two 30 days is a long time to track all of the charges that you have during a month. Imagine how many times your card is charged during the month. If you make a monthly budget, you're sticking to one plan that's gonna hold on to all of those charges and organize them and categorize them and adjust when things change. That's just a long time and a lot of times we'll get burned out and we'll just be like, this is too messy and this is too much. I'm just gonna try again next month. Even if next month is a couple weeks away, when we have a monthly budgeter that's feeling some of those frustrations, I recommend splitting their month in half. And we'll say, okay, if you're paid on the 10th of every month with all your income for the month, we're gonna budget from the 10th to the 24th, and [00:26:00] then we're gonna budget again from the 25th to the ninth, which would be before your new pay period, and give you the chance to look at a smaller window of time at once to only have to pay attention or zone in on half a month instead of a full month, to give yourself a little bit of perseverance of longevity, where you're like, I know I have this benchmark halfway through the month so that I can move on to the second half of the month and get that frequent fresh start, that people who are paid weekly, bi-weekly, or semi-monthly are already naturally getting in their budget.
So what I've done since then is take not my experience as a financial planner or a degree in economics, but instead take in my expertise as a special education teacher to say I have all these years of experience of being frustrated by my money and then finding a way that worked for me and worked with my pay periods instead of against them. And I have training in taking a [00:27:00] topic or a habit that is highly frustrating, but highly valuable to your life and saying, I'm gonna help you figure this out. So that is what my background was, where whatever the topic was, whatever the habit was, it was, I know that as frustrating as this new task is that this is valuable to this student's life. And so I'm gonna walk alongside them to help them see the value in the habit, and then learn to apply it to their life in a way that works for them. So that's the two things I combine my life experience with the, this new budgeting method, with my training as a special education teacher to put together Pay Period Budget Academy that then walks through this system. That allows you to, instead of the seven years, it took me to trial and error, build the budget, start to adjust it, fix it when things change, instead of taking seven years of trial and error to tweak that and figure it out and get to a place of confidence and contentment. I've now taken that and [00:28:00] put it into Pay Period Budget Academy so that it can take a couple hours to build your first budget that is accurate and realistic and matches your real life. And then a couple pay periods to put it into practice and become a new habit. So a couple hours of learning and building combined with several pay periods of putting it into practice would work out to two or three months instead of about seven years. So Pay Period Budget Academy has been around for a year and a half and now has over 300 students in it.
So Summer Budget Camp that starts in just a couple weeks is Pay Period budget Academy, but for the very first time in a format that is group guided. So it's not going to be the normal self-paced where you join and then you have the lessons and the materials, and you have to put in the discipline and the schedule to actually make it happen. Summer Budget Camp is going to give you an agenda, a weekly email telling you these are the two lessons that you need to watch this week. This is what we're doing, this is what we're focusing on. And then also have [00:29:00] five group live video calls where just the people in summer budget camp will be able to come on, will talk about a topic. We will do any questions and answer. We will have a time to share our wins, our frustrations. Maybe talk to fellow biweekly budgeters or, Hey, who else is a weekly budgeter? Who else has one stream of income? Who else has multiple streams of income? So that is what Summer Budget Camp is gonna be all about. Taking this normally self-paced program and instead doing it as a group doing it together so that you not only have a little more input from me, but also the collective encouragement and accountability of other people who are walking through the same thing.
So that is why we have that on sale this week for the very first time, it is at a discounted price that it won't be at anymore because we've upgraded so much of it and recorded the videos and added to it. Um, and so it's on sale for what I normally run a sale price for uh, which is three monthly payments of $59. Or you can save [00:30:00] $20 and pay in full at $157, but you don't have to pay anything extra on top of that to participate in Summer Budget Camp to get the group commitment and have other people walking through the exact same lessons at the same time.
So that's what Summer Budget Camp is all about. And now I'm gonna, uh, answer some of the questions. First question is, I pay the mortgage in full for my husband and I on the first of every month, and husband pays daycare weekly, which essentially evens out at the end of the month. Any advice to pay period budget with this setup? So that's a great question. I work all the time in custom budgets with people who divide their money, uh, in, within their household in all different ways. So what we do, if you were to walk through this together with us, is we say, what is the income that you receive and then what are the expenses that you are responsible for? So if you don't touch the daycare payments, because he takes care of that in his [00:31:00] income and his bank accounts, then we would, we would not represent that inside your budget because we're budgeting for your income and what you are responsible for.
I also see people who have, um, like a once a month deposit from their spouse to kind of balance things out. So we would record that as a miscellaneous income, like if your husband gave you $500 a month. We would record that as an income. And then on the flip side, if you're the one that sends the money once a month, we would record that as like a deposit to a joint checking account that covers bills. We would write that down as a bill. So we make the budget match what's going on in your bank account, what's coming into your bank account, and what needs to go out of your bank account.
All right, next one. I do monthly but a month ahead. So no timing issues would pay period. Budget help with anything? Maybe overspending? So what it could help with is if you tend to feel like the month is a long time that you have this momentum at the beginning that you don't have towards the end or the money is running [00:32:00] out faster than you expected, or you're just getting bogged down with the number of transactions, then a pay period budget could assist you with breaking it down into smaller pieces of time so that you're only looking at a set number of days that's smaller than 30 days, like half of a month. Um, but if you have a system that is working for you where you're like, the progress on our goals is working, the money that I think will be available towards our goals is actually able to go to our goals, then you might not need to uh, run a different system. Okay? So don't fix what isn't broken. If your method is actually working and you're, you're finding yourself sticking to the plan and having the ability to make adjustments as things change during the month, then you have found something that works for you.
We get a weekly paycheck and our mortgage is about one full paycheck for us. How do you survive that week? Awesome question. So this is something that is absolutely fundamentally built into the system where [00:33:00] we set up the budget according to exactly what the current numbers are. What are your, what are your paychecks and what are the due dates of all of your bills? But we do not stop there. We look at what, which individual pay periods have either a surplus or a deficit. So most people who are paid more than once a month will experience a pay period deficit of some kind at some point. And this is what we're identifying, that a monthly budget was unable to identify for us a window of time where the money coming in is smaller than the money going out. It doesn't mean that you are overspending all of your income. It just means that in this window of time we need to go ahead and make a plan in advance for money from other paychecks to help with this week that happens to have a deficit. This is something I had to do all the time, especially when we were paid biweekly, was what I now call, and you'll see in any of my templates, rollover for next pay period where I'll say, Hey, In this pay period where we pay our rent, our [00:34:00] sum of our total expenses in that pay period is more than the income we're gonna receive during that pay period.
So I have a spot specifically built into the budget for setting aside income in advance to roll over into the next pay period so that it's still there in our bank account in the pay period that would've had a deficit. So we can cover it and we can start to even out our money. So often in a monthly budget or, or even in a weekly budget, weekly is hard. So often in a weekly budget, we can feel really hot and cold with our money that we're like, oh my gosh, I have so much money. I can do all of these things. We go and do them, and then we immediately regret that and we're like, this roller coaster is not sustainable, and having rollover for next pay period where we look in advance at any of those potential deficits and make a plan before they actually happen to spread our income out to those pay periods can help us to kind of ride through our money more evenly than having these highs and lows. Another thing a weekly budgeter can do is set aside a fourth of your mortgage every [00:35:00] week if there's space in the week to do that. But we break that down, um, in summer budget camp and in Pay Period budget Academy, one of the new things that is brand new to this sale right now is that I took the lessons that had been building the budget and it was talking to everyone. So every budgeter I was talking to, this is how you gather a picture, this is how you build your budget. Instead, I am now built one module per pay schedule when we're talking about building the budget. So you would be watching an entire module that's only about people who are primarily paid weekly. So their primary income is once a week. Or you could, if you are paid biweekly, you'd be watching exactly how to build a biweekly budget. So I know for a fact that in the weekly module we talk about needing to spread out larger expenses across multiple pay periods.
All right. How do I keep sinking funds on the budget versus in the bank account? My bank account will always have sinking funds in it unless I do a [00:36:00] savings transfer or an envelope system, correct? Yes, that's correct. And I highly, highly recommend organizing your bank accounts so that you have a place to put these. Number one, that gains more interest like a high yield savings account, but number two, that helps you to not have this checking account that's ballooning that you have to somehow figure out what all that money is for. Where you're like, okay, I have all this money in my bank account, but I'm pretty sure that some of it is for this and some of it is for this, and some of it is for this. So I highly recommend having multiple bank accounts that you can move that money out so that in your budget it would be it would be written down like a, a transfer. So if you have $50 to car repairs every month, you would in the car repair line, you would write $50 in the pay periods that you're gonna transfer that out, you move the $50 out and that makes your budget match what's happening in your bank account. Um, It's very difficult to track all of your money when it's all sitting into one bank account [00:37:00] and building up over time. And it's very easy to track it if you use, especially a bank like what I use Ally, um, to organize my savings accounts into not only different savings accounts, but also subcategories inside of those, uh, savings accounts that I can give different names to. So for example, I have one savings account that's called Family Funds. And inside of that I can create subcategories and name them things like "travel" or things like "boys dentist appointments" or "kids' birthdays." And then when I decide in my budget, then I'm gonna transfer money into one of those things, I actually move the money over into that and I don't have to track it any further in my budget because if I log into Ally, I can see I have $75 towards car repairs. I have a hundred dollars towards kids. Um, so organizing that way helps to, um, take the burden off of both you to keep, to retain it in your head and take the burden off of your budget to track that, that those many, um, sinking funds over time. [00:38:00] We wanna treat our checking account like a waiting room, like our money comes in and it just sits there for a very short period of time before we tell it where to go.
All right. Marilyn says, A payment that comes up once per year, but you hadn't planned for it like an HOA fee. Okay. Number one, if in the short term, there's two phases to fixing this problem, the short term is I have to pay this bill, so I need to figure out exactly how I'm gonna pay it currently. And then the second phase of that problem is, what am I gonna do so that next year this doesn't happen? So phase one of the problem, I have a little triage that I go through when this happens. Number one, can I fit it into my current pay period budget the way it is? Can I work it in by, uh, not making a transfer to savings that I thought I could make by decreasing some small categories and making room for it. If I can't, are there any sinking funds that I have savings set aside that I could use to cover this? And in this situation, I don't actually care if the sinking fund is specifically for [00:39:00] this expense. It's just do I have additional savings set aside that maybe I just have like a clothing budget and I'm just putting money in there, but I don't actually have a specific need at the time. Can I use that to cover that expense? And then if I have to say no to that as well, then my last line of defense is using the emergency fund to pay for the HOA fee, and then looking at my budget to make plans to refill the emergency fund back to where it was before I had to use that.
So in the short term, that's about all you can do. Like we are all faced with that all the time. We do our best to make room in our budget, but at the end of the day, we might need to pull savings out and pay for it. But we then wanna say, what can I do to make that not happen again? And what I do in my personal budget is the column right next to the names of all the categories is blank for any notes or any due dates. And what I do right away is I make a note next to that. So you might need to add a line or just rename a category that you're not using and call it HOA and [00:40:00] say, "May 10th, annual fee, $300," whatever it is, so that the next time May rolls around and we duplicate our, our bank or our budget. I'm constantly just making a copy at the end of the year of my existing one and then tweaking it so that it applies to the next year. So I have all those notes and all that information about what I had spent in the previous year. So next year you would go, you would get around to setting up your May budget, and you would have that nice little note that says, Hey, May 10th, you have HOA for $300. And we would build it into the plan preemptively.
What are the parameters around taking money out of emergency fund? This is a great question. Um, some people are really stringent about exactly what can and cannot come outta the emergency fund. At the end of the day, I would prefer to borrow money from myself than to borrow money from anybody else and have to pay them for it. So I try not to use the emergency fund if at all possible. However, I'm also quick to [00:41:00] use the emergency fund if it's the difference between having enough money to cover something and borrowing money from someone else, whether it's a credit card or another person or whatever it is, a loan. So at the end of the day, I am not super strict about, no, no, no, you can't use this for, you can't use your emergency fund for the HOA fee because that's not an emergency. Well then what's the alternative? If we say that? If I told myself that you can't use the the emergency fund for your HOA cuz HOA is not an emergency, well, What am I supposed to do instead? So I like to think of the emergency fund as just covering what I didn't plan for, whether that's because it was truly unexpected or because it was my own error. We have to have room in our plan for both the unexpected and our own human error. So a budget is the place where we plan for everything that we can see, everything that we can anticipate, and then a savings account called an emergency fund, call it something else if you need to. [00:42:00] That fund is our plan for everything that we cannot see or we cannot anticipate, or we didn't anticipate.
Um, so I have no problem personally using the emergency fund for something that I forgot if the only way to fit it into our necessary expenses is to pull that cash and then quickly make a plan for refilling it. So that's my take on emergency funds. Okay, I'm gonna wrap this up as we close out the 45 minutes that we've been together.
Um, so hopefully that helped to clarify the difference between a pay period budget and a monthly budget, and why some of you might be experiencing frustration with a budget, even though the numbers look right. So sometimes if we ignore when we are paid, we create a problem inside of our budget that doesn't actually need to be there.
So Summer Budget Camp is going to start in about two weeks, but the sale price and the doors will close on this coming Monday at 11:59 PM So you you can go to debtfreemom.co to [00:43:00] find more information. I have it all over right now because the doors are only open for a couple more days. So thanks so much for spending a little bit of your evening with me talking about something as fun as money. And if you have any questions, um, after you've watched this, feel free to send me a message or an email and I would be happy to get back to you.
(*Credits) Thanks for listening to the Debt Free Mom Podcast. If you want to join me as a guest on the show, go to dfmpodcast.com. The Debt Free Mom Podcast is hosted by me, Carly Hill, and is produced, edited, and mixed by Kyle Hill. Music for this episode was written by Kyle Hill. Hit subscribe wherever you're listening to join in with every new episode as we grow our confidence and contentment in our personal finances.
