Coffee heat rising

Budgeting

Dollars and nickels and dimes, oh my!

by

Seven-thirty in the morning and I’m beat. The pool has been backwashed, the unhappy pool cleaner set in motion (again!), the rug backing Cassie pee’d on in last night’s panic at the vacuum cleaner run through the washer and hung on the line, the regular laundry started, the ironing I haven’t done for the past three weeks set aside (to be ignored a while longer), the dog fed, me fed, the kitchen cleaned up, and the dog walked. Now to sit down to Quicken, figure out what to do with the $600 tax rebate that finally came dragging in, and decide how to handle the red ink in this month’s budget.

I’m beginning to think $1,500 just isn’t enough to cover my monthly costs above and beyond the utility, loan, and insurance payments. It seems like a generous amount: for heaven’s sake, it’s almost a whole paycheck! How can I not live on fifteen hundred bucks???This month, with two more days to go in the budget cycle, I’m $351.28 in the hole. Although I have that much in savings, it’s $1.28 more than I had budgeted to buy some much-needed clothes in this summer’s sales. So…guess I won’t be buying clothes. Again. My wardrobe is rags just now, with exactly no summer dresses or skirts. All I have to wear is Costco jeans, which make me look like a beer barrel on two legs, and I’m out of decent shirts to go with them.

I’ve thought the budget issue had to do with the heavy hits from Anna’s final illness, which added up to over $1,000. But that’s now in the past. This month’s cycle started anew, and I’ve had four unexpected dings:

Leslie’s, clean out pool filter: $87.54

  • Veterinarian: examine Cassie for limp: $95.30
  • Dry cleaner: clean dhurrie rug to remove ointments Anna rubbed into it: $15
  • Vet: X-ray Cassie’s leg after I stepped on her sore foot: $17
  • Apple: new operating system to deal with server migration: $69.82

That comes to $402.66 in extra hits. Though it sounds like a lot, it shouldn’t be enough to put me $350 in the hole. As a practical matter, the $1,500 budget normally has so much play I can buy as much as $300 in clothing or other indulgences without having to dip into savings. What that seems to suggest is instead of being “generous” by about $300 a month, my $1,500 living expenses budget now has only about $102 of play ($402 – $300). A year ago, if I’d had $402 in unplanned expenses, I’d be about a hundred bucks in the hole…not $350.

Evidently inflation in routine costs has increased my day-to-day expenses by somewhere around $300. Costco’s gas was down to $3.99/gallon last week. I paid almost $60 for a fill-up that used to cost about $35, and I’m already almost half-empty. Though I’ve been staying away from the university as much as possible, now that my dean is back in town, I really should show up to work more often. If I drove to campus every day, I would have to fill up at least once a week–possibly more than that. That’s $240 a month, up from $140. Grocery inflation? Doesn’t apply. In fact, my grocery bills have been falling because I’ve quit driving to stores whenever I need one or two things. In this budget cycle I spent $361 on groceries, a relatively modest amount for me, since that is the one area where I do indulge myself. During the same period in 2007, I spent $571 at grocery stores (though some of it went to making food for two large dogs). The hair stylist has jacked up his prices, so that this week’s haircut plus a ten-dollar tip came to $75…and he cut my hair so short I look like one of those eccentric old ladies who gets her hair shaved off so she doesn’t have to comb it.

Wait: there’s a $55 car maintenance bill; that would account for some of the overrun. So that brings extraordinary costs to $450.

Problem is, the extraordinary costs keep rolling in. Yesterday a bill for car registration showed up: $116.34. That comes off the top of next month’s billing cycle. Then Cassie pee’d on the other dhurrie rug last night, adding another spot to the place where she shat, which I never cleaned out adequately. So now that rug has to go to the cleaner. It’s old and was never a fancy, expensive number like the one I had to take to the specialty cleaner after Anna smeared antibiotic ointments all over it. So I’m unloading it on a cheaper dry-cleaning outfit, whose rep says they’ll do the job for $70. That’s $186 out of next month’s budget…before the budget cycle even begins.

This month’s $350 shortfall…where will it come from? I could use the tax rebate to cover it, but really, I wanted to put that into the Renovation Loan payoff fund. If it comes out of savings, then it seriously does mean no clothing purchases until the winter sales. Argh! I desperately need summer clothes. Since I look like a wacky old lady who gets her hair shaved off so she doesn’t have to comb it, I might as well go around in faded, worn-out rags anyway. Won’t make much difference

Uh oh. Waitminit here. Sometime back I entered a note in Quicken to the effect that there’s a surplus in the credit-card budget’s cookie jar. That’s the result of living under budget for several months and not transferring the surplus to pay down loan principal…it created a de facto emergency fund

Am I saved? Could this be true? Let us away to the credit union’s website…
* * *

HOLY mackerel!

There’s a surplus, all right. It’s nine hundred and seventy-six bucks! Lordie. I noted that at the beginning of the month and then forgot it, in the flurry over the website, the injured dog, hurting myself (when I fell on the pavement tripping over the dog), running late on a client’s job, and generally being too darn hot and too darn old.

Amazing grace! It’s a miracle. Maybe Lady Karma has decided to quit kicking me in the shins. Or at least, maybe this time She missed.
🙂

A step to improve the finances

by

Mrs. Micah issued a challenge to readers and bloggers to describe one step, no matter how small, that they are taking to improve their financial situations. As a matter of fact, I’ve come up with something but haven’t had time to blog about it, what with the past week’s technoadventures.

Thanks to a reader’s comment, I figured out how I could pool my biweekly paychecks so as to “pay myself” on a bimonthly basis. This ensures that there always will be enough money in the account that dispenses payments, by EFT, to the utility companies, the Renovation Loan lender, the life insurance provider, and the long-term care insurer, and it allows me to fund the “piggy bank” account for credit-card charges once a month: on the first, rather than on whatever cockamamie date a paycheck arrives.

First, I funded a dormant checking account at the credit union with my state income tax refund of $1340, almost as much as one of my paychecks. I added another couple hundred bucks to bring this bankroll up to the amount of a single paycheck.

July’s first payday happened quite close to the first. I put that check in the newly grubstaked “pool” account. This brought the balance to the amount of one full month’s pay.

From that I funded the “piggy bank” account for the credit-card budget and the account that dispenses automatic payments-not with half of what is needed but in full, for the entire month.

Friday, July 18, was this month’s second payday. The credit union, apprised of my new scheme, automatically transferred the paycheck into the “pool” account. That brought the balance back up to the equivalent of one full month’s pay. On the 31st, I’ll make my regular transfers for savings from the “pool”: to the Renovation Loan repayment fund, to the property tax/homeowner’s insurance/car insurance fund, and to indulgence savings.

In Quicken, I renamed all my credit union accounts so my titles jibe with what the CU calls them at its online site, simplifying the books and cutting the likelihood of making an error.

Next time I’m at the credit union, I’ll arrange to have automatic transfers from the “pool” made on the 1st and the 31st. Ta DAAAA!!! No more fiddling with online transfers.

Everything except paying the credit card bills will be done automatically.

No more fiddling with Quicken and manual transfers. No more worrying about whether enough cash will hit the credit-card “piggy bank” to make the monthly budget. No more hating GDU’s ever-changing bimonthly pay schedule.

Now that’s what I call stress relief!

Square Peg Revisited: Thanks to PK Sublime

by

The other day after I held forth about my grand new scheme to force GDU’s dratted biweekly paychecks to fit into monthly bill-paying reality, a reader named PK Sublime commented.

What you do is save ALL your paychecks from month 1 and then pay ALL your bills on the 1st of month 2 that will/are [be] due in month 2. The concept of “living off last month’s income” is a great way to operate…

Uh huh, thought I, dismissively. Nice trick if you can do it.

But it was an idea that would not go away.

Is there, I wondered, a way to build a “pool” of funds from which you could pay your bills each month and that could be replenished every two weeks with your paychecks, independent of billing due dates? Could you pull off such a thing without risk of going broke?

It would take a lot of money, or so I thought: I guessed you’d need at least one month’s worth of pay to “grubstake” this fund. But…but the credit union has granted me check-bouncing protection in the amount of one month’s pay.

Doesn’t count, I continued: that’s debt, not a pool of real money.

But…my state tax refund is less than $200 short of one paycheck. I have plenty in savings to make up that $200. Could I fund such a pool with the amount of one biweekly paycheck, rather than with a whole month’s worth of pay?

An Experiment

I set up a mock account in Quicken and credited it with the amount of one paycheck: about $1500. Then, still in Quicken, I entered a debit to subtract enough from the real-life account from which all my EFTs are made (these pay utilities, the loan, and insurance premiums) to bring the balance down to $500, the emergency-fund “cushion” that resides there as my own first line of check-bouncing protection.

I just paid this month’s credit-card bills, and so the account that holds the money budgeted for credit-card purchases was already at its lowest possible ebb.

Then I “deposited” my July 2 paycheck in the “pool” fund, and immediately distributed the ENTIRE month’s budgets of $840 to the EFT fund and $1,500 to the credit-card fund. Then I entered the pending July 18 paycheck in the pool. No distributions had to come out of that check, because I’d already moved the amounts that would be owing in July to the accounts from which the money would be disbursed. On July 20, I deducted the estimated July utility and insurance payments from the EFT fund. On July 31, I transferred my regular set-asides to monthly savings ($200), to the tax/insurance/car registration “escrow” fund ($300 a month toward annual bills), and to the Renovation Loan Payoff fund ($204 a month)

No sign that any transaction would bounce, anywhere.

Deposit, distribute, disburse, transfer: repeat each month for the rest of 2008 and the first part of 2009. Watch bottom line.

The lowest the pool fund ever fell was to about $680, but it was replenished well before any new bills came due. By December, though, I had “caught up” with one of the so-called “extra” biweekly checks, and this funded the pool solidly enough to guarantee the amount in the collector fund will never fall below $1440.

Migawd! It worked.

The New System

So what we end up with is three credit union accounts that look like this.

How simple is this? It requires only two manual online transfers a month: $840 to the EFT fund and $1,500 to the credit-card fund.

In fact, it’s not quite that easy: at month-end I also have to transfer money to three different savings kitties (one of them at Vanguard). But as a practical matter, the amounts that have to be there to pay bills are now always there at the start of each month, and I don’t have to figure out how to get half the amount, from each bizarrely precessing paycheck, that will be owing into the appropriate place at the time the bills are due. The regular monthly bills pay themselves through EFTs. If I didn’t distrust credit card companies with every fiber of my fibrous little being, I could have those bills automatically paid, too.

Any cash left over in the EFT and the Credit Card accounts (normally one to three hundred dollars remains) can be used to snowflake down the Renovation Loan principal or stashed in savings.

w00t! Thanks, PK Sublime!

How higher gas prices save money

by

Here I am thinking that four-&-a-half-dollar gasoline is driving me to the poorhouse…but WAIT!

Wai-wai-wai-wait! Not so! Whereas ’tis all too true that more of the Budget is going to support my driving addiction, something odd has happened: because of the changes in driving and buying strategies forced by the run-up in gas prices, I’m buying a lot smarter in other ways. Groceries, normally my biggest indulgence, have dropped by 50%; spending on yard items is an eighth of what it has been.

In fact, over the past month I’ve saved way more on these items than the extra amount I’ve had to spend on gas.

What is going on?

When the cost of gas headed for the stratosphere, I decided to shop for necessities only at stores that are on my way to and from the Great Desert University. No extra trips would be allowed: whatever I needed would have to come from someplace along the commute.

This cut out Home Depot, the scene of many an impulse-buy frenzy.

All my other regular stops in fact are along the route from here to GDU. However, the “no extra trip” rule eliminated an amazing number of junkets. Using Quicken’s transaction detail shortcut report feature (right-click on the category!), I compared June 2007 spending with June 2008’s in several areas. Here’s what happened.

Groceries

Here’s the biggy for me, since I don’t eat out and I very much relish food. I don’t hold the horses in the grocery store: this is my only indulgence, and I do indulge. I’m given to shopping in gourmet specialty stores, and I do not worry myself with such details as how much food costs.

But within the constraints of the “commute-route” rule, AJ’s, a local retailer, is the only fancy grocer on my way. It suffices: you can bankrupt yourself there just as easily as at Whole Paycheck.

In June of 2007, my grocery bill was (hang on to your hats, frugalists!) $721.99.

Done hyperventilating? O.K. In June 2008, it was $334.96.

Wow! In 2007, I made 17 trips to purveyors of groceries, three of them to the dangerous AJ’s. This year, I made 12 grocery runs, five of them to AJ’s. Even though I made more hits on the fancy store, I spent less than half as much on groceries this year as I did a year ago.

Why? In June 2007, the Great Chinese Dog Food Scare was peaking. That was when I decided to make real food for Walt the Greyhound and Anna the Ger-shep, both 90-pound dogs. This would be about the equivalent of inviting a couple of 12-year-olds (or petite adults) to your dinner table. In May, shortly before the Scare, I spent $417.25, a more normal figure. But still: way more than I paid out last month.

In any event, restricting grocery-store runs to stops on the way home from work cut out five trips to the store, which evidently limited grocery spending

Yard Items

In this category, Home Depot is a real menace. I love plants. It’s almost impossible for me to walk through Home Depot’s nursery without buying a plant, a pot, or both. And the swimming pool chemicals are located in the garden department, so you have to walk past the plants to get to the chlorine, acid, and diatomaceous earth. Cleaning goods and some electrical gear are right next to the plants. Meanwhile, the whole store is laid out like a medieval street bazaar: impulse buys as far as the eye can see.

On the other hand, Ace Hardware, which unlike HD is on my way home from campus, has no garden department. I started buying at Ace to avoid the 8-mile round trip to HD. Ace carries almost everything one needs from Home Depot, but the store layout is pragmatic, boring, and untempting. The place encourages you to get in, pick up only what you need, and get out.
June ’07: $61.62 (3 trips)
June ’08: $7.58 (1 trip)

Why? No Home Depot!

Pool

In these parts the weather heats up the first part of May. Warm weather consumes chlorine tablets and, unless you stay on top of things, grows algae. Until the gas run-up, I’d been buying chlorine tabs, shock treatment, and acid at Home Depot. Lately, though, I’ve been stopping for those things at Leslie’s, in the same strip mall as the Safeway that’s directly on the way home from GDU.
June ’07: $92.78
June ’08: $55.98
Why? Lest you think that specialty-store pool chemicals are cheaper than HD’s, the truth is that in 2007 I spent $42.50 for a service call, and so the real cost for chemicals was $50.28. Still, that’s only five bucks less than I paid this year.
HD’s shock treatment contains a chemical that causes the filter to clog up, and so every time I use it, I have to backwash and then add 8 pounds of new diatomaceous earth (DE), which HD does not give away for free. A DE filter in theory is not supposed to need backwashing more than about every three months, and so having to do that noxious chore once a week got old real fast. Not only that, but the HD shock treatment turned the pool into a puddle of Clorox that was unswimmable, even in the hottest weather, for at least three days. Since I’m in the water two or three times a day, I found myself putting off shock treatments until the walls were coated with green stuff, not a good habit.
Leslie’s has a non-chlorine shock treatment that does not contaminate the water and does not clog the filter. You can dive in the water right after you dump the stuff in. And thanks to this stuff, I managed to delay the quarterly filter clean-out ($100) for about six months.

So, even though I paid $5 more in June 2008 than in the same month of 2007, over the long run I’ve been paying less on pool maintenance because I haven’t had to buy giant boxes of DE every time I turn around and I haven’t had the pool guy over here every three months. And now I can use my pool every single day, with no hiatuses to wait for scary levels of carcinogens to drop from ungodly toxic to only mildly poisonous.

Gasoline
June ’07: $ 83.45
June ’08: $138.20

That’s a $54.75 increase.
Grocery savings: $ 387.00
Yard item savings: 54.00
Pool savings: 36.80
Less gas rip: -54.70
Result: $423.10

Approximately: when I copied and pasted these posts out of iWeb into Word, the last character before each hard return disappeared, so I have no idea what appeared in the ones columns. At any rate, when I wrote this I appeared to be $423 to the good, thanks to the inflated cost of gasoline.

If This Is So Great, How Come I’m Busted, Disgusted, and Can’t Be Trusted?

Those of you who’ve followed my whining know I’m up to my eyeballs in red ink. Last month’s budget cycle ended $111 in the hole. So far this month, I was $126 in the red at the end of the first week and, with three days to go am $17 in the red against this week’s budget.

I’ve blamed this on the run-up in gas and food prices. But a closer look reveals the actual cause: a long series of extraordinary expenses biting into cash flow over the past two months.

Between April 21 and June 20, I racked up $1,012 in veterinary bills for the dying German shepherd. In May I pledged $100 to a charity, Andrea’s closet, thinking the amount would come out that month; instead it was charged against American Express in June, when I had to cover $332 of those vet bills. While I might have been able to handle around $300 of unplanned charges, $432 broke the bank. And so far in the first week and a half of this month, I’ve had to pay $55 for car service and $87 for pool service.

So, while I may have saved some $430 in a few categories these past couple of months, it’s as nothing compared to the $1,254 in unplanned expenses ($1,012.33 vet bills + 54.72 car repair + $87 pool service + $100 donation) that I’ve been trying to cover with cash flow and emergency fund savings.

Without those extra expenses, I would be doing just fine…thanks to the gas prices.

If next payday doesn’t come…

by

Oh, but of COURSE our esteemed elected representatives will pass the state budget before the whole joint has to be shut down, right?

Right. Well, come July 3rd, we shall see.

While we wait, let’s consider an important question: Are you prepared if your employer can’t pay your next check? Are you prepared for a lay-off? Are you prepared to be canned outright? Not to harp on this issue (well, yes, to harp): emergency fund, emergency fund, EMERGENCY FUND!

There are only two ways to prepare yourself financially for hard times: one is to get out of debt as fast as you can, and the other, IMHO the most important, is to lay in enough money to tide you over a spell of unemployment or disability. I say building an emergency fund is more important than getting out of debt because you have to eat. If you quit paying credit card and student loan bills, all that will happen is your credit will tank and you’ll have nuisance bill collectors nagging you. If you quit paying on your car, it’ll be repossessed, but there’s always the bus, a bike, or Shank’s mare. If you quit paying your rent or mortgage, eventually you’ll be evicted, but it takes a long time to evict someone. But if you can’t buy food, you’ll starve before the landlord or the bank can toss you into the street.

In good times, the strategy should be to build the emergency fund and pay down principal, dividing snowflakes and snowballs between the two goals until you have at least six months’ worth of living expenses stashed in the bank. As the economic clouds roll in, focus on the emergency fund. Make your regular debt payments; quit charging on the cards, so as to avoid running up any more debt; but put all of your spare cash or sidestream income into accumulating enough cash to keep you going through a really bad stretch.

How much should you set aside for the proposed rainy day?

Opinions vary, from three months to a year or more. Personally, I think an emergency fund should cover at least six months of net pay. If you’re out of work, your income tax will drop to zilch, and so you ought not to need six months’ worth of gross pay.

That said, my emergency fund actually represents a year’s net income. In the first place, at my age I don’t have a snowball’s chance of getting a job comparable to the one I’m in. And in the second, it won’t be that long before I can collect full Social Security. I’m eligible for less-than-full SS right now, so if push came to shove, I could start collecting early. In effect, at age 62 Social Security itself becomes a kind of emergency fund for those of us who persist in doddering in to the office. For you younger pups, remember this rule of thumb: a laid-off executive can expect to spend a month searching for a new job for every year of job experience she or he has.

Alternative Emergency Funds

If saving extra cash is difficult or you don’t think you can stash enough before you’re likely to be laid off, here’s a secondary strategy: get check-bouncing protection from your bank or credit union. This is actually a line of credit. If you overdraw your account, the institution lends you the amount of the overdraft, protecting you from bounced check charges. The interest isn’t cheap. However, it’s less than a credit card costs and it could save you in a pinch. I have overdraft protection in the amount of one month’s net income.

Another strategy is to start developing other income streams now, while you’re still employed. If you have a hobby that can be monetized, start monetizing. If you have a skill you can ply as a side job, start finding customers now. If you’re thinking of starting a service business, consider whether you can begin offering the service in a small way, on a moonlight basis. While this income may not support you, it certainly will help, and often such work can be expanded to full-time equivalent when you can devote 40 or 60 hours a week to build it.

If you’re fairly confident you’re going to be laid off, then in addition to starting the job search right now, here are some things you can do to prepare:

  • Apply for credit now, since no one will lend you a dime while you’re unemployed. Get a line of credit at the bank; get another credit card. Don’t use either of these instruments, but have them at the ready in case they’re needed.
  • Pare back your spending. Streamline your budget so that you’re living much as you would if you were out of work. Put the savings into the emergency fund.
  • If you have a freezer, fill it with food.
  • If you don’t have a freezer, lay in extra nonperishable items such as beans, rice, flour, and canned goods. (Remember that whole-wheat flour must be refrigerated — it will go rancid if left for a long period at room temperature.) Clean out your refrigerator’s freezer and organize its contents so you can max out the space. Buy meat and frozen products to fill it up.
  • Plant a garden. Squash and tomatoes grow handsomely and cheaply in the summertime. If you live in a temperate climate, you can grow lettuce, kale, carrots, and beets during the summer. Least expensive strategy: grow from seeds. Learn how to can, preserve, or freeze vegetables and fruits.
  • Keep your gas tank full. At four or five bucks a gallon, it’s a lot better to buy gas while you’re earning than after you’re laid off.
  • Consider how you will get around with minimal use of your car. Know the bus routes, and if your area is safe for bicyclists, get a bike at a yard sale, thrift shop, or sheriff’s sale and fix it up so you can bicycle to nearby destinations.
  • On paper or on disk, prioritize your spending obligations. Write down the things you will need to spend on, in descending order from the most to the least important. Consider how you will cover these expenditures with the emergency funds or side income you already have in place.
  • Find out how to apply for unemployment benefits and food stamps, and see if you will be eligible for other forms of public assistance. Don’t get “proud” about this: you’ve paid for it with your taxes, and you get to use it when you need it.

None of us is ever fully prepared for an unplanned job loss. Expect to be psychologically stressed and possibly depressed, no matter how carefully you’ve laid plans and stashed emergency money. Knowing how you will feel (it doesn’t take much imagination), think in advance about morale-building activities to fill your suddenly free time. Scheduling a block of time for exercise will help your outlook a great deal, as will volunteering a few hours a week for a charitable cause. Also plan to attend meetings of trade groups or professional groups-join now, especially if you can get your employer to pay the dues. Regular exercise such as walking, running, or work-outs will protect your physical and psychological health, and activities that bring you into contact with people will raise your spirits and build business and job-searching contacts.

1 Comment left on iWeb site:

Anand Dhillon

Keeping an emergency fund is always a good idea. I also advise that people have multiple streams of income so that ifthey do lose their job, it’s not totally the end of the world.They take a lot of work to setup but extra streams can provide much needed financial security.

Thursday, July 3, 2008 – 10:27 AM

A Square Peg in a Round Hole: Biweekly pay in a bimonthly world

by

As advantageous as a biweekly pay schedule may be to The Man, it sure is a pain to us wage slaves. Creditors expect to be paid once a month, not whenever our biweekly paycheck shows up. Because biweekly pay dates precess throughout the year, they don’t coincide neatly with due dates for bills. No matter how accommodating your utility company or credit card provider tries to be, there’s no way you can schedule bill due dates to be sure enough money will be available to cover every monthly payment. Why? Because you’re never paid on the same date. Some months, the second paycheck arrives after bills start to come due.

The phone bill is due the first of the month, and Qwest, my only uncooperative creditor, absolutely will not change the billing date. All my other bills come due on or after the 20th. Most months, two paychecks have arrived by the 20th, providing enough to cover all my regularly recurring household and insurance bills plus the credit card charges for groceries and routine living expenses.

But a look at the Great Desert University’s payday calendar shows problems arise in April, May, June, and September. In April, GDU doesn’t disburse its second paycheck until the 25th. By then, an American Express bill is due; I budget $1,500 for food, household, yard, gasoline, and such, all charged on AMEX. Usually I spend about $1,100 or $1,200. Utilities and other regular recurring bills can run as high as $840, especially in the summertime, when the costs of water and electricity track the thermometer. AMEX closes on the 20th and the check needs to be mailed by the 1st. Visa closes before then (sometimes I’m forced to use Visa if I have a lunch meeting at a restaurant near the campus—few of them take American Express). Power, water, insurance, and the Renovation Loan are due on or shortly after the 20th. With as much as $2340 due, I need that second $1,522 paycheck by the 20th, not whenever GDU gets around to paying me.

Meanwhile, each month I have to put into savings $300 a month to cover annual property tax, homeowner’s insurance, auto insurance, and car registration; $200 a month to put into the Renovation Loan payoff fund; and $175 for extras such as clothing and to cover emergencies such as vet bills, car repairs, and house maintenance. So in any given month, I’m disbursing up to $3,015 out of a $3,044 income. With $29 to spare, that’s too tight to cut corners.

But in April, we’re not paid until the 28th! That paycheck has to cover bills that have already come due and cover the $87 Qwest bill due on May 1. It also has to cover half the monthly savings setasides: $337.50. I don’t get paid again until the 9th, when again I set aside half of all the monthly expenses and savings. But this doesn’t cut the mustard: In May I again go unpaid until after my monthly bills come due. Same thing happens in June. And in September. And in October. In every one of those months, I wonder if enough cash will be available to pay my regular bills!

Another consequence of this annoying system is that I never know how much is left over from a month’s worth of pay, making it impossible for me to “snowflake” the Renovation Loan. With bimonthly pay, checks posted on the 1st and the 15th. Each check covered the same two-week period. So, on the 31st, I could look at my checking account’s bottom line. Any amount left after all my expenses were paid was mine. It either went into my diddle-it-away savings or, more recently, it went to snowflake down the Renovation Loan. But now the cash remaining in my account on the 31st has to last me until a week or 10 days into the following month. Who knows whether there’s any disposable money there?

I need to be paid on a bimonthly basis. I finally figured out how to swing that. If my employer won’t pay me bimonthly, I will.

Here’s how it works:

  1. Set up a savings account and a checking account.
  2. Try to get as many of your creditors as possible to bill you after the 20th-as late in the month as possible.
  3. Arrange to have all EFTs taken from the checking account, and pay for all other bills and living expenses from that account.
  4. Make an accurate estimate of all your monthly expenses. For amounts that fluctuate, such as power and water bills, use the largest amounts to figure these estimates.

Starting in a month when you get paid on or very near the 1st:

  1. Have your pay deposited to the savings account. (Or, if necessary, transfer the entire amount from the account that receives it into the savings account.)
  2. On the first of the month (or the payday that comes closest to it) pay yourself 1/2 of the estimated amount of your monthly expenses. Put this in the checking account, which serves as a “cookie jar” to hold funds to pay expenses.
  3. Bills that are paid before the 20th should be covered by this amount.
  4. When your 2nd biweekly check comes in that month, again pay yourself 1/2 the estimated monthly expenses. Try to pay yourself on the 15th. Because twice a year an “extra” paycheck arrives, your “pool” in savings eventually makes this feasible.
  5. Bills that come due after the 20th should be covered by this amount.
  6. On the last day of the month, transfer your monthly savings to whatever instrument you’re using (money market account, mutual fund, stocks & bonds, etc.)*

Now put your entire biweekly paycheck in the savings account as it comes in. Then pay yourself bimonthly from the fund that accrues in the savings account, by transferring the amount you need to live on from savings to checking and the amount you want to save from savings to the desired financial instrument.

The effect of this is that you should always have enough in checking to cover your regular expenses. If any money is left over from your monthly budget, you will see it in your checking account.

But because of the precession of the biweekly pay, over time extra money will also accrue in the savings account. You can determine this leftover amount ONLY in months where you get paid on or near the first. In my case, that’s January and July. It looks as though after about six months of this, something like $1600 of unused money should collect in the account that receives automatic pay deposits.

If you have my arithmetical skills, too, you can start paying yourself a bimonthly salary only in a month where you get paid on or near the first. Otherwise it’s impossible to make the transfer needed to cover the first two weeks of the month in any comprehensible way.

Here’s how this looks, over the second half of 2008:
Green type shows what is in the “Inflow” savings account. Black type shows what gets transferred to checking to cover expenses. I start in July, because we get paid on the 3rd, which is pretty close to the start of the month.

We’re not quite on track to “pay” me on the the 1st and the 15th, because GDU doesn’t cough up the paycheck until the third. In August we do get paid on the 1st. Not only that, but on the 29th we get a so-called “third” paycheck, which is not really three paychecks to cover a single month’s expenses but simply the check that, in a bimonthly world, would have been paid on September 1, arriving five days out of synch with the following month’s billing cycles.

In July, things are pretty tight. If I’m lucky, I’ll have $29 left from my July paychecks. Mercifully, in August a small miracle happens: we get paid on the actual first day of the month. So, that $29 doesn’t have to cover the $87 phone bill. This puts my monthly pay-me system on track. After I’ve paid myself on the 1st and the 15th, I still have just enough cash in the inflow savings account to cover the monthly savings setasides of $675; that amount isn’t actually coming out of the the August 29 paycheck, which now starts to form a “pool” from which I will pay myself bimonthly.

In September, things start to get interesting. After the three paychecks in August, we end up with $1,609 in the inflow savings account. We don’t know how much, if any, of that is “free” money, not committed to paying October bills, it has to stretch until September 12. The September paychecks, due on the 12th and the 26th, are totally out of synch with bill-paying reality, and so there’s no way for an English major to understand what’s what here.

Not until December do we see clearly how this is working out. All the December bills and savings setasides are covered by December 15, with $164 to spare. Then on December 19 another paycheck comes in, bringing the inflow savings balance to $1,684.

But… We see from the payday calendar that GDU cuts the next paycheck on January 2. In other words, January paychecks coincide with the actualities of monthly billing. The January 2 and January 15 checks will cover all January bills, and so that $1,684 is not needed to pay expenses! It amounts to six months’ worth of snowflakes, and it can be used to pay down the Renovation Loan or put into savings. w00t!

Not being an accountant or a mathematician, I have no idea how this works. Evidently forcing bimonthly pay from the biweekly paydays must capture one of the so-called “extra” paycheck every six months. When you disconnect your monthly “pay” from your biweekly pay, somehow you recover the 25th and 26th paychecks that otherwise would have to serve to cover their own two-week periods.

Biweekly paychecks come on or near the first of a month only a couple of times a year. But this is apparently the only time when you can be certain of how much unspent income has accrued.

It’s a damnable nuisance, of course, all the shifting of funds. But this system-pooling biweekly income to pay yourself bimonthly-works to cover your bills reliably. It ensures that the money to pay your recurring obligations will be available when it’s needed.

* Although in Quicken I “pay myself first” by posting transfers into savings and mutual funds on the first of the month, I delay making the actual transfers until the end of the month, so the cash will be there to cover unexpected budget overruns or small emergencies. Posting the transfer at the start of the month shows a balance after the savings setasides, which keeps me from overspending except in emergencies.

6 Comments left on iWeb site:

!wanda

I’m so happy I’m paid monthly.

Thursday, June 19, 2008 – 01:29 PM

Seeking Clarification

I’m confused by some of your terminology… “bi-” means “every other…”, and “semi-” means “twice a…” The title of your article is “Make bi-weekly pay work in a bi-monthly world” which says “Make an every-other-week payday work in an every-other-month world.” I don’t know many people who could get paid every other month and survive! Certainly not me! 🙂

Should that be “Make biweekly pay work in a semi-monthly world” meaning, get paid every other week, when twice a month would be more conducive to bill-paying?

Friday, June 20, 2008 – 08:45 AM

vh

Actually, in current usage “bimonthly” is correct. My Random House Webster’s, for example, defines “bimonthly” both ways: “2. occurring twice a month”; and “5. twice a month, semimonthly.”

A discussion of this usage appears with the entry for the prefix bi-. “Most words referring to periods of time and prefixed with BI- are potentially ambiguous. Since BI- can be taken to mean ‘twice each’ or ‘every two,’ a word like _biweekly_ can be understood as ‘twice each week’ or ‘every two weeks.’ Confusion is often avoided by using the prefix SEMI- meaning ‘twice each’ (_semiweekly; semimonthly; semiannual_) or by using the appropriate phrases: _twice a week, twice each month, every two months, every two years_).”

I usebimonthly to mean “twice a month” because that’s how my employer uses it and it’s how HR people and payroll accountants across the nation use it.

Saturday, June 21, 2008 – 06:30 AM

Sally

I just pay half of my bills each payperiod. I’ve been doing this with online billpay, and I’ve had no problems at all. The only thing it doesn’t work with is my rent. I have to save half of it.

Tuesday, June 24, 2008 – 04:14 PM

PKSublime

Okay I really don’t like your solution very much.There is a better, easier way to do this.
What you do is save ALL your paychecks from month 1 and then pay ALL your bills on the 1st of month 2 that will/are due in month 2.
The concept of “living off last months income” is a great way to operate, and is anthemed by followers of “The YNAB Way” over at http://www.youneedabudget.com./

Wednesday, June 25, 2008 – 01:45 PM

vh

@ Sally: It’s never occurred to me to ask my creditors if they would accept half-payments. Besides, how would you know how much to pay? Creditors send out a bill once a month, not twice a month; and except for the phone company (whose bill is always the same because I don’t make long-distance calls), every statement is different. The power bill ranges from $80 to $180, for example.

@ PKSublime: Unclear how what I’m proposing here differs much from YNAB. Over six months, you would end up with the equivalent of one paycheck residing in your account (a little more, if you spend less than you earn); over a year you’d have a full month’s worth. That would happen because of the payday precession, with no effort on your part. With YNAB, it appears that the amount you would set aside to pay down debt or build savings would have to go to build a month’s worth of extra living expenses. It would take you quite a while to accomplish that. The scheme above lets you start right now, with no waiting period while you build a stash. Personally, I’m put off by the blatant commercialism of YNAB: pay us and we’ll tell you our secrets (which appear to amount to “budget, pay off debts, live within your means, build savings.” Thanks…I’ll figure it out for myself.

Thursday, June 26, 2008 – 05:25 AM