I was a teenager when I got my first job with a regular paycheck. I still lived at home with my family so I didn’t have to worry about things like paying rent, making car payments, covering utilities, or even buying groceries. It wasn’t “free money” because I worked for it, but it was “money free from worry and obligations”.
A few years later when I lived on my own I learned the hard way I was going to live by a calendar. It was an alien experience to me. Mom and Dad had taken care of everything. Suddenly, every paycheck I received had to be carefully divided between my outstanding bills and the expenses I would have in the next few weeks.
As a college student I had three different kinds of paydates. I worked part-time to help cover my expenses. But I also received a mix of scholarships, grants, and loans. I had to plan ahead for when those payments would come in. Some payments were bi-weekly. Some were semi-monthly (1st and 15th or 15tth and last day of month). Some were monthly. And some were quarterly.
Balancing all those paydates was a great learning experience even though I remember a few times where I ran out of money, had unexpected expenses, and otherwise found myself living on a barebones diet for a week or longer until the next check came in.
Choose Wisely When Accepting A Job
According to government data, most jobs still pay on a weekly or bi-weekly basis. And, frankly, as a small business owner I have to think about when I can invoice clients – or when commission checks will be paid. If you’re running a small retail business, you get paid daily if you can make that many sales.
If you have a choice of being paid weekly, bi-weekly, semi-monthly, monthly, or even quarterly, think about how you spend money before picking that pay schedule. I personally dislike weekly paydates. They come too frequently for my personal spending habits. Regardless of which pay schedule you’d prefer, recent data shows most Americans are still living paycheck-to-paycheck.
I like to save money for future expenses, but having to hold back money from a weekly paycheck for a bill that wouldn’t be due for 2 or 3 weeks was inconvenient for me. That’s not because I’m bad at math or even because I’m lazy. It’s because it’s just too tempting (sometimes) to say, “Well, I really want this thing and I can buy it right now with money I’ll need later.” And I did that way too often when I was paid on a weekly basis.
I don’t like bi-weekly paychecks, either, because every now and then you get paid 3 times a month. So is that like a bonus check or is it money you should spread out across the next 3 months? I could never figure that one out. I tried living on this kind of pay schedule for a couple of years. Well, I didn’t have a choice. But I didn’t invest that 3rd paycheck or even put it into savings. Living on 2 paychecks a month was stressful and the occasionally 3rd check usually went to pay bills I was behind on.
So my point is, if you’ve got a couple of job offers or income opportunities and they don’t pay on the same schedules, you should think about which schedule better matches your needs and lifestyle.
Who Still Pays On A Monthly Basis?
Government jobs pay on a bi-weekly basis. When I was growing up, my Dad was paid on a monthly basis. And some dividend plans pay on a monthly basis, as do most retirement plans. In fact, as a business owner, I’ve learned that most of my income is paid on a monthly basis.
When you’re running your own business, or living on a retirement plan, or working for the government, you probably need to think about a monthly paycheck. Even if you’ve got other sources of income, or can withdraw money from savings whenever you need it, that monthly paycheck becomes the main consideration in your financial calendar.
It’s not inconvenient. In fact, coming from a military family I grew up expecting the first of the month to be the Days of Plenty. We’d go grocery shopping at the commissary, Mom and Dad would pay big bills, and there were usually weekend spending trips for new clothes, the movies, theme parks, etc. Being paid monthly didn’t feel strange to me as a business owner when I had to start planning that way – and yet, it did require a change in thinking after I left my last regular-paying job (two paychecks a month).
When you’re combining income streams you can decide when to pay yourself. You simply deposit everything into a savings account and then transfer money to your checking account once a week, twice a month, or monthly as you see fit. It’s empowering to be able to decide when you pay yourself – right up until you have a financial emergency and have to take money out of savings off-schedule.
All that aside, monthly paychecks are still important. And if you’re about to retire, you’d better get used to planning around those 1st-of-month retirement payments. They include Social Security benefits, pension plans, and scheduled monthly withdrawals from your retirement plans (if you have any).
Add to these income streams payments from dividends, interest on savings or bonds and CDs, and other investments and the monthly paycheck plan starts look like a retiree’s normal schedule.
If you were career military or government you’re probably used to USAA pay dates – so you know exactly what I mean by “normal schedule”. You’re just used to it (or you get used to it).
Try To Separate Spending from Paydates
If you think about it, when your paycheck (or whatever) comes in shouldn’t matter if you’re depositing everything into savings first. This isn’t an easy to position to get to. In fact, it’s kind of scary for many people. “Put it ALL into savings? What am I going to live on?”
But federal law allows us to make up to 6 withdrawals from savings each month. So if you plan ahead, build up your savings, you can transition to a lifetime pattern of paying yourself out of your savings account on your preferred schedule. That’s incredibly liberating.
Even if you can only maintain a few thousand dollars in your savings account, as long as you deposit your full paycheck into that account and pay yourself (transfer to checking) on a the days you think are most important, you can always count on your money being there when you need it.
You don’t have to worry about whether your boss will pay you on Friday before a holiday or Tuesday. In fact, even if you’re working with the most liberal payroll system in history – where you get paid before every holiday – you still have complete control over your money if you’re paying yourself out of your savings.
If you can set up direct deposit (and most employers now offer this) then you don’t have to think about when the bank is open so you can deposit the check directly. Sure, you can use a smartphone to make an electronic deposit – or drop the check off at an ATM. But I’ve had deposits “get lost” or that were delayed by days when I used these methods.
Now, if I’m paying myself out of savings and depositing every paycheck into savings then it doesn’t matter if I’m late to the bank, or if the smartphone deposit doesn’t work, or if the ATM deposit doesn’t give me full credit for 1-3 days. I’ve still got the money I need in savings and can transfer that money to my checking when I need it.
How Well Does This Work In Real Life?
It took me years to get to the point where I didn’t have to worry about when my next paycheck would clear the bank. I made a lot of mistakes along the way. Most of them were spending mistakes. I grew impatient and spent money as soon as I got it, or before I was paid, and didn’t appreciate just how important a well-funded savings account was for me.
Knowing I can transfer what I need from savings when I need it – rather than having to calculate how I’m going to make it to the next paycheck – has reduced a lot of financial stress in my life.
I wish I had been more financially disciplined when I was younger. It would have saved me a lot of time, money, and grief. There were days when I was sick with a cold or flu and I had to get out of bed to go drop a paycheck in the bank. I hated having to do that. I felt enslaved to the bank’s operating hours.
Direct deposit took away some of that anxiety but there were a couple of times when the direct deposits didn’t show up on time. Yeah, a lot of people were angry and upset besides me – but what can you do about it? Actually, if I had put everything into savings and kept at least half a month’s pay in reserve, I wouldn’t have been upset at all.
Conclusion
When I was younger, I really did think about what kinds of paydates I wanted when looking for jobs. I shouldn’t have thought that way. I probably passed up some interesting work experiences simply because they didn’t pay on the schedules I wanted.
On the other hand, what I really denied myself by now build up my savings and living off that was freedom from the stress of worrying about whether I was going to make it to the next paycheck.
Regardless of how much I’ve earned at various jobs, my income level never seemed to matter. My spending always rose to meet the limits of my earnings. And that’s the greatest financial mistake most people make.
All the “experts” say you should have a 3-6 month emergency fund in savings. And, sure, that’s true. But I think the first, most important goal for anyone wanting to improve their personal finances is to save enough money to cover your next paycheck. After you’ve gotten used to paying yourself, you’ll want to deposit everything directly into your savings account for the rest of your life.