Budgeting and Your Pay Cycle

Can I change the budget period to match my pay cycle? How do I use a monthly budget when I'm paid every two weeks?

These are great questions! You know you need a budget. You just don't know how to manage one when the monthly budget cycle doesn't line up exactly with your pay cycle.

It doesn't need to.

In fact, except for those few who are paid once a month and always on the first of the month, no one's pay cycle lines up exactly with a monthly budget cycle. Fortunately, no matter how often you are paid, the process of budgeting is the same.

How to Budget Your Income on Any Pay Cycle

  1. Enter your income – whenever it arrives.
  2. Give those dollars jobs by assigning them to categories.
  3. Spend based on your budget.
  4. Adjust when needed.

A Repeating Cycle

Use this same process no matter how often you're paid – weekly, monthly, quarterly, it doesn't matter. Each time you are paid, ask what does this money need to do before I am paid again?

Here's how budgeting with a bi-weekly (or fortnightly) pay cycle looks inside a monthly budget. You can use this cycle for any number of paychecks in a month.

Paycheck #1

Imagine it's early in your second month of budgeting and you just received the first of two checks for the month. This first check won't cover the whole month, and you begin to think you need a budget that matches your pay cycle. 

You don't! Instead, ask yourself:  What does this money need to do before I am paid again?

How to Handle Paycheck #1

  1. Fund your immediate obligations first, with an emphasis on those things due early in the month.
  2. Then move to True Expenses, and down the list.
  3. Some expenses like groceries aren't a single bill, but are categories you'll spend from multiple times during the month. Don't worry about the whole month – just assign what you need before your next paycheck.
  4. Keep going until Ready to Assign is $0.00.
  5. When Ready to Assign is $0.00, you can (and should!) stop assigning money.

Don't worry about those things you haven't assigned funds to yet. If it helps, imagine that you've gone to get a nice cup of coffee (feel free to insert your own beverage vice here) in the middle of your budgeting session. Just sip and enjoy for the next two weeks.

If you've set up your targets to match your priorities and due dates, you can click the Underfunded button in the Auto-Assign options, and YNAB will do the work for you, assigning money to your categories based on the targets set. 

Paycheck #2

Fast forward two weeks—you've paid your rent and many of your bills and can already feel your stress melting away. But the money you initially assigned for groceries is just about gone, and another paycheck has just arrived. You feel like you want a new budget just for this paycheck.

You don't! Ask yourself, once more, what this money needs to do before you are paid again. Then, pick up where you left off with the last check.

How to Handle Paycheck #2

  1. Add more to categories (like groceries or gas) that need it. How much to add? Enough so that the Available will get you through to your next paycheck.
  2. Assign money to True Expenses and other priorities that you couldn't cover with your first check.
  3. Some things that happen before you're paid again might be at the beginning of next month. Fast forward and assign funds to Immediate Obligations that happen early, before you are paid again.

And So On...

You'll continue repeating this cycle for your third paycheck, your fourth, and beyond. Except you'll notice a key difference – you will need less and less of your paycheck right now. Eventually, you'll ask yourself what your money needs to do before you are paid again, and the answer will be nothing! 🎉

Sound impossible? As you prioritize over and over, as you prepare for your True Expenses (no more surprises!), you'll notice that you are assigning paychecks farther and farther out. It will begin to feel seamless, and the need to line up paychecks with particular expenses will become a distant memory.

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