Thursday, June 30, 2011

Ted's Guest Blog: Part 3-Balancing Paycheck to Paycheck

This blog title should maybe be changed to Recovering Canadian Shopaholic-plus Ted. I've really enjoyed seeing his insights that I learn from day-to-day down on paper and laid out. When we got married I found there were a lot of things I didn't know I didn't know, and I am pretty sure I'm not alone. I found that to learn I really had to get my hands dirty and see how the processes we put in place work out over time. It's one thing to hear "debt is bad," but it's quite another to go through the journey of paying off debt, and enjoy the satisfaction that making better choices gives. Being a grown up, and making grown up choices are not always guaranteed to go hand in hand. For me, learning was a process, slow and sometimes painful, and not one epiphany "aha" moment. Small changes over time leads to big change.

Here's Ted!

Balancing paycheck to paycheck. Ally and I got lucky that we didn't have to think about this, but I think it made it easier to stay committed to budgeting. The goal here is to have roughly the same expendatures both at mid month and at end month, so that your disposable income is reasonably close to the same each time you get paid.
First, why is this a good thing? Imagine this scenario: At mid month pay, my credit card payment is due, so I spend very little on living. Maybe I don't even take out any "clothing and gifts" or "entertainment" because I want to pay down this high interest credit card that I got in trouble with. So here comes end month, and I don't have a credit card payment due and it's time to "pay myself". So I celebrate that I have a bit of cash and to "make up" for the fact that I tightened my belt two weeks ago. And then I go out for a meal and put it on the card "Hey, I got cash and no bills, I can afford it!". Ooops.
So how do I solve it? One way Ally and I did this was by actually knowing when during the month our expenses came out. The credit card (this is where our cable and phones go) and the car payment were mid month, while insurance and utilities are an end month expense. The mortgage comes out on the 2nd and 17th (two days after paydays). And of course there's the variable (micro) cash for each 15 day period. This leads to consistent expectations of our disposable income and no temptations to spend every second paycheck because we have no bills due right away.
It also helps to have these expenses timed to be right after pay days, so there's no need to sit on cash for two weeks to just before the next payday. Worse is taking the interest penalty and being 2 or 3 days late on a bill (which is still late as far as your credit rating is concerned) or going to a loanshark for a payday loan which costs far too much. So the takeaways are: when you sign that lease and they ask you what day of the month you want the payments to come out, give it some thought. Alternatively, give some of your payees a call and ask them to switch the due dates to something more convenient for your pay cycle. It will bring balance to the... umm... month.

1 comment:

Kara said...

We've had all our "bill money" set up as an "allotment" to come off Scotty's pay each month. This amount gets deposited once a month (end month pay).

Then all our "disposable" money goes into our other account as his "pay" and this stays reasonably steady (unless there is a mess bill to come off his pay).

This way we know that all our "bill money" is in one account, where all our bills and investments get paid from. We don't touch that account and, as a result, a small residual continues to grow in there as a "nest egg"savings.

This was something we set up shortly after Scotty joined. It has been 10 years of operating that way, and it is always nice to know that if someone somewhere makes a mistake with Scotty's pay, the allotment will still be deposited so the bills can continue to be paid.

Just something to think about.