Paid biweekly? Try these budgeting ideas for 3-paycheck months

If you get paid every two weeks, then you’ve probably noticed those magical three-paycheck months. Maybe you thought your company’s payroll people made a mistake, but lucky for you—they didn’t. You get at least two bonus-paycheck months like this a year. Yes, it’s appropriate to jump for joy. But do you have a plan for that extra income?

3-paycheck months: How to budget your extra paycheck

Why do we sometimes get three paychecks in one month? If you’re paid biweekly, you get 26 paychecks throughout the 52-week year. That means two months out of the year will be three-paycheck months, instead of your regular two.

Those two extra paychecks can go a long way, but without a plan in mind, they can seem to disappear as quickly as they arrived in your checking account.

The first thing you need to do is to find out when each extra monthly paycheck will hit your account. Grab a calendar, write down your paydays for every month in a given year, and highlight the two extra paychecks. Calendar reminders can help you remember when the additional funds will arrive. Because the extra paychecks will fall on different days every year, tracking them in advance is key.

Samuel Deane, a founding partner of a wealth management firm, says there isn’t one correct way for how to budget an extra paycheck because it should depend on your personal situation and financial goals. You could decide to give yourself some extra room in your budget throughout the year, for example, or use the extra money for something specific.

Lots of people ask themselves: How can I budget for an extra paycheck? If this is you, consider these five ideas as you budget for your three-paycheck months:

1. Pay down debt

As you consider how to budget an extra paycheck, start by looking at your debt. “The first thing I usually tell my clients is to get rid of high-rate debt, which is usually credit card debt,” Deane says.

Make a list of all of your debts organized by balance and annual percentage rate (APR). Paying off the debt with the highest APR could save you the most money because you’re paying the most to carry a balance.

For instance, if you owe close to your credit limit on a credit card, the high credit utilization—or card balance to credit limit ratio—could hurt your credit score. Alternatively, paying down a few low-APR, low-balance debts can help you gain momentum and bring other financial benefits. You might also choose to put your extra paycheck toward any student or car loans you might have.

If your biweekly budget helps you tackle debt repayment, you’ll start to owe less and have less interest accruing each month, freeing up even more cash from your future three-paycheck months.

2. Build an emergency fund

Paying down debt isn’t the only option as you incorporate an extra paycheck into your biweekly budget. “Taking a look at whether you have a sufficient emergency fund is pretty important,” says Dan Stous, CFP^®, lead wealth advisor at a financial planning and investment management firm.

An emergency fund that can cover three to six months of your regular expenses can help you weather financial setbacks, such as a lost job or medical emergency, without having to take on new debt.

Keeping these funds separate from your regular checking and savings accounts can help you reserve them for the unexpected (and reduce the temptation to dip into them for nonemergency expenses). Typically, the best place to keep your emergency fund is in a high-yield savings account. You could also safeguard these funds in different accounts: For instance, you might want to compare and contrast the merits of placing your rainy day fund in a money market vs. a CD account.

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If creating an emergency fund or adding to an existing one is on your to-do list, then you might want to automate your savings by automatically transferring your extra paychecks into your emergency fund account. That’s another great method for how to budget your extra paycheck.

3. Save for a big goal

There are a number of easy ways to save money, for which two extra paychecks would come in handy. For instance, if you want to save for a goal like a new car or home, or boost your retirement accounts, contributing two full paychecks out of 26 can be a good start.

“If a client is debt-free and doing well, they might be able to focus on other goals,” Deane says. If you’ve got a financial goal in mind, a budgeting hack if you’re paid biweekly is to transfer your two extra paychecks from your checking account to a savings or tax-advantaged retirement account right away.

If you have a 401(k) through an employer and already contribute enough to get your maximum annual match, Deane says you may want to consider a Roth IRA. A Roth IRA—which can include IRA CDs and other savings products—can be used for retirement savings.*

Even loftier, “you could put aside money to start a business,” Deane says. If you plan on starting a business someday, you could put away the extra paychecks annually and let those savings build as start-up capital.

4. Get ahead on bills

If you already have an emergency fund, are currently debt-free, and are making good progress on your savings goals, try this budgeting hack for those three-paycheck months: Pay certain monthly bills ahead of time.

“If you have the ability to prepay some of your bills, it can ease anxiety in the coming months,” Deane says.

Before using this hack, check with your providers to confirm that you will not be met with a prepayment penalty, and get up to speed on any prepayment limitations. Some providers may even offer a discount or incentive if you pay your car insurance premium, for instance, for the entire year rather than on a monthly basis. You could also explore whether or not prepaying your bills makes sense for utilities, your mobile device, or rent.

5. Fund much-needed rewards

If you’re still wondering how to budget your extra paychecks, consider that managing money isn’t only about dollars and cents. Emotions play an important part in personal finance because they’re often at the root of people’s decisions. Accepting this idea could help you successfully manage your money.

“From an emotional and behavioral standpoint, people should reward themselves for being responsible,” Stous says. “Basically, treat yourself.”

Maybe you want to plan your next vacation to get away from the daily grind, or you’ve been hoping to finally have a date night at your favorite restaurant. There’s no need to feel guilty about including some spending on yourself within your biweekly budget.

There’s no one-size-fits-all trick to budgeting for 3-paycheck months

When you’re deciding how to budget with extra paychecks, you might find yourself going back and forth between options.

“If you have an extra paycheck and a debt-reduction goal, then maybe you apply the whole thing toward that goal,” Stous says. On the other hand, he says, maybe you have a goal to retire in 10 years, but you’re off track and are now wondering how to play catch up on retirement savings. “Then, it’d be wise to put that money, or at least a portion of it, toward that goal.”

Even though biweekly budget plans are not the same for everyone, being disciplined and proactive about the savings opportunity of a third paycheck can help you form a strong foundation for your financial future.

Keep the budgeting mindset going by turning your attention to your bills. Looking for a way to keep your utility bills consistent every month? Learn what budget billing is and decide whether it’s right for you.

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*The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.