Jun 10 2013

Living on last month’s income

last month's income

When we lived in Pittsburgh, Shane got paid once per month. It was simple to pay bills, because bills were due once per month as well. When we moved to Indiana, Shane went on the biweekly pay cycle. I never could get a handle on how to divvy out the money to pay the bills.

Do I divide the bills in half? Pay the mortgage with one check, and the rest with the other? And what about those two months out of the year with three paychecks? Bah! Too much thinking involved.

Here’s how I tried to automate the process awhile back. And here’s a post from my archives in 2008 where some readers shared this month-ahead system…wish I remembered this!

The solution: Live on last month’s income. See more about this brilliant tip on Jacob’s blog (of I Heart Budgets).

So, the money Shane received in May is going toward June expenses. The money he receives in June will go toward July’s. Let me break it down further:

  • I added up the total monthly fixed expenses: mortgage; gas & electric (fixed because we do budget billing and love it); internet; cell phones; health insurances; insurances…you get the idea.
  • Next, I added in a good amount to cover a month’s worth of groceries, gasoline and entertainment.
  • I added some extra for wiggle room

That’s it. That’s my monthly total.

So when a paycheck shows up, I immediately take out 10% gross and write a check for church and charity. The rest of it goes in an earmarked savings account for next month. When the second paycheck of the month arrives, I do the same, but I stop once I hit that monthly total amount. The surplus goes toward our current savings goal.

On the last day of the month, I look to see how much is left in checking. I transfer enough from the earmarked savings account to get me through the next month. So, if there’s leftover money in checking at the end of the month, it goes to the savings goal.

I have automated deposits going to our IRAs and 529s throughout the month.

This whole process has really taken the headache out of budgeting for me. It especially helps when Shane’s paycheck is a little late (it happens sometimes!). Also, it serves as an extra month’s worth of expenses for our emergency fund. If you are paid erratically, I think getting a month ahead could be a great move. No living paycheck-to-paycheck!

If you want to live on last month’s income and already have an emergency fund, you can take a month’s worth of expenses out of that e-fund and start that way.

Or, you could gradually save up a month’s worth of expenses — and if you’re paid bi-weekly you can use months with those third checks to make a lot of progress. Or, your tax refund or another windfall.

Does this process make sense? Do you implement something similar?

This post was included in the Carnival of Personal Finance #418 hosted by Financial Coach Adam Hagerman.



6 Responses to “Living on last month’s income”

  1. That’s a good idea. My husband is also paid biweekly, and budgeting is definitely tricky with that pay schedule. It seems like his paychecks always fall 2-3 days after the bills due dates, being prepared a month ahead would prevent us from last minute savings transfers.

  2. I also budget a month ahead! It’s such a life saver to have that extra cushion and we needed it when my husband suddenly lost his job a couple years ago. Rent still got paid and we still got fed. We switched back to paycheck to paycheck for a couple checks then forced ourselves back to the month ahead budget. I definitely recommend it!
    Alice @Earning My Two Cents´s last post ..I Got Paid!

  3. My husband and I are both paid bi-weekly. I have a spreadsheet that lists all the bills that I pay with the first pay check and all the bills that I pay with the second pay check. All the bills that are due early in the month, come out of the second paycheck of the previous month. So I guess instead of being a month ahead, I’m about 2 weeks ahead.

  4. I guess I’ve been doing something like this for awhile now also. Every month at the end of the month, I go through next month’s bills and pay them ahead, knowing what money I have in the bank already and not even thinking of what I’ll be making the next month.

    Unemployment has made it a little more interesting as I’ve had to get a little more creative as to how an income is generated through odd jobs and services while I try to find something full time, but this process still works wonders.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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