I’ve said this before, and I will say it again. I love budgets!

The feeling of being out of control with my money sends me into a tailspin. Budgeting helps me to regain a sense of control over my money.

Traditionally budgeting is based on the calendar month. If you are creating a budget for October your budget starts October 1st and ends on October 31st.

I personally prefer budgeting a month at a time.

But, traditional monthly budgeting does not work for everyone.

I often receive comments and questions from people who are frustrated with the traditional budgeting process. So, the problem with traditional monthly budgeting is that most people are not paid once per month. Instead, most of us get paid bi-weekly. At the same time, most bills are paid once per month, while other expenses such as groceries and gas for the car are purchases multiple times throughout the month.

Using a monthly budget when you are paid bi-weekly can create confusion with your cash flow. This is primarily because you do not have access to all of your cash at the top of the month. You may have a large bill, such as rent or mortgage due at the beginning of the month, but unless you have properly planned out your paychecks from the previous month you may find yourself short on cash to cover that large expense.


You may be falling prey to spending leaks that eat up your cash. Or, the “extra” cash leftover from your first bi-weekly paycheck should have been held in reserve (and added to money from the next check) to cover expenses that need to be paid later in the month.

Is paycheck budgeting right for you?

If you are new to budgeting, you may find it difficult to stick to the traditional one-month budget. The reality is that nearly three-quarters of Americans are living paycheck to paycheck and are one emergency away from financial ruin.

Disturbing (depressing even..) but true. 

But there is hope. The budgeting process itself can help you break the cycle of living paycheck to paycheck.

Before I started budgeting regularly I had moments where I felt out of control and panicked. I wondered where all of my hard-earned money was going and I lost sleep at night, worrying about my money.

Do get behind on your bills and struggle to keep up?

If so, paycheck budgeting can give you a greater sense of control over your money as a result of having a better understanding of your cash flow.

The ultimate goal is to get to the point where you are no longer living paycheck to paycheck.

How to Budget Paycheck to Paycheck

Tips to break the paycheck to paycheck cycle

  • Once you create your budget, stick to it.
  • Take advantage of unexpected money. You can use it to prepay bills in advance.
  • Start an emergency fund.
  • Leave a buffer in your checking account. A small surplus of money that stays (untouched) in your account to protect against low balances (and overdraft fees).
  • Develop sinking funds to save up for larger purchases. This will ensure that irregular purchases don’t wreck your budget or your cash flow.

How does paycheck budgeting work?

The key to successful paycheck budgeting is assigning every single expense to a specific paycheck or source of income.

Step 1. Figure out how much money you earn per paycheck. 

This should be easy. Just take a look at your previous month’s pay stubs or come up with an estimate based on the average number of hours you work. If you have a two-income household you will do the same for your spouse’s income.

Paycheck budgeting in action: Mike and Stacy are both paid bi-weekly.

For the upcoming month, both Mike and Stacy get paid on the 6th and the 20th.

Mike brings home approximately $1,300 per pay period after taxes.

Stacy brings home $1,200 per pay period after taxes.

Their combined take-home pay is $2,500 bi-weekly.

Step 2: Track your recurring monthly bills.

It is important to know when all of your bills are due and write them down on a calendar, planner, or spreadsheet. Be sure not to miss anything!

Examples of recurring monthly bills:

  • Mortgage/Rent
  • Cell phone
  • Utilities
  • Internet/Cable
  • Minimum payments on debts (credit card bills, student loan payments, car payment)

Paycheck budgeting in action: Mike and Stacy’s recurring monthly expenses are as follows:

Rent- $1400 due November 1st

Cell Phone- $120 due October 12th

Utilities- $250 due October 15th

Internet/Cable- $100 due October 18th

Car payment- $300 due October 12th

Student Loan payment- $300 due October 20th

Total Recurring Expenses: $2,470

Step 3: Next, budget for variable bi-weekly expenses. 

Bi-weekly expenses are not necessarily bills, rather they are purchases that need to be made throughout the month and can be split evenly between paychecks. I recommend considering setting aside this money in a cash envelope system.

Examples of variable bi-weekly expenses:

  • Groceries-e.g. if you spend $600 on average monthly, set aside $300 from each of your biweekly paychecks
  • Gas
  • Kid’s allowances
  • Personal spending money
  • Entertainment
  • Dining out

Paycheck budgeting in action: Mike and Stacy’s bi-weekly expenses are as follows:

Tithe & Offering to church- $600 per month ($300/paycheck)

Groceries- $500 per month ($250/paycheck)

Gas-$250 per month ($125/paycheck)

Personal spending money- $200 per month ($100/paycheck)

Entertainment-$100 per month ($50/paycheck)

Dining Out- $100 per month ($50/paycheck)

Dry Cleaning- $50 per month ($25/paycheck)

Total Bi-weekly expenses: $1800/month= $900/paycheck

Step 4. Budget for irregular expenses.

Irregular expenses vary from household to household and are paid once per year or intermittently. For example, my husband and I pay our car insurance once per year. To avoid being ‘surprised’ by this annual expense, I set aside money periodically throughout the year in a sinking fund to make sure that I have money available when the bill is due. Because these expenses are irregular it is necessary to save incrementally.

Let’s say you spend $1200 dollars for Christmas on average. Divide the annual amount by 26 (the number of paychecks you receive per year).

Based on these numbers you would need to set aside roughly $46 per pay period if you began saving in January. Irregular expenses have great potential to wreck your budget so spend a few moments on this step.

Irregular expenses may include:

  • Car insurance
  • Christmas spending
  • Vacation & Travel
  • Gifts
  • Car maintenance
  • Kids summer camp

Paycheck budgeting in action:  Mike and Stacy’s irregular expenses are as follows:

Car insurance: $1820/year=~ $70/paycheck

Christmas: $780/year=~$30/paycheck

Vacation & Travel: $1560/year=~ $60/paycheck

Gifts: $520/year=$20/paycheck

Car Maintenance: $1,300/year= ~$50/paycheck

Total Irregular Expenses (Sinking Funds)= $5,980/year=~$230/paycheck

Step 5: Assign each expense to a paycheck.  

Finally, pay close attention to due dates to ensure that money is available to pay the expense before it is due. If large monthly expenses cannot be paid with one paycheck, you may find it necessary to set aside cash from multiple paychecks. For example, your rent or mortgage is typically the largest expense and you may not be able to cover the cost from a single paycheck. Instead, you may need to set aside half from paycheck #1 and half from the next paycheck.

Paycheck budgeting in action:  Mike and Stacy’s cash flow looks like this:

Total Monthly Income for October: $5,000

Total Monthly Expenses for October: $4,730

Monthly Surplus: $270.00(Woohoo!)

Paycheck #1: $2500

Pay Date: October 6th

Expenses to be covered with Paycheck #1:

  • Cell Phone- $120 due October 12th
  • Car payment- $300 due October 12th
  • Utilities- $250 due October 15th
  • Internet/Cable- $100 due October 18th
  • Student Loan payment- $300 due October 20th
  • Bi-weekly Expenses- $900/paycheck
  • Irregular Expenses/Sinking Funds: $230/paycheck

Total Expenses: (Paycheck #1)- $2,200

Surplus: $300

Paycheck #2: $2,500

Pay Date: October 20th

Expenses to be covered with Paycheck #2:

  • Rent- $1400 due November 1st
  • Bi-weekly Expenses- $900
  • Irregular Expenses/Sinking Funds: $230/paycheck

Total Expenses:  (Paycheck #2)- $2,530


Because Mike and Stacy are projecting a deficit for Paycheck #2 they need to be sure to save some of the surplus from Paycheck #1. Remember, it’s not extra money!!

Alternatively, Mike and Stacy may choose to adjust some of the allocations for each paycheck to eliminate the shortage in paycheck #2.

Overall, Mike and Stacy still have a $270 monthly surplus! This is definitely a budget win.

Step 5: Give every remaining dollar a name.

If there is any money remaining after budgeting for all expenses, designate the surplus for a specific purpose based on your financial goals. If we don’t name every remaining dollar we are much more likely to blow the money on junk or stuff that we don’t need.

Ways to take advantage of surplus money:

  • Start an emergency fund or beef up an existing one
  • Accelerate debt pay off by making extra principal payments
  • Begin saving for retirement
  • Save for large purchases such as a car or a downpayment on a home

When creating your budget, if a deficit is projected (expenses exceed income), go back to steps 2 and 4 to see if you can scale back on any existing expenses. It’s not fun. However, in order to correct the deficit sacrifices need to be made. You don’t want to reach for the credit cards to cover the shortfall later.

What are your biggest budgeting challenges? What type of budget do you prefer?