What Should I Do With An Extra Paycheck?

This post is by Adam from Money Relationship. Check out how much debt he paid off last month.

I imagine many of you are like my wife and me. We get paid every two weeks. I get paid on Mondays and my wife gets paid on Wednesdays of the same week. So, that means we get 52 checks each for the entire year (combined). If you average those out per month, it is 4 checks every month except for 4 months where we get 5 checks. So, what should we do with the additional check in those months?

As it turns out, May is one of those months for us. I get an extra paycheck at the end of the month. Basically, we already spent the extra paycheck. My wife is going back for a graduate degree and we paid cash for the class that she is taking this summer. However, there are still a couple more months this year where it will happen again. Based on those facts, I came up with a few ideas of what to do with those extra paychecks. Feel free to mention some of your ideas in the comments!

Get Rid of Debt

Well, what did you expect me to say? ;-) For most of our extra paychecks, we are just going to put them on debt. It’s a great extra boost and can really help you gain some traction.

Save For Variable Expenses

We all have those variable expenses that seem to creep up on you at the wrong time. Those expenses can include car insurance, home insurance, taxes, gifts, etc. Placing your extra paychecks into a savings account specifically for those types of expenses will guarantee that they won’t surprise you when they become due.

Save For The Holidays

Have you ever wanted to pay for your Christmas gifts in all cash? Well here is your chance! Save those extra bucks specifically for this goal.

Just Spend It

This is the one that I do not recommend unless you are debt free. If you are, what’s wrong with a little splurge? How about that weekend getaway you have been dying to take? Want that new cell phone? Go and get it!

Open a Roth IRA

Use the extra cash to being (or continue) saving for retirement. The Roth IRA allows you to place after-tax money into an account that grows tax-free. That means when you retire you can take the money out and not pay a dime in taxes!

Go Back to School

This is something that my wife is doing. Her work pays for a part of it but we need to cover the costs up front. Using the extra cash to pay for the class ensures that we don’t go further into debt or rely on credit cards.

Save For a House

You could also use the extra paycheck to start a house fund. This will eventually be a goal for my wife and me but it is still a few years off. Heck, if you are debt free, you should also have a TON more money to set aside each month. We can’t wait until we get to that point!

* * *

Of course, all of this depends on your living only on two checks per month! What else can you think of?

Comments

  1. Save it for a rainy day. Saving money is important. You should be saving 10% and if you are not used to putting away 10% every pay day, then at least park those extra checks for a rainy day. One good idea if you are paid with an actual check is to hold on to it for some time. Let all those temptations settle

  2. It’s funny how it seems to work out perfectly. Our cat needed surgery and lo, it was a 5 paycheck month. We just went on a long weekend mini-babymoon and I received my last check from my previous job, alongside our normal checks. It’s great!

  3. Well, if you have any credit card debt, I would put all the money toward that. If you have extra money, you may want to put it toward your house fund. I am usually very pro-retirement savings, but I also believe in living for today. If you have a bit already saved for retirement and you are still renting, then I recommend saving for a home. Education is also a great idea, because that will most likely pay off huge in the long run.

    We don’t have any debt other than our mortgage, so I would probably do the following:
    1. Invest maybe 20 percent in stocks. I know this may sound crazy, but I would consider buying on this drop.
    2. Put 20 percent on my mortgage
    3. Put 20 percent toward vacation fund
    4. Put 40 percent in cash/emergency fund

    Enjoy that extra money!

  4. I’m in a similar situation, paid every two weeks. I just factor it into the monthly budget. I calculate my monthly pay (salary/12) and consider that my income. All of the expenses mentioned here (i.e. insurance, taxes, Christmas gifts, birthday parties, etc.) are line items on our monthly budget, and those funds are diverted monthly into separate accounts. Some are combined if they are related — i.e. we have a GIFTS accounts that includes birthday, Christmas, baby shower, etc.

    The only thing weird about this scenario is that you aren’t actually receiving all the money that your budget shows during the month. For example, if I were just budgeting based on two paychecks per month, I would have about $300 less per month, and then every 4 months I’d have a BIG raise of $1200 from the extra check. So I have to keep about $500 or so as a cushion in my main checking account, which I would do anyway in case I forget to put something in or just have bad math for a month. I still find it easier to do it this way though, rather than randomly throwing the extra check at something. It works either way.

  5. defintely for an emergency fund if you dont have one yet. im also a believe that if you dont have debt, just ignore those extra checks and continue living like they dont exist, just funnel them into your savings account and you will never even notice the extra cash

  6. I work things out in a similar way as Sid (above). Since the bills arrive monthly, I budget most of the bi-weekly paychecks into a monthly budget. What’s nice, however, is that since the checks and the monthly bills do not coincide, I eventually end up paying certain bills earlier and earlier in the month. After 5 or 6 months of this, I can actually ‘skip’ a few bill payments until the next month. I guess this is where we pick up an extra check.

    Most of the time this extra ‘found’ money is split between a few of the most urgent, time-sensitive budget categories (i.e., Prop. taxes due in Sept. or the end of a 0% cc promotion period).

  7. I get my ‘extra’ paychecks in July and December this year. I also get my annual bonus in December (hopefully). Since the only debt I have is my mortgage and I max out my employer matched investment account, it all goes into a savings/investment account speciaically targeted at paying off the mortgage.
    The reason it’s directed into an investment/savings acount is that I am currently paying 1.75% on my mortgage and can earn more than that by investing it vs. paying it directly to the mortgage. My mortgage rate is variable, so when the rate rises to the point where it exceeds my after tax return on the invested money, I will cash out the investments and put the lump sum down on the mortgage.

  8. I’m with Stephan I always run the budget on 2 checks per month and I even have bills assigned to 1st check and 2nd check since it sort of runs on the 1st of the month and 15th of the month system that was common in the past when I was growing up many adults talked about what had to be paid for by the 1st of the month or what could “wait” till the 15th.We have the calendar highlighted with which months have that quote extra check to help us plan.Some years it has been to pay for a project we wanted to get done like paint for the kitchen or new window boxes.Other years it was saved for a bigger goal or project and some years we earmarked it in addition to say a another amount of money that we have squirreled away for a special project or item for our house or family.

  9. Emergency fund or donate it. There is a lot of great organizations out there to sponsor, plus you can get a tax write off which is always a plus.

  10. I project my cash flow 12 months out and accompany that with a loose budget monitored with Mint. My extra paycheck months are reflected in a jump in my cash flow and are sent off to their various savings categories, which are split between routine obligations (property taxes, car insurance), house projects (kitchen renovation, landscaping), and fun stuff (vacations, new car fund).

  11. My husband and I live on a zero-based monthly budget that already includes retirement savings (401k, Roth IRA, pension, stocks, and an emergency fund), so all “extra” money from my extra two paychecks a year and our hobby jobs is divided up:

    50% Savings – Emergency Fund, Debt, or another Roth IRA (right now, car debt)
    25% Vacation Account
    12.5% to each of our Fun Money Accounts

  12. Most of the time this extra ‘found’ money is split between a few of the most urgent, time-sensitive budget categories (i.e., Prop. taxes due in Sept. or the end of a 0% cc promotion period).

  13. I always recommend any “extra” money like an additional paycheck, bonus, or tax refund-goes to paying down high interest rate debt. The sooner this is paid the easier monthly savings will be.
    Suzanne
    Social Media Specialist
    CareOne Debt Relief Services
    @AskCareOne

  14. We also get those “extra” paychecks. In the past, we’ve saved some of it, allocated some for special home projects, and gave some away to causes and ministries we’re passionate about.

  15. My husband and I live on a zero-based monthly budget that already includes retirement savings (401k, Roth IRA, pension, stocks, and an emergency fund), so all “extra” money from my extra two paychecks a year and our hobby jobs is divided up:

    50% Savings – Emergency Fund, Debt, or another Roth IRA (right now, car debt)
    25% Vacation Account
    12.5% to each of our Fun Money Accounts

  16. With each of those extra paychecks, I take out the spending cash (groceries, gas, entertainment, household stuff, etc) and for the rest of it, I either contribute it towards debt payments (now) or towards savings (at some point in the near future). I already account for everything (house fund, vet fund, property taxes, bills, Roth IRA, mortgage, etc) based upon a 24 paycheck year so this truly is just extra money for me.

  17. With each of those extra paychecks, I take out the spending cash (groceries, gas, entertainment, household stuff, etc) and for the rest of it, I either contribute it towards debt payments (now) or towards savings (at some point in the near future). I already account for everything (house fund, vet fund, property taxes, bills, Roth IRA, mortgage, etc) based upon a 24 paycheck year so this truly is just extra money for me.

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