Most lower income earners recieved bi-weekly pay cheques, so typically get paid twice a month. Most of the year we use these to cover all of our expenses and try our best to stay on top of things as best as we can. But about twice a year the stars align and we get a third pay day right at the end of the month. So what are the best ways to use this extra pay cheque?
This day happens to be today for me. When I see three pay months on the calendar I start day dreaming about what glorious luxuries I can treat myself with when I am blessed with my extra riches. And I love a good lottery daydream as much as the next person, but let’s get real. I actually need that money to catch up, create a cushion and move closer to my goals.
So how do I really use an extra paycheque? It depends what stage I’m on in my financial journey.
1. Get caught up
If you’ve fallen behind on any bills, this is your best chance to catch up. Start with anything you are behind on, like a power or phone bill, and get it up to date. If your bank account is in overdraft, this is the time to leave the money there and make $0 your new minimum. This makes it a little easier to stay on top of expenses going forward.
2. Get on top
I never pay a bill before I receive it, because I like to make sure I haven’t been over billed for any service. But I do pay my bills as soon as I get them. There are two reasons.
A. Once it’s out of pocket it’s out of mind. I don’t have to worry about due dates or keeping money in my account so it’s a weight off my shoulders.
B. If I get a larger than usually bill, like an oil tank fill up, I have 2 pay cycles to make sure it’s fully paid. If you usually pay your bills on their due date, you may not have enough left from the last pay to cover an unexpected expense on top of your regular ones.
So if you have any bills that you’re waiting to pay, this is the best time to change your cycle and pay them right away.
3. Stock up on sales
The cost of food and household essentials is rising and filling your fridge with full priced items twice a month makes every meal more expensive. An extra pay cheque is a great chance to check the flyers with the Flipp app and buy extras of things you go through frequently if they are on sale. This is always a great idea, but if your budget is tight a few extra packs of meat for the freezer might not always be possible.
Some of the things I stock up on are dish and laundry soap, peanut butter, condiments and other shelf stable products. I work with my limited freezer space to store meat in serving sized packages, bread and veggies. You can check out my post about my investment history here. If the other 4 points are complete, and you have an emergency fund saved, it’s time to put your money to work
Extra food stores are sure to stretch your usual budget, leaving you extra to continue stocking up for months to come.
4. Tackle your debt
I know this one isn’t much fun, because you get nothing tangible from paying off loans or credit cards. You already spent that money, and now it’s time to give it back.
I can’t stress enough how rewarding debt paying can actually be. Making minimum payments will get you nowhere at all, but putting large chunks of cash towards a balance immediately pays off. You will be charged less interest on your next bill, which means that every future month more of your payment goes to your principle debt, lowering the interest again in turn.
Additionally, I’ve found that seeing the balance go down dramatically motivated me to keep putting large chunks towards debt. This is exactly what took me from $19000 in credit card debt to now only $2000 in 16 months!
And if being debt free isn’t enough, paying off debt will help increase your credit score. A good score can help you qualify for a mortgage, get lower interest rates on loans you do need and increase your chances of getting certain jobs, rentals and more. It’s win win win!
5. Get closer to your goals
What financial goal is most important to you? What are you saving up for? How can you get one step closer to your dream? It might be a down payment on a home, a new vehicle paid in cash, or paying for school for you or your kids. Whatever it is, these extra pays are a great way to boost your savings and get you much closer to your goals.
6. Invest it
You can check out my post about my investment history here. Investing is a great way to put your money to work, so it can start generating more money for you. There are plenty of different ways to invest from brokers to stock picking, but Wealthsimple is an easy and affordable way to get started. This is definitely best for long term savings such as retirement. It is never too early or too late to put money away for your senior years.
3 pay months are not the only times when you might have some extra money to make decisions with. If you get a tax refund, inheritance or extra money due to Covid for example, you have a great chance to make a responsible choice regarding how that money is best spent. These unbudgeted amounts can make a big difference in your finances for weeks, months or even years to come!
How did I spend my extra pay cheque?
My mortgage payments automatically come out of my account on every pay day, allowing me to pay my mortgage off a little quicker. So after that, $600 goes to my credit card, leaving my new balance at $2000!!! I am so close I can taste debt freedom! What would you do to celebrate paying off $19,000 in debt? Leave me a suggestion in the comments. I can’t wait to tell you all about it.