How to handle bi-weekly paychecks?

stevenb1291stevenb1291 Posts: 20Member
edited December 2009 in Desktop
Hello all!

So I am super excited to start using YNAB 3! I plan to start in January (using Gazelle budget until then).

We get paid biweekly (twice a year we have three paydays in one month; including January). What's the best way to handle this in YNAB 3? I really want to do a zero based budget and want to refrain from estimating our monthly income (I am salary; DW is hourly).

Can I just add our paychecks to our budget as we receive them? Or should I just estimate based on the previous month (what I do now)? If I do estimate, is it relatively painless to adjust the income in YNAB?

Please let me know what you other YNAB users do/suggest.

Thanks!

Steve
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Comments

  • PatzerPatzer Posts: 3,794Member, Beta Tester
    We get paid biweekly (twice a year we have three paydays in one month; including January). What's the best way to handle this in YNAB 3?

    Once you're living in compliance with Rule 1, you simply enter all paychecks as Income Available Next Month and it pretty much takes care of itself. Until then, you enter them as Income Available This Month, or split between the two income categories if you only need part of the income for this month's budget.
    Can I just add our paychecks to our budget as we receive them?

    This is the recommended method. Once you're living in compliance with Rule 1, it's simple and painless. If you don't yet have a buffer, it means you need to budget every paycheck. For example, you might budget half of your Rent/Mortgage out of the first paycheck you receive, and the other half out of the second one.
    Or should I just estimate based on the previous month (what I do now)? If I do estimate, is it relatively painless to adjust the income in YNAB?

    There are people who do this. It requires tracking real cash as well as projected budget numbers, in order to be sure you don't overspend. Adjusting the income is as simple as editing a transaction in the register, but you would also need to adjust the budget for the changed income. More to the point, the philosophy of budgeting with projections instead of cash in hand is a bit different. I'll have to let someone who actually does this speak to what kind of controls they use to ensure they don't spend ahead of their income.

    You might also be interested in a discussion of Rule 1 as compared to the DR baby e-fund. If so, take a look at this thread.

    Patzer
  • stevenb1291stevenb1291 Posts: 20Member
    Thanks Patzer! I was hoping you'd reply!

    I know this thread is moot once we have the buffer in place but I still appreciate the response. I plan to work on the buffer; it'll probably be slow but we'll get it done.

    Currently, we draw money for bills out of both paychecks so I will add our paychecks into YNAB as we get them until we build our buffer. I really love the idea of the buffer as it serves the dual purpose of providing peace of mind as well as making budgeting relatively simple and painless as you stated.
    or split between the two income categories if you only need part of the income for this month's budget.

    Could you explain this option in a little more depth if you have the time?

    Thanks!!!

    Steve
  • PatzerPatzer Posts: 3,794Member, Beta Tester
    Currently, we draw money for bills out of both paychecks so I will add our paychecks into YNAB as we get them until we build our buffer. I really love the idea of the buffer as it serves the dual purpose of providing peace of mind as well as making budgeting relatively simple and painless as you stated.
    or split between the two income categories if you only need part of the income for this month's budget.

    Could you explain this option in a little more depth if you have the time?

    Perhaps an example. This will be a bit simpler than your real situation, but extending it shouldn't be too difficult.

    Suppose you have a biweekly paycheck that is very predictably $1500. When you budget the first paycheck of the month, you're not able to fully fund all the budget categories you need. When you budget the second paycheck, you find that you only need $1400 to fully fund everything. So you go back to the register and change the category of that $1500 check from Income Available This Month to a split transaction with $1400 of Income Available This Month and $100 of Income Available Next Month. That's the first $100 toward your buffer. Note that in YNAB 3, you *could* accomplish this by simply not budgeting that last $100; but if you split the paycheck, you get to see that beautiful zero Available at the top of the page.

    Suppose in the second month you have a 3 paycheck month. You start with $100 in the Buffer. You add $1500 of Income Available This Month with the first paycheck, for $1600 total. If you still only need to budget $2900 in the second month, the second paycheck gets split to $1300 of Income Available This Month and $200 of Income Available Next Month. Then all $1500 in the third paycheck can be Income Available Next Month, and you have $1700 in the Buffer to start Month 3.

    Now in Month 3 (another 2 paycheck Month), you start with $1700 of a buffer and only need $2900, so your first paycheck is split to $1200 Income Available This Month and $300 Income Available Next Month. All $1500 of the second paycheck goes to Income Available Next Month, and you'll start Month 4 with $1800 in the Buffer.

    Your actual situation will be more complex, but the idea is the same. You use what you need as Income Available This Month, and record what you can as Income Available Next Month. When you get to the point where you don't need any Income Available This Month from your first paycheck to budget the current month, you have a full Buffer and are living in compliance with Rule 1.

    Patzer
  • JoelJoel Posts: 9,731Member, Beta Tester, Beta Moderator
    or split between the two income categories if you only need part of the income for this month's budget.

    Could you explain this option in a little more depth if you have the time?

    Thanks!!!

    Steve

    In response to that... here is what i would recommend:

    In a "normal" month you will receive 2 paychecks. (you will have two months were you receive 3 paychecks)

    Ideally, you should be able to live off those two paychecks during any given month, and when you receive the 3rd paycheck months, you can fund that to rainy day categories, etc. or, for example, you could use the 3rd paycheck in january and mark it as primary (available next month).

    I would personally try to switch one paycheck over at a time to primary. this way you could already have half a buffer with your january 3-paycheck month, and then try to slowly build up the rest of the money.

    Or the other option with splitting the primary/supplemental. You can just use the split transaction to mark a portion of your income as primary each month. Say you could start with $100 this month, and then next month mark $200 as primary, and continuing in that pattern until you are marking everything as primary (available next month)
  • stevenb1291stevenb1291 Posts: 20Member
    Patzer-

    Thanks for that link detailing the differences between DR's BEF and the buffer. A great read!

    Thanks for all your help guys!
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