If you’re scrambling each month to cover your bills because your paychecks and bill due dates don’t match up, try setting aside money using the half payment budget method. This approach helps give you breathing room in your cash-flow to cover your expenses.
Depending on how your paychecks and bill due dates line up, you may find yourself trying to pay your rent (or mortgage) with one paycheck while paying the rest of your bills with the same paycheck. That doesn’t leave much room for your expenses (or in some cases paying all your bills).
Instead, the half payment budget method is a savings approach to help you spread out the cost of the bill over both paychecks in the month.
I first started using this method when I bought my first house, and haven’t stopped. For example I don’t escrow my property taxes and while my mortgage is affordable, it’s not small. This approach helps keep me on track to pay my quarterly property taxes without sweating.
If you’re a savings planner like me, this approach immediately takes the stress out of paying bills. And if you’re not already a planner, this following this method will give you a sense of security that the money is already on-hand to cover the bills when they are date.
What is the half payment budget method
The half payment budget method is simply setting aside half the amount of money you need to pay on an upcoming bill with each paycheck. If you’re paid weekly, set aside a quarter of the bill amount instead.
Instead of trying to pay a bill in full with the money from your most recent paycheck, you build a savings reserve in advance. As you know all too well, the bills and paychecks never quite line up.
You can be more consistent in managing the cash in your paycheck by setting aside the money in halves rather than draining your checking account.
One quick thing to note, this is an approach of saving money to the pay the bill when it’s due. It’s not sending half the money owed each paycheck. Most companies won’t take a partial payment. Double check with the company you need to pay if making multiple payments would work better for you. I prefer to hold off paying the bill until it’s due, because I keep the money in a high yield savings account to earn a few extra pennies of interest instead.
3 Steps to get started with the half payment budget method
To get started there are a few simple steps to follow to setup the half payment method. Start with rounding up all the bills you need to pay in a month.
1. Take the amount due and divide it in half.
Let’s start with your mortgage (or rent) . If pay $1,000 per month, set aside $500 each paycheck (assuming you’re paid biweekly or bimonthly). That number feels much less overwhelming when it’s split in half.
2. When each paycheck arrives, transfer that amount of money to a separate account than the one you use to pay your bills.
Keeping with the mortgage/rent example, move $500 each paycheck to a separate savings account. This is so that the money stays “earmarked” for the intended bill. You don’t want to accidentally spend the money you’re saving.
I setup my accounts at a bank that allows me to have multiple savings accounts to make it easier to “earmark” the money for different bills. You may also see this referred to as sinking funds.
3. When it’s time to pay the bill, transfer the money back to your regular account and pay the bill.
I setup on the online bill payment to be paid the day before it’s due. This usually works seamlessly for bills the bank will send electronically. And then I setup a money transfer to move between the accounts the day before the bill is electronically paid.
This may feel a bit cumbersome at first, but once you get the hang of it, it starts to feel like second nature. What I also like about this method is that I schedule the payment when I receive the bill, but don’t actually send the money until it’s due.
For credit cards, I pay the minimum immediately to avoid any hiccups and then follow half payment budget method to gather the rest of the money for the payment. This allows me to pay my balances in full and avoid interest fees!
Tips for using the half payment method
Over the years of doing this, I now have a few additional tips for making the approach work better. As this is likely a new approach for you to manage your money so pick a bill a or two try this first to see if it works for you.
The half payment budget method helps manage your cash. You still want to spend wisely.
While it’s referred to as a budget method, it’s more about managing your cash flow. If you spend more than you can pay for the month, the half payment method won’t help fix that. For myself, I’m not great at budgeting per say, but I aim to keep manage my expenses without counting every dollar spent.
Setup separate accounts if your bank allows it, or use a different bank.
High yield savings accounts are a great way to manage the money saved for each bill. I prefer to keep the money in separate accounts so I can easily see how much money I have available for each bill.
Not all banks allow you to open multiple accounts for free and keep them at low balances. Check out Capital One 360 and Ally. Their online savings accounts, along with a checking account and online bill pay makes this much easier than it may sound.
And the bonus here is that you may receive a higher interest rate than your current bank. Those extra pennies add up after awhile.
For utilities, I figure out the average monthly bill for the year and save based on half of that
Your monthly utility bills likely fluctuate depending on the season. Some utility companies offer a “budget” approach where you pay a fixed amount based on your average bill for the last 12 months. Instead of paying that to the company, I come up with my own “budget” amount to save each paycheck. The reserves left over from the lower cost months help pay for the high cost months.
For example if you save $25 each paycheck for your gas bill, in some months you’ll have money left over to pay for the expensive months. A low cost summer month helps save for the higher cost winter months.
Over to you. Have you tried the half payment budget method?
As someone that likes to plan and not scramble to pay my bills, the half payment method has been really helpful paying my bills in full and on time. As a reminder, three steps to get started with the half payment budget method include:
- Figure out how much you need to set aside each paycheck by dividing the bill in half.
- Each paycheck transfer the money to a different account so that it stays “earmarked” for the intended bill.
- Schedule the bill for payment and transfer money back to your bill payment account prior to payment.
What additional questions do you have? Have you tried this method?
Looking for more tips to help you save money?
- One quick tip to use up your flexible spending account
- How to use sinking funds to reduce bill paying stress
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