I’ve been waiting for January and I’m already looking forward to July! Budgeting nerds know why: in 2020, January and July are 3 paycheck months for many of us who get paid every other week. This is how I budget for a 3 paycheck month in 2 parts:

How we stopped depending on 26 paychecks. (This frugal blog post)
How I budget for a 3 paycheck month.

This post was updated for 2020. The breakdowns are based on 2019 but the info is all correct!

How to Budget for a 3 Paycheck Month: How We Stopped Depending on 26 Paychecks

Our budget doesn’t depend on 3 paycheck months.

I base our regular household budget on 24 paychecks instead of 26. It wasn’t always this way. When KC first started working with his current employer 14 years ago, we needed all 26 paychecks to make ends meet. For several years I didn’t use raises or bonuses to inflate our lifestyle—our mortgage payment at that time took more than 60% of KC’s take home pay so it took years just to feel not panicked over paying bills.

Once we could pay our bills with 26 paychecks and did not have to use uncertain windfalls like tax returns or bonuses to help us catch up, it was time to work on not needing 2 of the 26 paychecks for essentials.

It took years of incremental raises before we could live on 24 paychecks. While we waited for my husband’s 80-hour, white collar income to catch up with his previous part-time bartender pay (I’m not kidding, kids, a “real” job ain’t all it’s cracked up to be), I learned every frugal trick in the book. Read all of my frugal posts here.

Why did I want to live on just 24 paychecks if I was “under budget” using all 26 paychecks?

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Why did I want to live on just 24 paychecks if I was “under budget” using all 26 paychecks?

Reason #1: Vacations are good.

We were so used to never taking vacation days from years of working hourly jobs (no work = no pay) that it took years for us to start using KC’s vacation time at his salaried job. We wanted to use up his vacation days but we didn’t have money to spend on vacation, so he just skipped taking time off at all.

I wish I knew then what I know now: You can find a million free things to do in your own home town! Read all of our Free Things To Do in Phoenix with Kids posts here.”

Eventually, I needed to get out of the house, so we planned a quick trip to the San Diego Zoo for Jefferson’s 2nd birthday. That two-night trip was the first time we’d stayed at a hotel in three years. Even though it was a relatively inexpensive vacation (less than $500 including gas), all of the spending from that trip went on a credit card. Ugh. We needed breaks and vacations but we couldn’t afford them.

We wanted to budget for vacation but it didn’t seem like there was any way we could build a vacation fund with our tight budget.

Read my book Disneyland on a Budget: How Our Family Spends 30 Days a Year at Disneyland Without Breaking the Bank to learn how to build your vacation fund from $0 to Disney!

Reason #2: Budgeting with 26 checks is confusing—and a time suck.

Since we were living paycheck to paycheck at that time, my calendar was my constant companion. Budgeting with every-other-Friday paychecks meant I’d only pay the bills that would come due before we got paid again. I paid bills according to the biller’s schedule, not my schedule.

I didn’t have budget categories or holding funds for things like Christmas or car insurance, so anything not in the budget went on a credit card. Our “budget” was just a list of bills that had to be paid regularly, and that’s not a real budget at all.

We put all of our day-to-day spending on credit cards, but since I paid the cards down every two weeks when we got paid, I thought we “didn’t have” credit card debt. Occasionally the paycheck-to-paycheck game caught up with me, and I had to carry a balance on one or two credit cards. I’d pay off the credit cards whenever KC got a bonus, or with our tax refund, and go right back to paying bills according to the paycheck schedule.

Since we “didn’t have” credit card debt because windfalls always came in the nick of time to keep us from running a balance for too long, I thought our budget was pretty good. It was better than it used to be, but I still had to pay way too much attention to the budget—I checked all of my accounts every day because I was afraid that I’d forget a due date.

How I transitioned from 26 paychecks to 24 paychecks for budgeting.

It took about a year to wean our household budget off 26 paychecks and start living on 24 paychecks.

1. I used our part of our tax return to create some budget breathing room by holding on to it to pay next month’s bills early.

That was hard for me: setting money aside for next month’s budget instead of paying down the current credit card charges meant paying interest, and I hated paying interest!

But, having money set aside in my checking account waiting for the next batch of bills to come due felt wonderful, better than not paying interest.

I thought I was working a super tight budget before, but I tweaked our spending further and used any budget amount I skimmed off for that budget buffer.

2. To use 24 paychecks instead of 26 paychecks, cut 8% off your budget. (24 divided by 26 = 92%)

Here’s a basic example using $50,000 as take home pay:

I make $50,000 take home pay, so that’s $4167 per month. ($50,000 divided by 12 months.)

I get paid 26 times = $1923 per check = I live on $4167 per month = I live on 26 paychecks, which is 100% of my take home pay—and never get ahead.

I live on 24 paychecks = I live on $46,152 = I live on $3846 per month = still $1923 per check = I live on 92% of my take home pay instead of 100%.

But I still get to use that 8%: the extra 2 paychecks can go toward whatever I want—an emergency fund, investing, Christmas, whatever I want. I wanted vacations! So we use our 2 extra paychecks per year on vacations, without touching our “regular” budget.

Read all Disneyland on a Budget posts here!

Obviously, we spend paycheck money on vacations, but we don’t rely on the 2 paychecks earmarked for vacation in our regular household budget. After 11 years of doing this, it still feels like free, Found Money to me!

Read all Found Money posts here!

Since we don’t play catch up with our tax refund and bonuses anymore, we use those windfalls for whatever we want to as well. Two years ago all extra money went to our home down payment, rebuilding our 3 month emergency fund after we closed on the house, and buying furniture. Last year, we put most of the windfalls into the Greatest Family Roadtrip and still spent more than 30 days at Disneyland.

3. How to find that 8% in the budget to cut

Using the $50,000 annual take home pay example above, I’d get 26 checks, $1923 each. If I didn’t expect a windfall like a tax return or bonus to help transition to using only 24 paychecks, I could cut 8% off every paycheck and put it in a dedicated savings account.

Here’s a free $25 to get your vacation fund started when you open a free checking or savings account at Capital One with my link—or $50 if you open both.”

That’s $148 less I need to spend per check for one year (26 paychecks). At the end of the year, I’d have saved $3848, two full paychecks. Here are the places I’d look first if I wanted to cut my budget by 8%:

Paid kid activities. My kids are happiest when they can run around the neighborhood on afternoons and weekends with their friends—if they can find any friends playing outside, because most of the neighborhood kids are overscheduled with expensive activities. You could probably cut the entire 8% off your budget just by cutting one paid kid activity.

Grocery budget. Read all Grocery Budget Tracking posts here. Often, the busyness of kids’ activities leads to overspending on groceries for convenience, as detailed in this grocery budget post about the Stupid Tax I paid on fast food this month.

Shopping. At Christmas time I got in the habit of checking deal sites, but 99% of the deals aren’t on things our family needs (and that last 1% probably isn’t really a need either). I avoid looking at my “promotions” tab in Gmail, and I don’t check the deal sites. What I don’t know can’t hurt my budget.

Sell crap. What’s better than saving money? Making money. Make a goal to sell at least $148 worth of clutter (or whatever amount equals 8% of your take home pay) every 2 weeks and cut your budget—you can start living on 24 paychecks instead of 26 paychecks in just 6 months, and you will fully change your lifestyle within 1 year to live on 24 paychecks a year.

Read Part 2 here: How to budget for a 3-paycheck month, Part 2: How to adjust your budget

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