Depending on how your paychecks and bill due dates line up, you may find yourself using most of one check to pay your rent (or mortgage) with one paycheck while paying the rest of your bills with the same paycheck. You need to squeezing and shifting money to pay all your bills and expenses. Stop always feeling behind and stressed.
The half payment budget method is a savings approach to help you set aside part of the upcoming bills from both paychecks you receive each month.
I figured out this method by accident when I bought my first house and haven’t stopped. In fact lumped all of my bills into this planning approach. I added all of my the bills that pay using this method. For example I don’t escrow my property taxes and while my mortgage is affordable, it’s not small. The planning using half payments keeps me on track to have the money available for my quarterly property tax payments without sweating.
If you’re not already a planner, following this savings 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 planning approach where you simply set aside half the amount of money for an upcoming bill from each paycheck. If you’re paid weekly, set aside a quarter of the bill amount instead.
Instead of paying a bill in full with money from your recent paycheck, you build a savings reserve by setting aside part of the upcoming bill.
As I’m sure you know very well, your bills and paycheck dates never line up nicely. By planning savings to cover your bills, you have a consistent cashflow to rather than draining your checking account.
One quick clarification: the half payment budget method is a savings approach to pay the bill on its regular due date. This is not suggesting to pay the bill in halves. If you want to pay your bills using partial payments, check with the company first. Some companies won’t take a partial payment. I prefer to wait until the actual due date because I keep the money in a high yield savings account to earn a few extra pennies of interest.
3 Steps to start planning with the half payment budget method
To get started with the half payment budget method, here are a few simple steps to follow. First you should round up all of your bills you pay each month and write down the amounts due.
1. For each bill amount, divide it in half.
Let’s start with your mortgage (or rent) . For example, if you pay $1,000 per month, you would need to set aside $500 from each paycheck (assuming you’re paid biweekly or bimonthly).
A $1,000 feels less overwhelming when you think about it when it’s split in half to $500 a check.
2. On each payday, transfer the money you plan to set aside to a separate account.
Keeping with the mortgage/rent example, move $500 each paycheck to a separate bank account account. This keeps your “earmarked” safe for the intended bill. You don’t want to accidentally spend the money you’re holding for mortgage/rent. This is exactly why I use a separate account to pay my mortgage.
To help me apply this planning approach to multiple bills, I use a bank that allows me to easily setup different savings accounts to stash my “earmarked” money. You may also see this referred to as sinking funds, especially for saved money to cover annual and semi-annual bills.
3. When it’s time to pay the bill, transfer the money back to your regular account and pay the bill.
Before the bill due date arrives, transfer the money back to your bill paying account and pay the bill. This may start to sound like too many steps and cumbersome, but once you get the hang of it the process will feel like second nature.
I use online bill payment to help keep me organized. I setup the bill to be paid the day before it’s due and schedule a transfer into my checking account to happen the day before. Aside from the occasional hiccup (human error), this works seamless for banks that send the payments electronically.
Tip: Make sure you pay attention to when the bank will deduct the money from your account to pay the bill. Setup the money transfer into that account to arrive the day before otherwise you may have an “insufficient funds” problem.
Another idea that keeps me on track with paying my bills on time, is 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 late payment hiccups and schedule the remaining balance payment for the day before the due date. I follow half payment budget method to gather the rest of the money for the balance. This allows me to pay my balances in full and avoid interest fees!
3 additional tips for using the half payment method
Over the years of doing this, I picked up a few additional tips to make this approach work better. When you’re first starting with a half payment budget pick one or two bills to manage first to see if it works for you.
The half payment budget method helps manage your cash. You still need to spend wisely.
While it’s referred to as a budget method, it’s more about managing your cashflow. If you spend more than you can pay for the month, the half payment method won’t help fix that. I fully admit I’m not great at budgeting, but I aim to not over spend each month without counting every dollar.
Setup separate accounts if your bank allows it, or find a different bank.
High yield savings accounts are a great way to manage the money set aside for each bill you need to pay. I prefer to keep the money in separate accounts so I can easily see how much money I have available for each bill.
Few banks allow you to open multiple accounts for free with low balances. Instead, check out Capital One 360 and Ally. Their online savings accounts, along with one of their checking accounts and online bill pay makes this feel like using electronic cash envelopes.
With the higher interest rates at these banks, you’ll probably receive a few extra interest pennies each month. Those extra pennies can really add up after awhile.
For utilities, I calculate the average monthly bill for the year to plan my savings
Your monthly utility bills change depending on the season. Your utility company may offer a “budget” payment where you pay a fixed amount. They calculate it based on your usage for the last 12 months. The reserves left over from a low cost summer month helps pay for a higher cost winter month.
Instead of paying extra money to the company, I figure out my own “budget” amount to set aside each paycheck. I’d rather earn the extra pennies on my money than have it sitting with the utility company.
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.
Wrapping up. Have you tried the half payment budget method?
I prefer to plan and not scramble to pay my bills. The half payment method has really helped me pay my bills in full and on time.
The three steps to get started with the half payment budget method include:
- Figuring out how much you need to set aside each paycheck by dividing the bill in half.
- Transferring money from each paycheck to a different account so that it stays “earmarked” for the intended bill.
- Scheduling the bill for payment and transferring money back to your bill payment account prior to payment.
Have you started trying this method? What additional questions do you have?
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