Updated on 05.06.07

Handling Biweekly Pay Periods: What To Do During Those “Three Check” Months

Trent Hamm

calendarAt one point in my life, I was on a biweekly pay period schedule that occasionally caused me to be paid three times in a month. Of course, at that time in my life, I was an utter fool and I would spend the money on a big splurge, like, say, a weekend trip to Chicago with four friends in which we stayed in a huge suite and also had box seats at Wrigley Field.

At the time, I thought that I was having a great time and making memories for a lifetime, but when I look back on things like that, I just shake my head and wish I had it to do over again. The best part of the experience was spending time with friends, not dropping almost a thousand a night on a hotel room and watching a paycheck that could have been building my future flutter away into the night. That third paycheck in the month could have been something to build a foundation with – instead, I used it extremely poorly, something that I began to regret even before my financial meltdown.

Along thise lines, a reader sent in this interesting question recently:

Like many others who are on a bi-weekly pay period, I have three pay periods coming up in June. Any suggestions on a strategy for best utilizing this occurrence?

Here are the options I would recommend, starting with the best choice.

Pay off debts This is really only effective if it comes with a commitment to eliminate debt, but if you truly are committed to eliminating debt, using the third paycheck solely as a debt elimination tool is the best option. This is especially true for high-interest consumer debt. Use the check to pay off the higest interest debts you have and make a commitment to avoid credit card debt and other consumer debt.

Create an emergency fund An emergency fund is a wonderful thing to have because it protects you against the unexpected: a car breakdown, a washing machine replacement, a job loss, and so on. In essence, just take the check, toss it into a high-interest savings account, and wait for a rainy day to use it – it can transform a disaster into a mild discomfort.

Invest it This is a great option if you have a long term goal. Put the money into an index fund and just forget about it until you need it. It will ride the market until you need it in ten or fifteen or twenty years, whenever you’re ready to spend it.

Save it On the other hand, if you have a clearly defined medium term goal (like buying a car), it would be worthwhile to save it for that purpose. Put it into a savings account and wait until you’re ready to make the move.

Spend it on capital improvements This means investing it on some sort of home improvement project, something that holds value. Repaint a room, have some new siding installed, or something that improves the value of something that you own. This won’t help much in the now, but it will help in the long run.

There’s also the option of donating it to charity, but this option is highly dependent on your own personal values.

The worst option, from a personal finance standpoint, is simply spending it on something fun and immediate, but there are other perspectives to consider and money spent on fun stuff if you have your financial bases covered can be well worth it.

In short, what you should do with that check depends on what your financial state is like. Spend some time considering what to do with it – just don’t spend it on something that will fall through your fingers like sand.

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  1. js says:

    I agree, next time I’m going to invest it. Although if I owned property the capital improvements might be first priority.

    The last time …. the last time the entire 3rd paycheck I got in March, every last penny and then some, went to the IRS and the franchise tax board of the state of CA. Even though it seems I withhold a ton for taxes (When I get a raise, over 41% is withheld for taxes of various sorts), I guess I’m underwithholding. I guess I could have budgeted for that every month, but since I had to pay it anyway, might as well use the 3rd paycheck.

  2. mella says:

    Ironically, mine will be paying for a trip to Chicago…but also an investment in my future, since the purpose of the trip will be job hunting and other preparations for my move there later this year (and Wrigley Field won’t figure into the equation at all). If it weren’t for that, it would go into efund and mid-term savings.

  3. Cindy says:

    We’ve had to deplete a lot from our home improvement & emergency funds this past year – replaced furnace, replaced water heater, and had work done on two chimneys. The 3rd paycheck this month will go to replenish these savings. It’s great to have these funds in savings as we didn’t incur any debt having all this work done!

  4. icup says:

    since I get paid monthly, can someone explain how this money is extra money? isn’t it just part of your normal salary? Like if you are making $45000 a year, and you win $1K in the lottery, that’s extra. getting your ‘extra’ paycheck in june is still 1/26th of your yearly salary like you always get every other week.

  5. Mitch says:

    Icup, you are correct, but most bills are monthly, so it is pretty natural to think of one month as being worth two paychecks. Yes, you can spread out your expenses over 26 checks instead of 24 (pay extra into savings during the three paycheck months, pay less into savings or even withdraw a little on two paycheck months), you just have to want to commit to taking care of the numbers.

    Example of how “extras” worked for me at my old job: first paycheck paid a month’s rent (plus a chunk into savings). Second paycheck paid that month’s utility/grocery bills (plus a chunk into savings). Occasional third would go for some longer term things that were pushed off (e.g. insurance, taxes), and maybe a treat, plus the usual chunk into savings. It made things pretty straightforward for me.

  6. Robert says:

    Like the first poster, Uncle Sam took the majority of my third check of March. Initially, I used the emergency fund option and put it into a savings account. But sadly it only remained there for a week because I pulled it out for taxes. But then again, that is what it was there for.

    Unless you already have a well stocked emergency fund (I’m going for 4 months expenses), I would recommend that option. But that kind of emergency fund is more of a medium term goal. Either way you look at it, save or invest it.


    Budgeting concerns. My wife and I decided to budget as if I got paid twice a month instead of every 2 weeks. So as far as our budget and finances are concerned, the 2 extra checks are just that – extra. They are not extra to my company, but my company is not the one that makes the budget for me.

  7. Cheryl says:

    Thanks for the tips, I have been wrestling with what to do with my 3rd paycheck next month!

  8. js says:

    Yes it’s part of your normal salary, just that most of the time you tend to live as if you get paid less.

    By the way, I really don’t like the every other week paycheck thing. I remember when I got paid twice a month instead. I felt much richer, because I had more money every single month, rather than waiting for the twice a year windfalls (that’s also more money to save every single month rather than waiting for a windfall to save. Objectively it may be all the same. Subjectively, it gives one a greater sense of making savings progress).

    It feels like a scheme for employers to defer paying you (it seems to me that if they switch over to such a plan when it’s 5 months away from one of the “3 paycheck” months, it really and truely *IS* a scheme for employers to defer paying you). Still it’s all perfectly above board, it evens out over time, and you’re still getting paid your same old salary, the feeling of taking a pay cut is largely an illusion, but feels very real.

  9. vh says:

    My employer, Arizona State University, is switching from bimonthly to biweekly pay in July. For me, it will mean a $220 a month cut in pay ten months out of every twelve! The SOBs then have the effrontery to tell us that because of those two “extra” checks, it’s “not a pay cut.” Well, it certainly is–if you have $220 a month less to live on, it looks like a pay cut, it smells like a pay cut, and it walks like a pay cut. Our first three-paycheck month does not occur until February of 2008. I mapped out these checks on a calendar and found we will get paid 2/15, 2/29, and 3/14/2008. The “extra” check occurs on 2/29. But that scrawny 2/15 check will not cover most folks’ expenses until 3/14, an entire month. Thus my initial scheme to regard the new system as enforced savings of $220 a month and to put the extra check in my Roth IRA is out the window. I will need that money to live on.

    Meanwhile, those “extra” checks ASU will kindly pay us twice a year represent $220 a month the university gets to hold in its coffers to collect interest, rather than earned pay in my pocket to buy groceries and cover utility bills. Multiply that by several thousand employees and you get a clue to how outrageously unfair this payment system is–and why employers love it.

    Eighteen months ago, the legislature increased state employees’ pay, across the board, by 6.2%, recognizing that pay for Arizona state jobs is so abysmal it is difficult for government offices to hire and retain quality employees. This “pay cut that is not a pay cut” will reduce my net income to LESS than what it was before the vaunted increase! I have cut out my health insurance and, because I am disabled and can park in metered city parking for free, dumped my $550/year parking sticker (meaning I had to buy a $200 mobility gadget to get from the distant parking to my office–but it’ll save $350 this year and more as parking goes up to $660 next year and $770 the following year), but STILL my take-home pay will drop significantly.

    I’m looking for a new job.

  10. steve says:

    Hi, VH. It sure sounds like you are mad about this. But I think if you look more closely at it, you are not getting ripped off at all.

    What Trent was talking about was that he got used to existing on two paychecks per month, so that when he had the occasional “third” paycheck, it looked like a “bonus”. In fact, this was just an artifact of how he was getting paid and how he “perceived” his pay. If he had looked at it as getting paid an average amount per week, the third paycheck would not have made a difference to him. But because he was thinking “I get paid $x twice per month,” the 3rd check looked like a bonus.

    You’re in the following related situation: Your employer is switching you from getting 1/12 of your annual pay per month (for 12 months) to getting 2/26 of your annual pay every two weeks for 13 pay periods that add up to one year.

    It all adds up to the same amount: 1/12 x 12=1, and 2/26 x 13 =1. In both cases, you are getting 100% of the money you are owed.
    Although the timing and the amounts of the individual paychecks will differ, if you add up all the pay checks under the new scheme, you will get the same total pay as under the old scheme.

    Best Wishes.

  11. Steve Rial says:

    Hello, I’m in the process of creating a web site to help people budget their money and was doing some research when I found this great article. Right off, thank you for your excellent article.

    The problem with bi-weekly pay that I’m finding is that it makes it extremely hard to make work with a budget. Although, as others have pointed out, $60M a year pay will total out to be the same no matter how you’re paid, that’s not really true. Most people are paid on Fridays. The number of Friday’s varies from year to year. Most have 52, but 2012 has 53. Not that it’s a big issue but, your yearly pay can vary.

    The next issue is, some months have 4 fridays, some have 5. People paid bi-weekly will get paid twice a month or three times. One month you may be paid the first week of the month when most bills are due, other months your first paycheck won’t be until the second week. Some said “Bank the 3rd one” but that’s not really a viable solution for many, they need every penny they get to keep things rolling in their household. From June 1st this year till June 1st the next, there are 4 months with 5 Fridays.

    I think people pretty much know what their bills are and what week they have to pay them. I’m not so sure they put aside money for periodic expense i.e. (car insurance…) and saving or investing. For them, the ultimate question for budgeting bi-weekly pay and making sure they bank the right amount of money for future stuff is “What do I really have available each week after paying my bills, saving for my future and putting aside money for periodic items that come up?” When you put this down on a spreadsheet which many people use, it is one cryptic chunk of math. Some periods you can budget for 4 week interval, some 6 and some must go up to 8 week intervals in order to limit your spending to assure yourself you don’t get caught short during a given week.

    For people that are paid weekly, twice a month or monthly none of this is really an issue.

    My Regards To All.

  12. Robert says:

    My question is related to insurance. I get paid bi-weekly and insurance is supposed to only be taken out twice a month. When the third check lands, you aren’t supposed to pay insurance 3x that month.

    For some reason last month was this month and dental wasn’t taken out but every other type of insurance was. Is this wrong and should I be checking into this more?

  13. WOW just what I was searching for. Came here by searching for minnesota lawyers conflict

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