The Partial Payment Budget Method

Usually referred to as the half payment budget method, the partial payment budget method helps to avoid the pitfall of having more money leftover on one paycheck than on the next.  The method behind the partial payment budget system is saving for all of your bills for the upcoming month one payment at a time.

I don’t like the term “half payment” budget method because it assumes that everyone is paid twice per month. This isn’t always the case.  Many people are paid weekly, including myself. I wanted everyone to understand immediately that this method works no matter what your pay frequency.

Especially for people who live paycheck to paycheck, this method provides a solid sense of security and regularity to your finances.  It won’t necessarily take you off of living a paycheck-to-paycheck lifestyle. The only way to do that is to sock away 3-6 months’ worth of savings. But it’s a fantastic step in the right direction. It will help you understand exactly what your finances look like by making them consistent each paycheck.

Whether you’re paid twice a month (semi-monthly), every other week (biweekly), or even every week (weekly), this method works.

Sample Budget

To illustrate how this method works, I’m going to use this simplified sample budget:

Let’s say you are paid semi-monthly on the 15th and 30th of every month, and that your take home pay comes to $3,400 per month/$1,700 per paycheck.

Many people wonder why they have so much trouble making ends meet when they should have $840 left over to buy groceries, gas, and put money into savings.  Yet every month they struggle mightily.  This is probably because they’re paying their bills as they come due. The partial payment budget method teaches us to plan ahead and set equal parts of the money aside each month. Here’s the traditional way people would pay these bills:

Wow, that looks pretty good, right?  This leads you into a false sense of security, and you may end up spending a lot in the first half of your month thinking you have $1,440 to spend on clothes, eating out, outings, groceries, gas, hair, etc.  It does look good, until you see what the other half of the month’s bills look like:

Now we’re in a pickle, right?  You may have over-spent on the previous pay, or maybe you saved back $300 to cover your credit card and your cable but forgot to set money aside for the other two.  Perhaps you set aside $500 for your car loan but didn’t account for another $100.  Or even if you set aside $600 for the car loan and your cable bill, how are you going to buy groceries and gas for the half of the month when you don’t have extra funds?

It’s a lot harder to see how much you should be setting aside for bills when you’re paying them as they come due with the funds you have available today.

And sure, I see you saying, “That’s easy, just set aside $800 from your check on the 15th and you’ll be okay.”  Sure, that sounds great, but what if you’re paid biweekly or weekly rather than semi-monthly?  Your pay dates vary and the bills that come due will vary, making this much messier than it needs to be.

Enter the Partial Payment Budget Method

In this method, you’re planning a month ahead. Each month you’re saving up to cover your bills for the following month.  To illustrate what this looks like, we’ll use the same sample budget. But instead of paying our bills in real time, we’ll set aside money for all our bills for the month.  I’ll show you what this looks like on a semi-monthly check, a biweekly check, and a weekly check. 

If you’re paid semi-monthly or biweekly, you’ll divide your bills into two equal payments.  If you’re paid weekly, you’ll divide your bills into four equal payments.

Semi-Monthly Pay

Biweekly Pay

Weekly Pay

Just look at how predictable this all is.  Beautifully regular, isn’t it?  And I know that if I’m being paid twice per month that I’ll have $420 left over after every pay. That’s the money I use to cover expenses like groceries, gas, and savings; if I’m paid weekly, I know that I’ll have $210 per week for the same.

The beauty of this is that you can work your entire budget this way, or just use it for your biggest and most cumbersome bills.  I mainly use this for my rent and my debt payoff, which are my two greatest expenditures each month.

Starting the Partial Payment Budget Method

It does take some time to work over your budget this way. But once set up it’s very much worth it. Your budget will become a breeze to understand and very regular.  Everything will be extremely transparent, and your numbers won’t appear messy or confusing.

If you’re wondering how you get to a point where you can run your entire budget using this method, I suggest starting with the largest bill you can afford to set money aside for. Then only setting aside the amount you need for that, in advance, on your biggest check.  Or, you can select several smaller bills to start.  If your budget is really tight, you can start with just your smallest bill and work your way up.

If you’re fortunate enough to earn pay weekly or biweekly, you may wish to kick-start your partial payment budget method using your fifth or third payment in a given month.  I call this my “extra” check. It’s the odd check I get about once per quarter that is the fifth Friday of the month.  If you’re paid biweekly, this will happen about twice per year and will be a third check you receive at the end of a month.

Unfortunately, if you’re paid semi-monthly, there are no shortcuts you can take. But if you work one bill at a time starting with the paycheck where you have the most money left over, you can make this work. I promise.

Tips for Making the Partial Payment Budget Method Work for You

You’ll want to set your money for the upcoming month into a separate account from your usual checking or savings account.  This should be an account dedicated to bills only. You should funnel money into it regularly until you’re ready to pay the bill with it.

If you’re starting with, for example, just your water bill of $40, you wait until it has $40 in the account and then you pay the water bill out of that account.  Don’t confuse yourself by setting aside money for the cable bill and then using it to pay the power bill.

If it helps, you can always set up many savings accounts, one for each bill.  Many online banks have the ability to let you set up almost unlimited savings accounts (I use Capital One 360 myself), and you can assign one account to each bill until you’re fully moved over to the new system.  Cash envelopes work well for this too, but may make it hard to pay bills that you pay online.

And that’s it!  It’s a fantastic system that I use myself in order to organize my finances.  The peace of mind you’ll get from operating your finances this way is unparalleled by any other budget method, especially if you live paycheck to paycheck.

Let me know in the comments below if you use a different method or a variation on this method.

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