On the face of it, a half-payment budgeting solution seems like a disaster waiting to happen. However, it can be a solid strategy if you want to stretch your dollars. Here’s how it works.
Budgeting can be a difficult and, let’s face it, depressing process. Constantly being reminded of how much money you don’t have can make you want to raise your spirits by [ominous music here] spending money. However, if you don’t want to adopt a draconian budgeting approach, you may want to learn more about the half-payment budgeting method.
No – you don’t just pay half your bills and abandon the rest, because that would be insane. What the half-payment method does is effectively spread out your payments throughout the month so that you aren’t strapped after one pay period and flush with cash the next. Here’s how it works.
Half-Payment Method 101
Let’s say you earn $5,000 per month, with $2,500 direct-deposited into your account on the 1st of the month and the 15th. Your rent ($1,500), utilities ($125), and car payment ($650) are due between the 1st and the 15th. If you use the full payment method, this would leave you with $225 left over until your next pay period. You also have miscellaneous, fluctuating expenses, like gas, household items, and personal expenses, which you’d have to pay for with the remaining $225, and credit cards. You may be strapped until your next payday.
After the 15th, you have your credit card ($125) car insurance ($160), cable/internet ($150), and phone ($50) payments. Paying these in full would leave you with $2,015 until the next pay period.
Because the first half of the month left you with little money to tide you over until the next payday, you may have put more payments on your credit cards than was ideal. If you had emergency expenses, like car repair or medical bills, you could run up significant debt during this stretch. Additionally, when you have the $2,015 left over after the payday on the 15th, you may be more likely to spend that money unwisely, to reward yourself after a two-week austerity period.
The half-payment method, on the other hand, involves apportioning money more evenly throughout the course of the month. So – if you started your half-payment program on the 15th, when you had $2,015 left over after the second half of the monthly bills were paid, you’d set aside:
- $750 for the following month’s rent
- $62.50 for the following month’s utilities
- $325 for the following month’s car payments
- $62.50 for the following month’s credit card payments
- $80 for the following month’s car insurance
- $75 for the following month’s cable/internet
- $25 for the following month’s phone.
The grand total would be $1,380.
Continuing with the half-payment method would leave you $1,120 after setting aside half-funds for your fixed bills every pay period – giving you better insight into your monthly bank statement. By combining this strategy with a low-rate, high-reward credit card, like Brim Financial, you may be able to channel money into a savings or emergency fund, giving you better long-term security.