Bonus paychecks can get you into the buff(er)

Brian J. O’Connor

I’ve got a number of good financial reasons to celebrate here in August. First, my boy, Funny Money Jr. or, as I call him, Li’l Money (’cuz that all he leaves me) will soon return to school, ending his constant and costly assault on America’s strategic lemonade reserve.

Second, it means boating season soon will soon end aboard the Funny Money family yacht, the SS MoneyPit. It’s often said that a boat is nothing more than a hole in the water into which you throw hundred-dollar bills. I can say that is absolutely NOT true — you will never get anywhere NEAR that close to the water.

But relief comes this Friday: August is one of those months where, if you’re paid weekly, you get five paychecks instead of the usual four; if you’re paid biweekly, it’s three checks instead of two. Some people call it a “bonus month,” but I call it, “One of those months when we eat something besides chicken.”

Get tougher — build a buffer

Ordinarily, the temptation would be to use the extra dough for back-to-school shopping, such as a mink-lined backpack for Li’l Money, or an end-of-summer binge on mental health services for his mother. It’s more prudent — and typical — to use this kind of bonus to bolster your emergency fund, pay down debt or add to a retirement fund.

That’s good, but consider a more strategic approach: building a one-month budget buffer. If you build your household budget around a typical four-paycheck or two-paycheck month, putting Friday’s bonus check toward September’s household bills can get you started on building some breathing room into your budget. Stick to that approach with a few more bonus checks — you get four a year if you’re paid weekly, two if paid semi-weekly — and you can get to the very comfortable position of having enough cash on hand to pay all of next month’s bills with this month’s paychecks.

That kind of buffer means you don’t have the hassle of timing what bill gets paid after which payday, avoids bounced checks and missed payments, gives you the luxury of budgeting for an entire month all at once, and cushions you against financial surprises.

If, for example, you end up with your third unexpected major repair to a boat you bought during a bout of temporary financial insanity, having a one-month buffer allows you to adjust other spending and, to use a nautical metaphor, keep things on an even fiscal keel. (The “keel” is what us boating types call our cup-holders.)

Looking to buff up?

To build a buffer, folks who get paid every two weeks should put Friday’s check toward their September bills. That leaves you one check ahead of each month’s bills. When you get to the next bonus month in January, stick with a two-check per month budget, and your last two checks of that month can cover all your February expenses.

For anyone paid weekly, stick with a four-paycheck budget, and you’ll gain a week on next month’s bills this month, followed by the five-check months of November, January and May. Then your last four May checks will cover all your April bills.

Keep it up, and in another 12 months you can be two months ahead. With that kind of buffer you’ll be able to start saving for something special — like a boat. And I know just the guy willing to sell one.

Brian O’Connor is author of the award-winning book, “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.”

(313) 222-2145

Twitter: @BrianOCTweet