Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
Bonus

Creative Commons License photo figure credit: solarnu

I’ve written about snowflaking here before as it relates to debt reduction, and I want to add another thought on the subject. As I discussed in a recent post, ScrapperMom got a raise AND missed a paycheck due to some personnel problems at the payroll service that her company uses. ScrapperMom gets paid bi-weekly, and when she missed her paycheck, the fix was to pay her for 3 weeks on the very next week, rather than for 4 weeks on her next regularly scheduled payday. The result of this was to shift her pay schedule by one week.

In making this shift, she ended up getting paid on the first of May, which sets up May to be a 3 paycheck month. As most people who get paid weekly or bi-weekly know, there are 4 or 2 “bonus” checks per year by virtue of the fact that there are really 13 months worth of weeks in a year (in the same way that a typical pregnancy is 10 months of weeks instead of 9…). Most of us understand that a month is 4 weeks, but a calendar month can be anywhere from 4 weeks (non leap year February) to 4.43 weeks (any 31 day month). Those extra fractions of a week per 30 or 31 day month add up to an extra “month” over the course of a year.

If you got this far, you may be thinking, “So what?” Well, so what is that most people are used to living on 4 weeks worth of paychecks per month, and that means that the “bonus” month worth of pay is just that: bonus. So what should you do with this bonus? Personally, we will be using all of our bonuses this year to reduce the balance on our car loan. Our debt reduction plan, as well as our budget, do not include these bonus paychecks. By applying them to debt reduction we will accelerate the payoff of our car. Later, these payments will snowball into paying off our final outstanding credit card, and later still into our savings goals.

By leaving these bonuses out of our monthly spending plan, we give ourselves a bit more breathing room if we need it and a faster route to getting out of debt.

Do you have a plan for your “bonus” checks? How will you spend it? Leave a comment below and let us know!

7 Responses to “Using a Twice Yearly Pay Bonus to Meet Your Goals”


  1. Chris Says:

    Unfortunately, I get paid monthly (and split into 8 checks), so I don’t have the luxury of breaking things down otherwise. The advantage is that my paychecks are larger than if I were paid more often, so if I have my budget correct, I can pay down bills earlier and save a bit on finance charges.


  2. MITBeta Says:

    Yeah, I get paid monthly myself, so I don’t get “bonus” checks. Do you get 8 checks to cover 12 months, or do you only get paid for 8 months of the year? If the former, that does give you a good opportunity to reduce debt faster.


  3. Chris Says:

    8 checks to cover 12 months, which is why I can save a bit on finance charges by paying down early.


  4. Rachel Says:

    I’m in this situation, and I really miss being paid monthly or bimonthly instead.

    Nonetheless… my plan is to ask my husband if we can pay equal amounts toward reducing our mortgage principal. If he says yes, great; if he says no I’ll add it to my kitchen renovation fund.


  5. MITBeta Says:

    Rachel:

    Thanks for stopping by. You may want to consider using any extra money to invest rather than pay down low interest debt, as discussed here:

    http://www.dontfeedthealligators.com/blog/invest-or-pay-down-low-interest-debt

    Certainly both an emotional and mathematical problem.


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