How do you make it from Payday to Payday

Before you can begin the practice of Pay Cheque Planning you need to develop a budget.

If you would like to create a budget, Budgeting Parts One to Four may be of some assistance to you:

What is Budgeting? Budgeting Part One
How do I Track Expenses? Budgeting Part Two
The Key to Budgeting! Budgeting Part Three
Develop Your Budget   Budgeting Part Four

Your budget  will help you identify what the resources are that you will have to work with on a monthly basis. The budget  is also a nice way to compile your expenses together in one place, if your budget  is complete with due dates for debts this will make your budget  a very handy tool.

For Pay Cheque Planning Purposes:

You need to figure out what your total living expenses are, to know what you will need to spend to cover those expenses.

If you do not know what these amounts are and you would like to figure them out Money Management Parts 1 to 3 may be of some assistance:

Part 1: Financial Goals, Needs, Wants
Part 2: Prioritize Who To Pay
Part 3: Pay Cheque Planning

Expenses are categorized according to four categories to help determine their importance and the priority to which they should be paid if you find yourself in financial difficulty.

The following four categories of monthly expenses are used by most Credit Counseling Services and are listed as:

• LIVING EXPENSES
• HOUSEHOLD EXPENSES
• WORK EXPENSES, and
• PERSONAL EXPENSES

Debt commitments are in addition to these four categories of expenses and include all loans; secured or unsecured, lines of credit, overdraft, car loans, payday loans, credit card bills, etc.

These debt amounts are then recorded according to their due date which corresponds to the appropriate pay date.

Purpose of Pay Cheque Planning is:

We need to know what our spending limits are for the payday period whether it be one week, every two weeks, monthly, bi-monthly as this is the time frame that will be used to determine what our planned spending will be.

How Pay Cheque Planning is done:

Pay Cheque Planning is like putting together a puzzle, you keep adding all of the pieces (which are your expenses) until the financial picture is clear.

In essence what you will do is determine your Net Income for the month and from this amount deduct all monthly expenses plus monthly debt payments.

Once the debt payments and monthly expenses are subtracted from your net income you can quickly determine what is left for saving, retirement, education planning, vacations, etc.

In order to be effective, pay cheque planning requires that you break your month up into pay periods:

For example:

WEEKLY PAY PERIODS would work like this:

You will need four columns with the following headings:

To begin the pay cheque planning process:

• look at your budget and start recording your expenses according to the due date
• start recording the first expense which is the mortgage or rent and place it under the appropriate heading depending on which pay period the payment is due.

Example:

If mortgage paid weekly; the weekly payment amount would appear under each heading,

if you pay mortgage bi-weekly the payment amount would appear under two columns dependent on their payment date.

If mortgage paid monthly the payment amount would appear under only one column.
Example: let's say your mortgage is due on the 1st therefore the payment would be listed under the heading 1st to the 7th.

Every expense in your budget would be recorded using the guidelines above. Next, record all of the debt commitments in the same way.

Once all expenses and debts are recorded, total all columns, then subtract these amounts from the income amounts for the same periods.

Using this tool you can also plan your spending, saving, retirement planning, etc., according to the amounts that are left over once all expenses and debt commitments have been met.

If you would like assistance with Pay Cheque Planning contact A Step Beyond.ca