Monthly Budget Stretch

by Gary Foreman

Dear Gary,
Our problem is that virtually ALL of our fixed expense bills come due at the beginning of the month. They all need to be paid at the same time. I'm a new stay at home mom - I worked full time for years and unfortunately, our family developed a pretty bad case of Affluenza.

Previously, we had no budget, paid bills when they came in and spent constantly without thinking about it, because my second paycheck basically covered all non-essentials. Now, we do have a budget, of sorts. We know how much our fixed expenses are and how much is left over. The problem is that we pay all the fixed items out of the first paycheck of the month and then have virtually nothing left to live on for two weeks until the next paycheck. This is really a struggle and we just don't know what to do about it. Any suggestions?
Lucy in Indiana

That's a good question! I bet that if everyone who has faced this problem raised their hands Lucy would have a lot of company. The problem is not just limited to single income families. A lot of us have expenses in line with our income. We just don't have the timing right.

The first problem we're faced with is that there's no margin for error in Lucy's budget. Suppose that there's an unexpected expense during the month. Say a doctor's visit or auto repair. That money will need to come from somewhere. Does it come from the last two weeks of the month? Add it to the credit card balance?

The long term (and most correct) solution for Lucy is that every budget should have some money set aside for the unexpected. You'll see recommendations for three months or six months. But let's face it, even a two week cushion is better than nothing.

But, what if you don't have that cushion today? What can Lucy do this month to help solve the problem? There's two ways to attack the problem. Either pull some of the income into the beginning of the month or delay some of the bills to the last half of the month.

First, let's see what we can do about delaying expenses. One strategy would be to use your credit cards to pay those bills. Please follow carefully because it's possible to do this wrong.

If you pay your credit card bill in full each month you have a grace period that can run up to 30 days. That's the time between when you make the charge to when payment is due to the credit card company.

It's possible that you can pay your electric (or other) bill by credit card on the first and not receive the bill from the card company until the fifteenth or twentieth. That would give you enough time to receive your second check of the month. Then that paycheck would be used to pay off the credit card company.

This is important. The strategy will not work if you carry a balance on your card. In that case you will be charged interest from the day you make the charge. If you don't pay the entire bill you may need to get a new card that will only be used for this purpose. You should also note that if you turn these bills into 'minimum monthly amount' payments you've just taken a big step toward trouble later on.

Another possibility is to shift the incoming bills a little. Many bills aren't due exactly on the first of the month. Some may not be due until the tenth. If that's the case don't send the check until the seventh. Then take a look at next month's bank statement and see when the check cleared your bank. It's possible that the money wasn't actually taken from your account until after the fifteenth. If you know that's the case you can really use your next paycheck to cover that bill.

A better option would be to pull the bills in a little. It's not always possible but if you could pay a December 1st bill on your November 15th paycheck it's like a small savings account. You'll have that much left over once the December 1st bills are paid. And the benefit keeps coming. You should have the same amount available at the end of December for the January 1st bill.

One solution that you'll want to avoid is 'overdraft protection'. Some banks are willing to cover a check that would bounce with a loan. But the fees and interest rates can make that very expensive borrowing. It's better to use credit cards if you have to borrow for a short time.

Now let's look at pulling our income forward. A couple of things may help. First, use direct deposit on your pay if it's available. That will eliminate the couple of days that the bank uses to clear your paycheck before your money is available.

Another possibility involves overtime. If you work overtime on a regular basis, try to work more so that it's paid in the first paycheck of the month.

Ultimately, the best solution is to have a few months savings available. That's not easy when you're trying to make a go on one income or have credit card balances. But if you can manage to save just a little you'll have solved this problem and also provided insurance for when the unexpected expense happens. Perhaps you get an extra check each quarter or a bonus at the end of the year. Use it to fund your savings.

Thanks to Lucy for a great question!

Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, and Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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