July was an exciting month for many reasons— warm weather, long holiday weekend, but one of the most exciting things for me was that it was a three paycheck month!
For those of us that get paid on a bi-weekly basis, there are a few months throughout the year where we get three direct deposits instead of the normal two. The question is what to do with the extra cash?
How I Split My Three Paychecks
Below is a breakdown of what I did with each paycheck:
Paycheck 1:
- Saved towards “Opportunity fund”
Paycheck 2:
- Paid July bills (credit card, utilities)
- Paid for part of August rent
Paycheck 3:
- Paid rest of August rent
- Invested $200 towards Roth IRA
- Saved remainder towards “Opportunity fund”
Paycheck #1 was dedicated entirely to saving. This is what I treated as my “extra paycheck”. Usually, I am not able to dedicate an entire paycheck to saving and investing.
Paycheck #2 and #3 were used in a very similar way to how I usually allocate my direct deposits.
Note: I also contribute pre-tax money towards my 401(k) each month, but here I am specifically discussing how I allocate the money that directly gets deposited into my bank account.
Don’t Spend More Than You Usually Do
The reason I was able to save an entire paycheck is because I decided not to spend any more money this month than usual. This is the #1 rule of wealth building— increase income and keep expenses constant. This rule should apply even if there is only a monthly income boost like having three paychecks instead of two!
Because I know how to live off of two paychecks, when I got an extra one this month, I was able to save the whole thing.
Make Progress on Big Goals
My goal is to grow my opportunity fund to $20,000 by next May. Currently, I’m planning on using this cash towards a downpayment on an investment property.
The whole idea of this fund is that it is a store of liquid funds that I can use to invest in myself in the short term. If my plans change, this fund can also go towards starting a different business, getting more education, or buying assets like more index funds (this would be a good option if we see another market dip).
Since this goal is so big, any large lump sum I can put toward it will help immensely in making progress towards reaching it.
In general, an extra paycheck can be a great tool to use to make progress on a bit investing, saving or debt paydown goal.