I overheard a conversation recently about how someone was looking forward to payday, because they had “run out of money”.
As always, I tend to wince when I hear people make financially questionable assertions: student loans are “good” debt, “I can buy it because I can afford the payments“, don’t pay off your mortgage too fast because you’ll lose the tax deduction.
But this one makes me a little bit sad. The context made it clear that “out of money” wasn’t really much of a euphemism, at least as far as their account was concerned. I wish I could have asked, but it didn’t sound like there was any float in this person’s account.
Payday has a lot of emotional connotations, especially from history. People would get paid on Fridays, and banks would stay open later so that everyone could deposit their checks. If people didn’t get to the bank in time, there wouldn’t be any money over the weekend.
None of that is true today, of course. And yet, some of us still hold true to the idea of payday being significant.
But I’m here to tell you that it’s not. It’s irrelevant. At least, if you’re looking at money the way I do. And I think I’ve got a better way.
Table of Contents
Income, Bills, Expenses, a refresher
When each month begins I recommend you count up all of your income, and subtract all of your monthly bills, and whatever remains is your expenses. Or, in equation form:
Income – Bills = Expenses
This is an equality, meaning that both sides need to be the same. If you think you won’t spend all of your allotted expenses, you put it away in savings. If you think you’ll spend more in expenses, you either take it out of savings, or…you just don’t spend it.
There are no credit cards in this story, not unless one of your bills is to pay one back.
You can’t go wrong with this plan. You can’t go into debt, because a) you’re not using credit cards for your spending, and b) you have all the money you’re using.
If you do this, every month, in advance, month after month, you will spend less, enjoy what you spend more, and will build wealth faster than any other money management tip you’ll find.
Don’t believe me? Try it.
Payday is anyday
But anyway, back to payday.
When I said count up all of your income, I meant every single paycheck you’re likely to receive in a given month. This is regardless of when in the month it happens. Some people get paid once a month, some twice, some every two weeks, and some totally irregularly.
It can happen on the 1st of the month, the 15th of the month, the 22nd of the month. It can happen with a box, it can happen with a fox, it can happen in a house, it can happen with a … sorry.
None of this matters. All that matters is the total.
If I got paid $3,000 on the 1st of the month, that is functionally identical to getting paid $100 a day for 30 days.
You see what I’m getting at? Payday doesn’t matter.
A flexible and mindful money plan does not rely on when payments actually happen, either incoming or outgoing.
A word on float
Now, this can only happen if you have sufficient float in your account.
You need to be able to dip down below your baseline temporarily and not have it matter. You never want to be worried about your account hitting zero.
I believe this float amount is more important than savings, and even more important than an emergency fund. Start here first. $500, $1,000, whatever you need to know that you’ll always have something in the bank.
So here’s a good rule of thumb: do you care about when payday happens? Does it matter to you for your ability to pay bills? If yes, you’re living way too close to the edge. Start with this plan. Get some float, plan your income, bills, and expenses in advance.
It might take a few months to get rolling, but it’ll be worth it.
And just like that, when paydays happen will cease to matter.
