How to use the half payment budget method to reduce bill paying stress
Depending on how your paychecks and bill due dates line up it may feel like you’re always squeezing and shifting money to make sure everything is paid on time.
One paycheck covers your rent or mortgage, mostly. The rest of your bills need to be paid by your next paycheck and you might be holding your breath in between
There’s a simpler way to stop feeling behind and stressed.
The half payment budget method is a savings approach to manage your cash by setting aside a part of your upcoming bills from each paycheck.
I stumbled into this method by accident when I bought my first house and now use it to manage all of my bills.
For example, I don’t escrow my property taxes and while my mortgage is affordable, it’s not small. Planning my savings using half-payments ensures I have enough money available for the quarterly property tax payments without sweating.
If you’re not a budgeter, following this savings method will give you a sense of security that the money is already on-hand to cover the bills when they are date.
What is the half payment budget method
The half payment budget method is a planning approach where you simply set aside half the amount of money for an upcoming bill from each paycheck. If you’re paid weekly, set aside a quarter of the bill amount instead.
When was the last time your bills and paycheck dates lined up nicely, especially if you’re paid every other week?
Instead of paying a bill with money from your recent paycheck, you build a savings reserve to have the cash ready for an upcoming bill.
With a simple savings trick to organize your money, you have a consistent cash flow to rather than draining your checking account.
What the half budget payment method is not
And one quick clarification on what this method is not. The half payment budget method is not suggesting paying the bill in halves. It’s a savings approach to pay the bill on its regular due date.
If you want to take this a step further by making partial payments, check with the company you need to pay first. Some companies won’t take a partial payment. For larger payments, you can earn a few extra pennies of interest in a high yield savings account by holding the money until it’s actually due.
You’ll need to figure out first what the company allows and what works best for you.
3 steps to start planning with the half payment budget method
Here are three simple steps to help you start using the half payment budget method. First, find all of your monthly bills and write down the amounts due.
1. For each bill amount, divide it in half.
Let’s start with your mortgage (or rent). For example, if you pay $1,000 per month, you would need to set aside $500 from each paycheck (assuming you’re paid biweekly or bimonthly).
$1,000 suddenly becomes less overwhelming when you look at it as having to save $500 per paycheck.
2. On each payday, transfer the money you plan to set aside to a separate account.
Keeping with the mortgage/rent example, move $500 each paycheck to a separate bank account. This keeps your “earmarked money” safe for the intended bill. With all of this planning effort, you don’t want to accidentally spend the money you’re holding for mortgage/rent.
Consider using a bank that allows you to open multiple savings accounts for free, and have low or no minimum balance requirements. To apply this method to multiple bills, it’s easier to stash the money into separate accounts.
You may also see this referred to as sinking funds, especially for saved money to cover annual and semi-annual bills.
Related: How to use a separate bank account for mortgage payments
3. When it’s time to pay the bill, transfer the money back to your checking account and pay the bill.
Before the bill due date arrives, transfer the money back to your bill-paying account and pay the bill. This may start to sound like too many steps and cumbersome, but once you get the hang of it the process will feel like second nature.
Try using the bank’s online bill payment system to stay organized. When the account statement arrives, set up the bill to be paid the day before it’s due and schedule a transfer into your checking account for the day before the payment. Aside from the occasional hiccup (human error), this works seamlessly for banks that send the payments electronically.
Tip: Make sure you pay attention to when the bank will deduct the money from your account to pay the bill. Setup the money transfer into that account to arrive the day before otherwise, you may have an “insufficient funds” problem.
And one more tip: With credit cards, I like to pay the minimum immediately to avoid any late payment hiccups. I also schedule a payment for the remaining balance payment for the day before the due date. The half payment budget method helps me gather the rest of the money for the balance in the meantime. I aim to pay my balances in full and avoid interest!
3 additional tips for using the half payment method
Over the years of doing this, I picked up a few additional tips to make this approach work better. When you’re first starting with a half payment budget pick one or two bills to manage first to see if it works for you.
The half payment budget method helps manage your cash. You still need to spend wisely.
While it’s referred to as a budget method, it’s more about managing your cashflow. If you spend more money than you earn each month the half payment method won’t help fix that. Line by line budgeting is a struggle. I aim to not overspend each month without counting every dollar.
Set up separate accounts if your bank allows it, or find a different bank.
High yield savings accounts are a great way to manage the money set aside for each bill you need to pay. Separate accounts allow you to easily see how much money I have available for each bill.
Very few “regular” banks allow you to open multiple accounts for free with low minimum balances. Instead, check out Capital One 360 and Ally. Their online savings accounts paired with a checking account and online bill pay makes this feel like an electronic cash envelope system.
Both of these banks offer higher interest rates so you might earn a few extra interest pennies each month. Those extra pennies add up when you’re saving for larger semiannual and annual bills.
For utilities, calculate the average monthly bill for the year to plan your savings
Your monthly utility bills change depending on the season. Take a look at your statement and see if the company offers a “budget” payment option. It’s a fixed payment option where they calculated your average bill for the last 12 months. The reserves leftover from a low-cost summer month helps pay for a higher cost winter month.
While a predictable bill is nice, instead of paying extra money to the company you can do the same with a savings account. Figure out your own “budget” amount to set aside each paycheck and use the reserves to pay the monthly bill. You can earn a few extra pennies from your money rather than it sitting with the utility company.
For example, if you save $25 each paycheck for your gas bill, in some months you’ll have money left over to pay for the expensive months.
Wrapping up. Have you tried the half payment budget method?
Planning ahead for your bills is less stressful than scrambling to make sure everything is paid. The half payment method helps you pay your bills in full and on time.
The three steps to get started with the half payment budget method include:
- Figure out how much you need to set aside each paycheck by dividing the bill in half.
- Transfer money from each paycheck to a different account so that it stays “earmarked” for the intended bill.
- Schedule the bill for payment and transfer money back to your bill payment account prior to payment.
Have you tried this method? What additional questions do you have?
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