What to Do With Your Extra Paychecks

Man with glasses smiling in home























More than a third of U.S. private employers pay their workers bi-weekly (every other week), meaning at least two weekly pay periods must be made up for on their annual payroll calendars -- typically issuing one extra paycheck during a spring month, another in the fall.

If you are like many Ohio workers, the temptation is to spend that right away, but at KEMBA Credit Union we have some sound advice for you so that you can better plan for your future and be financially responsible.

Looking forward to ‘benefit holidays’

Depending on your employer’s payroll policy, extra paychecks may forgo withholding flat-dollar deductions that cover your employee benefits, such as health, dental, vision, life-insurance coverage, or deductions into your credit union savings accounts. These “benefits holidays’’ fatten your extra paychecks.

If you’re fortunate enough to work for the one-third of private employers who pay weekly, your extra paychecks arrive a bit more frequently. Folks paid twice a month, say on the first and fifteenth, perhaps just once a year.

Put your extra paychecks to work

Wait. Before you splurge one dime, do yourself and your personal finances a favor: take some time to plan out the most financially fruitful ways to deploy your hard-earned windfall.

You’ve probably already allotted portions of each of your 26 regular paychecks to monthly expenses, such as rent or the mortgage, utilities, food, auto loan payment, credit-card payments, and property insurance. You likely, too, have in your personal budget allotments to your savings accounts and retirement funds.

These extra paychecks are like extra “money in the bank,” providing you immediate financial flexibility for:
  • Spending on needs, such as auto or home repairs, or wants like dining out, a new vehicle, taking a vacation, or paying property taxes.
  • Saving for a new car, home, vacations or your child’s college education.
  • Investing for your retirement or long-term financial security, or building generational wealth.

Allocate those extra paycheck proceeds

If you don’t already have one, now is a good time to set a personal or household budget. With it, you can tally your fixed monthly expenses against your monthly income. Whatever is left can then be allocated among one of three financial buckets above.

Open or pay down your credit-card

You work hard and deserve to savor the fruits of your labors with some “me’’ offerings. But don’t overdo it. A credit card with a competitive rate lets you stretch your fun dollars farther.

Better still, why not put some of your extra paychecks to paying down the outstanding credit-card balance from your last fling, especially a credit card bearing a high rate of interest. You should also consider paying down your mortgage, auto loan or other personal debts.

Open or add to your savings account

Putting money into a savings account or certificate of deposit is a smart way to financially plan for present or future purchases, such as a car, home or college education. The extra money also can be put into an account and tagged as emergency savings (enough for six months of monthly expenses is ideal.) Once you start, earmark a portion of each bonus paycheck you collect to savings to build your nest egg.

Don’t overlook these useful savings accounts:
  • Health Savings Account. Pre-tax HSA deposits are used to pay your out-of-pocket co-pays and costs for doctor’s visits, hospital stays and prescriptions.
  • 529 College Savings Plan. Most states, including [FI client’s state], sponsor these tax-advantaged plans popular among households with children.

Build your retirement portfolio

Saving for retirement yields bigger investment returns the sooner you begin. Even if you have an employer-sponsored retirement savings or a pension, your portfolio should include an Individual Retirement Account, savings that remain yours no matter where your career arc takes you.

Go a step further and arrange through your employer to direct-deposit portions of your regular and extra paychecks into one or more deposit or investment accounts.

Taking into account your bonus paychecks is part of an effective money management plan that will benefit you and your family long well into the future.

Contact KEMBA Credit Union for more ways you can build a sustainable financial plan.








































Disclosures