How to Make the Most of Your Third Paycheck This Month
Even if you’re on top of your finances and never miss a payment, in the current economic climate, managing your accounts can feel like desperately swimming and just keeping your head above water while your paycheck evaporates before you even have a chance to appreciate it. However, if you get paid and get paid every two weeks, there are two months of the year when you get paid three times instead of two, and May is one of those months.
Since your budget is likely based on being paid twice a month, a third payday can feel like a bonus—and it can actually serve you very well if you go about it wisely. Here’s how to make the most of your “extra” paycheck this month.
Don’t budget for it
Step one is to live your life as if you only get paid 24 times a year. When creating your budget and planning out your expenses for the year (which you totally do… right?), you should pretend those two extra salaries don’t exist. If you count them in your income, they will be included in your daily expenses. This is not necessarily a bad thing (and you have no choice if your financial situation requires it), but the benefits will be negated. If you want extra paychecks to feel like a bonus, start by forgetting about them altogether. Then, once you have them, come up with some clever ways to use them.
Put it in an interest-bearing savings account.
The most obvious smart way to use that third paycheck is to stash it in your savings, especially if you have a High Yield Savings Account (HYSA), you can put it in . This will put that extra money to work for you and give you a little more breathing room throughout the rest of the year, or it can be put aside for future expenses like holiday shopping, a vacation you’ve planned, or a big purchase you know is coming.
If you’re saving a third salary, you should have a plan for it. If you just leave it in your bank account, there’s a risk that it will simply evaporate over time as you dip into it here and there when your budget gets a little depleted. Again, using it to cover overages isn’t exactly a bad use of the money you earn, but it may not be the most efficient.
Invest it
The best option may be to invest money. If you have retirement accounts , you may want to consider making additional contributions to help your future self have a better retirement plan. If you don’t have a retirement account, setting one up with that extra paycheck may be the best thing you can do all year —setting up an individual retirement account (IRA) is fairly easy, and if you get into the habit of investing your third paycheck into that IRA every year, you’ll be very glad you did. Alternatively, if you already have an investment portfolio, you can apply that salary there and increase your assets.
Invest in yourself
When talking about investing, don’t forget about investing in yourself. This bonus salary can be used to brighten your future in several ways:
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Professional development . Using that extra money to earn a degree that will help you get a promotion or find a better job can pay off in the long run without affecting your daily life.
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Deferred medical care. If you’ve been holding off on dental care or any other expensive medical care because of the cost, a third paycheck provides an opportunity to engage in much-needed self-care.
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Improved lifestyle. You can also use your bonus pay to pay for a gym membership or equipment to start a workout regimen that will pay off in spades.
Start a business
A little extra money can be used to start a profitable side hustle (many of these small businesses don’t require much or any startup money ) or small business . If you have an idea for a service or product that you think can be turned into a profitable venture, that third salary could be all the startup capital you need to get the project off the ground.
Create an emergency fund
Unlike your general savings, an emergency fund protects you from unexpected disasters that would otherwise wipe out your savings and leave you in dire financial straits. These include job loss, medical emergencies and home repairs, any of which can spell doom if you are not prepared for them. Since we live in a world where 42% of Americans don’t have any kind of emergency fund at all , saving that extra salary specifically for this purpose is a very smart idea.
Pay off debt
You live in a world that means you’re likely in debt – it’s just a fact of modern life. If you have sufficient savings and an emergency fund, paying off debt is a great opportunity to earn extra pay:
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Pay off credit cards. Credit card interest rates can be insane, and if you’re only making minimum payments every month, it’ll take you a long, long time to wipe out even a modest balance. A balloon payment thrown at the card that charges the highest interest rate can significantly improve your financial prospects in the future.
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Make an extra payment on your mortgage. If you have a mortgage on your home and two-thirds of the salary you receive each month allows you to make two extra payments, you can literally save years on your mortgage. For example, if you have a 30-year fixed-rate mortgage of $300,000 at an interest rate of 6.75%, your principal and interest would be $1,946 per month. If you can make 2 extra payments totaling $3,900 per year using two-thirds of your salary, you could shave 10 years off your mortgage term and save $145,000 in interest.
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Another debt. Of course, any other types of debt you carry can be reduced or eliminated—student loan debt, personal loans, auto loans. If there is no penalty for paying more than your monthly payment, you can reduce it by applying a third salary.
It’s not often that we get to rest in this world. Extra salary is one such case, but only if you plan to take advantage of it.