By Priya

March 8, 2021

 
 
 
 
 
 
 
 

Show notes

🎙 In the final episode of my 3-part deep dive series, we’re talking about my favourite budgeting method — budget by paycheck. It’s the method that I personally used to grow my net worth to 6-figures by the time I was 23. Not only that, but it’s the only budget method I recommend if you’re paid multiple times per month, earning an irregular income or trying to break free from the paycheck to paycheck cycle. Are you ready for it? 🤔

This episode discusses topics like:

  • Why the paycheck budget is the best method for breaking the cycle of living paycheck to paycheck;
  • Why the PMC budgeting method is so different to what other financial experts will tell you; and
  • The method I used to build a 6-figure net worth by 23, and the 5 types of people can change their lives with a paycheck budget.

Hey, friends! And welcome back to the Girl on FIRE podcast. 

My name is Priya, I’m a Chartered Accountant, an analyst and the creator of Paper Money Co. 

I’m also the host of this podcast and I believe that a financially empowered woman is an unstoppable force of change in her own life and in the world.

This episode is part 3 of my 3 part series where I take a deep dive into the 3 most common budgeting methods. 

We’ve made it! After a few very long and detailed episodes, we’re finally ready to wrap up this little series, which is super exciting.

Over the past few weeks we’ve talked about:

If you haven’t checked out those episodes, then I highly recommend you do. That’s episodes 7, 8 and 9.

But this week we’re talking about the paycheck budget method. 

Now to be clear, this doesn’t mean you’re living paycheck to paycheck. I know a lot of people can get that confused. 

Budgeting by paycheck means that you’re budgeting each paycheck separately. That’s all it means.

Yes, it’s the method I recommend if you are living paycheck to paycheck and you’re trying to break that cycle. 

But the paycheck budget method itself just means that each paycheck you receive has its’ own special budget. 

Now, this is going to be another long episode so get yourself a snack, get comfy and get ready to take some notes — if that’s you’re thing.

If you just want to listen, that’s okay too. The transcript is up on my website papermoneyco.com

So, bookmark this episode to refer to it later when you’re working on your budget. 

Now, before we get started I want to take a second to wish a happy International Women’s Day to all my Girls on FIRE. 

The day this episode goes live is the 8th of March, and it’s a day where we celebrate what women have achieved and what we’re capable of. 

I myself am a huge supporter of gender equality in all things, not just economic empowerment. 

And to be clear, that’s not just for women. I believe all people are equal regardless of gender.

But I also really believe in financial feminism and that women should have equal opportunities and rights to build wealth all over the world.

And I’m not just talking about smashing glass ceilings, being paid what we’re worth and being promoted when we’ve earned it. 

I’m also talking about women in developing countries who aren’t being paid living wages for making the clothes that we buy.

So, I like to support organisations that aim to create more equality in the world. 

I do this with my own personal income but if you’re interested, you can read about it on my website at papermoneyco.com/causes.

Okay, so, the paycheck budget method. This week, I wanted to switch things up a little bit and I want to kick things off by sharing a little bit of a story time about how I actually created my budgeting system — what I call the PMC method. 

Now, the PMC method is what underpins everything that I teach in this podcast, on my website and in my courses. 

And the rules and finance philosophies that I share in the PMC method that make me so different from most other financial experts come from what I’ve learned as a financial expert and in my personal life.

Because you can’t have one side without the other, right? So, that’s what you’re going to see in this little story. 

Gonz, can you put in like ‘once upon a time’ type music here?

How & why I developed my paycheck budget system

So, I first started budgeting when I was in university. It wasn’t the first time I had money - I had a part time job in high school. But it was the first time I was really spending any money.

I had earned myself an academic scholarship that was used to pay for my textbooks, supplies, and food while on campus and transport in and out of the city. 

Now, I just want to clarify something for my listeners in the US, because our education system is quite different to yours.

In Australia, you can defer your tuition under a system called HELP, which stands for the Higher Education Loan Program. 

So, basically, the government is paying your tuition for you and you’ll start paying them back once your income crosses a certain threshold. 

The more you earn, the more you pay back. And it gets taken out of your income along with your taxes, so by the time you get your paycheck, it’s already taken care of.

It’s technically an interest free loan, because you don’t pay any interest on the amount of tuition you defer. 

But it is indexed according to CPI which is how we measure inflation, so the amount you owe does increase over time to keep up with inflation.

So, for the past 5 years or so it’s been indexed at less than 2% per year. At the time that I graduated, it was being indexed between 2-3% per year.

Okay, back to my story — since I wasn’t paying for tuition, I had some leftover money from my scholarship after paying for my needs.

At the time, I was also still living at home, which is the norm in Australia, and I didn’t have a car. So my financial needs were pretty simple. 

And because of that, my budget was also really simple. I was receiving my scholarship payments every fortnight — that was the only income I had.

The degree I was studying for was really demanding so I didn’t have much time for a part time job. 

I was also working full time internships throughout my degree but they weren’t paid. So, my scholarship was my only income.

And my budget was really simple. I basically just had a system in place to split my income into:

  • What I needed to pay for my ongoing costs like books, supplies, food on campus and transport;
  • Money that I was saving for my future; and
  • Spending money.

I was essentially creating a 50 / 30 / 20 budget but back then, I didn’t know it. I just did what logically made sense for me and my circumstances.

Okay, so now is where my story gets a little bit dark. I’ve struggled with depression and anxiety for most of my life. It’s still something that I deal with. 

But back then, it was severe. I spent the first 12 months of my university days thinking I wasn’t going to graduate because I would have committed suicide before I finished my degree. 

And so, I was saving money but only out of habit since it’s something I had been doing on autopilot for about 10 years at that point. 

But I didn’t think I would really need money for my future because I didn’t think I’d get one. 

So, I would save a little bit but I would also transfer a little bit of money to my transaction account to spend on whatever I damn well pleased. 

I used to call it my happy money and most of it was spent on books, clothes, beauty products — whatever I felt like. I was about 18 years old at this time.

But eventually, with medication and therapy I was getting better. The worst of it was behind me and I started thinking about my future again. 

And at that point, I felt like I was behind where I wanted to be with my future plans and I wanted a solid budget in place to help me get my life back on track. 

Now, I was actually studying accounting & finance at university so the idea of budgeting and financial management wasn’t new to me. 

I first tried doing some Googling to see what I could learn and who could help me. 

But a lot of it was advice coming —  and I’m going to be brutally honest here— either from wealthy older white men who wouldn’t understand what I had just been through or stay at home mums.

None of their methods really felt right to me because it always felt like they were telling me what to do and how to live. 

And I resented that. If there’s one thing I’ve learned about myself over the years it’s that I hate being told what to do.

And I refuse to live my life according to what other people expect of me. But that’s exactly what their advice was — it was how they expected me to live given my age and gender. 

They had no regard for what I’d gone through in my life and what kind of future I wanted to build for myself.

But I’ve always been the kind of person that if I can’t find what I need, I’ll just build it myself. 

So, that’s what I did. I began to realise that the financial management concepts I was learning in my studies could be applied to my life. 

Yes, companies are different because they take the emotion out of it. But the basic principles of money are the same. 

You earn, you spend in order to stay alive and keep earning. And then you invest in order to earn more and grow wealth. 

So, if you look at my Paycheck Budget worksheet, that’s exactly what it is. On one side, you have earning and spending.

And on the other side you account for paying down debt and building assets which is how you create wealth. 

So, that’s how I came up with the PMC budgeting system. Of course, it wasn’t perfect. I’ve been tweaking and adjusting it over time as I learn more.

And it’s really grown from just being a budget to being a full financial plan. 

But that’s where it came from. And I also really wanted to share that story with you, so thank you for listening to it.

I’m actually a super private person and that’s one of the most difficult stories for me to tell. 

But it’s also the best way for me to show you that the right budget can work like magic in your life. 

It doesn’t have to be a paycheck budget. Just because that’s the method I developed for myself, it doesn’t mean that it’s going to be perfect for you and that’s okay. 

But the right budget for you — whatever that looks like — gives you clarity and focus with your finances. 

That’s exactly what it was for me. I graduated at 21 and by the time I was 23, I’d paid off my student debt of $30,000 and grown my net worth to 6-figures.

I was earning an average salary of about $57,000 at the time. I also bought my own car with cash and even though I was still living at home, I was contributing to household expenses.

So, when I go on and on about budgeting and the freedom it allows you to pursue, this is why. I know it works, and that’s not just my financial degree and career as an analyst talking. 

And when I tell you that your budget is magic beans, this is why. 

I know it works because I lived through it. And if I can do it, I know you can, too.

So, let’s dive in and talk about what a paycheck budget is and how it works. And then I want to give you a bit of insight into how it works in a real persons’ life — which is me.

What is it / how it works

So, the simplest way to describe it is that when you’re budgeting by paycheck, each paycheck gets it’s own budget.

You would create a separate budget for every paycheck you receive from each of your income sources.

But that doesn’t mean you can’t use this method if you only get paid once a month. You absolutely can — I do.

But if you earn multiple paychecks per month, or have an irregular income then a paycheck budget is the only method I’d recommend for you.

Now, a lot of people get confused when I talk about a paycheck budget. They think it means living paycheck to paycheck.

But they’re not the same thing at all. 

Think of it like this — imagine you’re sitting in a mermaid shell elevator that automatically goes up and down, from the bottom of the sea floor to the surface.

When the elevator goes down you have no air because you’re underwater, and when it comes up to the surface, you can breathe again.

When you’re living paycheck to paycheck, you need more air (which in this analogy is income) coming into your lungs consistently, because you need to breathe. 

But you’re going to struggle when the elevator goes down. Your lungs fill up and you can’t breathe but you have to wait for the elevator to go back up to the surface.

But what if you were able to hold your breath when the elevator goes down? You hold your breath, play with the fishies on the ride down. 

Collect some pearls and when the elevator reaches the surface, you take a deep breath and hold it again for the next ride.

That’s the difference between living paycheck to paycheck and budgeting by paycheck — one feels like drowning because you’re spending money as it comes in and need the next paycheck to sustain you. But the other is holding your breath.

That’s the difference between living paycheck to paycheck and budgeting by paycheck — one feels like drowning because you’re spending money as it comes in and need the next paycheck to sustain you. But the other is holding your breath.

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How to set a paycheck budget

How I personally set my paycheck budget

So, I’ve mentioned this in previous episodes, but I use the paycheck budget method. 

I like it because it gives me a lot of transparency over where my money is going.

And having that transparency means I also have a lot of control over how I allocate my income, and that’s super important to me. 

I also prefer to set my budget by using actual dollar amounts of what I spend on average, or what I’m planning to spend instead of using percentages. 

So, with a paycheck budget you start with your income — that’s the first step.

Now, it’s important to remember that your income is your net income after tax and after compulsory deductions like retirement contributions. 

And, your income also includes the opening balance of your bank account on the day you receive your paycheck, as well as any money from savings or sinking funds that you’re planning on spending during the period. 

Think of budgeting your income more like budgeting all the money you have available to spend for that period.

Next, you have your bills and fixed expenses. So, this is everything from your rent or mortgage, to utility bills, insurance bills, Netflix and minimum debt payments. 

We’ll talk about extra debt payments in a second, but for now we’re looking at only your minimum debt payments. 

This is how you can keep your bills organised and paid on time within your budget. 

If you remember when we talked about the 50 / 30 / 20 and percentage based budgets in episode 8 and 9 - those methods don’t have a built in bill organisation system. You have to do it separately.

Now, once you’ve got all your bills you total them up and subtract that from your total income. See how much you have left to cover everything else. 

So, next would be your variable expenses like food, fuel, fun spending and clothes.

But instead of budgeting by saying, for example 10% of your income, you’re going to budget by looking over your spending history to see how much you usually spend in dollars. 

So, there’s more work involved then just applying a simple calculation, but it’s more accurate because you’re looking at receipts and transaction histories of how you actually spend your money.

There’s no blind guessing here. You don’t budget any amounts that you can’t explain. 

Even if you budget a buffer, you can still explain that because you’re budgeting in case you go over. 

Now, I know that this is a lot of work, but it’s honestly the best way to do it. It’s the only way to get super clear on what’s going on and how to get where you want to go. 

It’s also less likely that you’ll be stumped by unexpected expenses because you took the time to make your budget as detailed as possible. 

And I mean unexpected like ‘my feet hurt, let’s take an Uber’. Not, ‘oh my god, my leg is broken!’. 

That’s an emergency, and you should have an emergency fund to look after that — we talked about emergency funds in depth in episode 6.

Having said that though, ‘honey, I forgot the dog food’ isn’t an unexpected expense. It was a forgotten expense. 

And they’re not the same thing. One of them you don’t have control over, but the other one you do.

It’s your job to tell the difference and include them in your overall financial plan accordingly.

So, that then takes care of your bills and your variable expenses. So if you take the total of those and subtract it from your total income, you either have something leftover or you don’t. 

This is the clearest way to see how far above or below your means you’re living. 

If your bills and expenses are higher than your income, you’re probably relying on credit cards to bridge the gap. 

So, the first thing you need to do is lower your expenses enough so that your income covers everything. 

Then, you can focus on spending less than you earn. And yes, cutting expenses is hard. There’s only so much you can cut before you need to start increasing your income. 

But at least this way, you know. And you have a chance to look over your spending and see what you can change.

On the other hand, let’s say that your income minus all your expenses means that you have money leftover. 

This, my friend, is where the magic happens. That’s your magic bean and you can use it to plant whatever kind of beanstalk your heart desires. 

That’s the money you use to complete your emergency fund. That’s the money you use to save up for travelling, or opening your bakery. 

Or paying off your debt and investing. That’s where you build wealth and buy back your freedom. 

So, by now I hope you can see how much detail a paycheck budget has. It includes everything from how you earn to how you can build wealth. 

And the best thing about it is that’s it’s 100% customisable to you and your life. It’s like a bespoke budget. 

Now, I’ll go into more detail on what my personal budget looks like a bit later on in this episode.

There’s definitely a lot more to say about paycheck budgets, and honestly, it’s a lot easier to see it work than to hear it. 

So, I highly recommend you check out my Instagram @papermoneyco or YouTube channel which is just Paper Money Co. 

I’m going to be sharing videos going over my budget so you can see how it works in a real persons’ life.

And you can see how I screw up as well, and how I bounce back from that. 

But for now, let’s move on and go through the pros and cons of a paycheck budget. 

Benefits of the paycheck budget method

Let’s start with the pros first.

Best way to break paycheck to paycheck cycle

First, probably the biggest pro of the paycheck budget is that it’s the best way to break the cycle of living paycheck to paycheck. 

Now, don’t get confused here. Living paycheck to paycheck and budgeting by paycheck are not the same thing. 

Like I said before, when you budget by paycheck, you’re making a new budget for every paycheck you receive. 

It’s just a matter of each paycheck having its’ own plan.

But when you’re living in a paycheck to paycheck cycle, it means that you’re struggling to cover your costs in between paychecks. 

So, I need you to understand that difference because it’s really important here. 

If you’re in a paycheck to paycheck cycle, then the paycheck budget is the only one I recommend. It’s the only one that can pull the sword from the stone and here’s why. 

When you budget by paycheck, you’re only budgeting with money that you have at that point in time.

And that’s really important, especially when you’re living paycheck to paycheck, because it means you’re not spending any money that you haven’t earned yet.

So, for example, let’s say you get paid on the 15th of every month. But you’re budgeting by a standard calendar month. 

So, your budget period is from the 1st to the 31st of March. But you only get paid on the 15th of March, and you won’t get paid again until the 15th of April.

If you have a monthly budget then you’d budget your income as a total for the month starting on the 1st. 

Even though you won’t receive that income until the 15th. 

That means that for the first 2 weeks of March, you’re budgeting with income you haven’t received yet. 

So, how then are you supposed to make your bill payments on time? Or pay for your groceries or gassing up the car?

You need to spend that money but you don’t have the income for it yet. It becomes harder and harder to manage your cashflow this way and it’s very easy to turn to a credit card to make ends meet.

And I’m not judging you here — if you need that credit card to feed your family, then please use it. But it does mean that you’re accumulating more debt.

Now, let’s say you were going to set a paycheck budget instead. That means you have one budget that runs from 15th February to 14th March, and a second one that runs from 15th March to 14th April. 

You’ll have two budgets in March because one calendar month is covered by income from two different paychecks. 

You’re using income from your previous paycheck to cover those first 2 weeks of March before you get paid. 

And, your March paycheck will be used to cover the first 2 weeks of April before you get paid on April 15th.

Now, I want to you think back to episode 7 when I was explaining what cashflow really means, because that’s important here. 

A paycheck budget is how you manage your cashflow. 

It lets you make sure that the cash is always flowing between paychecks. And this is critical if you want to break the paycheck to paycheck cycle.

Takes into account irregular income and weekly paychecks

The next pro is that a paycheck budget takes into account irregular income and weekly or bi-weekly paychecks. 

Even if you’re not living paycheck to paycheck, having a paycheck budget when you get paid multiple times per month helps you manage your cashflow. 

Again, you’re only budgeting with money you’ve already received at any point in time. 

And that makes it a lot easier to pay for larger bills and expenses which can be quite difficult when your income is split between 2 or 4 paychecks.

Now, if your income is irregular (for example, you earn a commission or you do freelance work), your paycheck budget will help you manage your costs as your income changes. 

So, for example, let’s say your shifts changed last month and you’re going to bring in $500 less. 

With a paycheck budget, you can quickly and easily see where that adjustment needs to be made in your spending.

Or maybe you have to put one of your goals on hold this month. The choice is yours — but the point is that you have the transparency and detail to be able to make those choices. 

If you want to learn more about how to budget with irregular income, then I highly recommend you enrol in my free online budgeting course. 

I’ll leave a link to it in the show notes, or you can just go to papermoneyco.com/freebudgetcourse.

It walks you through how to budget your income and your expenses when your income fluctuates. 

A lot of people think they can’t budget because their income is irregular and that’s just not true. 

You can absolutely still budget, you just have to take a different approach. 

So, my course will walk you through how to do that. It’s totally free, so you can sign up on my website and get instant access. 

Accounts for multiple sources of income

Okay, on to the next pro — a paycheck budget accounts for multiple streams of income. 

So, because you’re creating a new budget for every paycheck, you’re also creating a separate budget for each income stream. 

This allows you to get really intentional about all the money that you’re earning and what you want to do with it. 

It also makes budgeting with a partner a lot easier, especially if you earn income at different times during the month.

Personally, I have a separate budget for the income from my full time job and a separate one for my business expenses. 

I’ve also created separate budgets for any one-off income I receive like tax refunds.

It’s really just about giving every dollar a plan. And if you earned all your income on one day, then that’s great. 

You can put it all on one budget. But most of us don’t earn income that way. It comes all over at different times of the month. 

So, using a paycheck budget will be the best way to manage your cashflow since you’re only budgeting with income you’ve received.

Budgeting by dollars is much more accurate and detailed

The next pro is that with a paycheck budget, you’re budgeting by dollars. That’s because you’re allocating every dollar of your income somewhere instead of just applying a percentage. 

And as we talked about in episode 8 or 9, you don’t spend money in nice, neat percentages throughout the month. 

Your spending habits change throughout the month, especially around payday.

I’m sure you’ve seen or even experienced this:

  • Paying your bills after payday
  • Sending money to savings after payday
  • Making an investment after payday
  • Treating yourself to something nice after payday

So, budgeting by percentages doesn’t make a whole lot of sense. Not only that but it’s often going to be just an arbitrary number unless you’re using percentages like 4.3765%.

When you’re budgeting by dollars, however, you’re building your budget from the ground up.

You’re taking the time to see how much you really spend, and why you spend the way you do. 

That’s how you determine how much to budget for — it’s based on your past behaviour and past decisions as well as your future goals.

This makes your budget so much more accurate and detailed than if you were just applying percentages.

If you listened to episode 9 last week where I shared my experience with the percentage based budget you would have seen that my percentages were all over the place. 

And it was really hard for me to think about making any adjustments. For example, if I want to buy myself a new planner, how do I budget for it?

Do I budget 1% of my income? No, that doesn’t make sense. Especially because I don’t enter ‘1% of my income’ at checkout. 

No, I’m going to budget $90 because that’s what it costs. Saying that it costs 1% doesn’t mean anything. It’s not dollars so there isn’t the same emotion attached to it. 

Easier to see where to make cuts and adjustments

Following on from that, having a budget that’s so detailed and accurate means it’s a lot easier to identify patterns and trends in how you use your money. 

And that means that you can spot problem areas and places where you might want to make cuts and adjustments so that you’re spending your money intentionally and according to your goals. 

You can easily say that you want to cut back on eating out by $50 a month and it’s a lot easier to actually implement that change in your life. 

Not only that, but it’s easier to see how much you can cut without making your budget unrealistic. 

A paycheck budget really embodies the principle that every dollar counts. Because you’re budgeting with dollars and cents not percentages.

So, you really can make every dollar count and sometimes that makes all the difference.

Because let me tell you something — every emergency fund, every retirement nest egg, or every house deposit, overseas trip, every 7-figure net worth — it all started with $1. 

That’s how powerful budgeting is. I’m sure you’ve heard or read my story of how I built a 6-figure net worth by my early 20s. I’ll go into it in more detail a little later in this episode if you haven’t

And here’s my big secret. I opened my very first savings account at about 8 or 9 years old with $10. 

It was $10 I’d saved up from my pocket money — a dollar here, 50c there. And that was all I needed. 

Because it taught me how to save. It taught me how to reach bigger financial goals. It taught me the power of my money and my own decisions. 

The amount didn’t matter. The mindset, the education, the habit, the process — that’s what mattered.

And when the day finally comes where I get to retire in Spain with a mojito in my hand, I’ll know that the decades-long journey it took me to get there started with $10. 

So, that’s my dreamy-eyed advice to you. Never underestimate the power of $1.

Highest level of visibility and control

The next pro is that a paycheck budget gives you the highest level of visibility and control. 

And that’s because it’s so detailed. You can easily see where every dollar is going, and you can redirect your money as well.

Now, for me personally, you know I like having total control over my money. Even if my money is being quote unquote “wasted” — I want to be the one who chooses to waste it.

I am the Goddess and Queen of Moneyville and that’s how I like it. That’s one of the reasons I love my budget so much, it’s because I get to use it to serve my best interests and the life I’m trying to build. 

Super customisable depending on your needs

Following on from that, having a budget that’s totally within your control means that it’s super customisable as well. 

So, for example, if you listened to episode 1 you know that I love to travel and I want to retire early.

That’s very clearly reflected in my budget. You can see it right there in black ink among all the gorgeous colours. 

It’s super customised to what my life looks like now and the future I’m trying to build. 

But your budget can be entirely different. It’s easy to set a budget that reflects your unique and beautiful life.

That’s because everything that makes you ‘you’ can be reflected in the way you spend and save your money.

Your budget is so personal and so revealing that it should be like a diary. You should be able to look at it and see what you value and what your life is like on paper.

You can see that in mine — you can tell that I like shopping and I love travelling. 

I like expensive skincare and I also eat a lot. I don’t drive too much and I don’t go out very much. 

You can see all that in my budget. It’s actually one of the reasons why I struggled to share my budget online at first. 

I wanted to do it because I want you to see how it works, not in theory but in the real life of a regular person. 

But at the same time, I’m a very private person. And you can see a lot of detail about who I am and what kind of life I live through my budget. 

And that’s because it’s so highly customised to my life and it should be to yours, too. 

Can organise and build your bills into your budget

Another great pro is that the paycheck budget has a built in system to take care of your bills. 

Not only can you track what’s due, when and how much, but you can also see which income source you’re going to use to pay each particular bill. 

If you remember from episodes 8 and 9 when we talked about the 50 / 30 / 20 method and the percentage method — they don’t include bill organisation. 

You’d have to do that separately. But with a paycheck budget, it’s actually built into the method.

Works for any level of income

The next pro is that a paycheck budget really works for any level of income.

When you’re budgeting by percentages, it’s only going to make sense for an average income level. 

You won’t pay 10% less on your rent just because your income is 10% lower than the average for your area. 

A percentage based budget doesn’t work if your income is higher or lower than average. 

And by average income, I mean the average income that was used to set the popular benchmarks we talked about last week. 

So, Dave Ramsey’s recommended percentages work only if you live like he wants you to and only if your income is average according to him and at time he set those recommendations. 

But something I want all my Girls on FIRE to know is this — there is nothing average about you. 

You are unique and special in your own beautiful way. And you’re not defined by your wealth or your income, whether you earn a little or a lot.

Now, in my experiments over the last two episodes, the percentages looked ridiculous when I applied them to my income. That’s because my income is currently higher than average. 

But there was also a time when it was lower than average. And the percentages didn’t make sense to me back then either. 

But with a paycheck budget, you’re dealing with dollars so it works regardless of what your income looks like. 

Doesn’t have lifestyle inflation built into it because not using percentages

And the last pro is that a paycheck budget doesn’t have lifestyle inflation built into it — again, because you’re using dollars and not using percentages.

When your income increases, you have to allocate those extra dollars somewhere yourself — it doesn’t happen automatically.

And that means you can get super intentional about how you spend your money and how you allocate money towards your goals.

If you’re budgeting by percentages, however, unless you go in and change the percentages, your pay rise will be allocated for you.

Disadvantages of the paycheck budget method

Okay, so that was a really long list, and I’m really tired. I think it’s time for a coffee break. I’m pretty sure I deserve some cake after I finish this series.

If you need a refill on your coffee, go grab it now. Come back with a snack though, because we’ve still got a bit more to get through. 

I’m also getting super tired of hearing myself talk, but we’re almost there. 

So, let’s dive into the cons.

Can be complicated

The first and most important one is that a paycheck budget can be complicated, especially when you’ve just started budgeting or you’re new to this method. 

It can be pretty overwhelming because there’s a lot of detail and it requires more time and effort not just to set your budget but also to maintain it. 

Can take more time to get it right & set it up

And that brings me to my next con — when you first start implementing a paycheck budget system, it’ll take a bit of time before you get everything up and running smoothly.

And to be clear — that’s totally okay. I’m not a schoolteacher who’s going to put you in detention. 

You’re allowed to get it wrong. You’re allowed to take your time and make small adjustments as you go until it feels right. 

We humans never stop learning. I thought I was great at budgeting 2 years ago, and when I look back I think: “wow, I’ve come a long way!”. 

So, if you’re the type to get frustrated because it’s not working after one try then I hear you - I’m like that as well. 

But just know that it’s okay. What’s more important is that you’re trying to take control of your finances and build the life you were meant to live.

Empowering yourself to change your life and your piece of the world isn’t easy. Especially as women, we’re taught that we’re not good with money.

How many stereotypes are out there about women spending all their money on shoes, or shopping to much, or swiping the credit card too easily?

There are tons right? But you’re not a stereotype and you can do this. You just need to give yourself some grace and be patient with yourself. 

What matters is that you’re trying.

Not the quickest and easiest

The last con is that a paycheck budget is not the quickest and easiest method out there. 

Because it’s so detailed, it takes time and effort to set it up, then more time to track and categorise expenses and then more time to close it and analyse your budget.

But you have to ask yourself whether your dreams are worth the sacrifice. I know mine are, which is another reason why I like having so much control over every dollar.

It might also become more time consuming if you earn multiple paychecks — the more paychecks you have, the more budgets you’ll need to create.

But that’s a given — the more complex your finances are, the more complex the solution needs to be. 

A paycheck budget is still the best way to manage multiple paychecks. 

But that doesn’t mean you’re starting from scratch every single time. The first couple of months might feel difficult. 

But you’ll get the hang of it and it’ll get easier every single time. You’ll be able to tell how much is too much or not enough when you’re budgeting your expenses.

At that point, you’re almost on autopilot and you only really need to make changes to your budget either when something changes in your life or if you want to make a different choice. 

Who it’s good for

Okay, so now that we’ve gone into the pros and cons in detail, let’s talk about who the paycheck budget method is good for and who it won’t work for.

Let’s start with who it’s good for. 

#1 People who want a lot of visibility and control

If you’re like me and you want full visibility and total control over your finances, then this is the perfect budget for you.

You get to see where every dollar goes and make adjustments and changes down to the dollar. So, you really have full control over where your money is going. 

And at the end of the day, that’s what budgeting is, right? First you need to understand where it’s all going and understand your habits. 

And then you get to decide where you’d like your money to go instead. You get to be in control.

But you need a certain amount of visibility to be able to do that. So, even if you use only a few budget categories, budgeting by dollar means that you’ll have that control.

#2 People who want to be able to fully customise it for your life

Because you have so much detail and so much control, you’re in the drivers seat. 

You’ve got the scarf in your hair, the oversized sunglasses, the leather driving gloves are on, your red lipstick is flawless, the top is down and the music is blasting. You’re in the drivers seat.

You can really have fun with it and make it entirely your own. And that’s what makes it so powerful. 

Not only are you in control, but you can design the entire thing to suit your needs and your life. 

You can design it to work for your goals and build your dreams in a way that no other budgeting systems can do. 

#3 If you want to prioritise your goals

So, following on from before, if your goals are important to you then this is the best budgeting option. 

It’s not an afterthought here, it your goals can really be front and centre. And with so much visibility, it’s a lot easier to make decisions that align with those goals. 

#4 People wanting a more advanced budgeting strategy

A paycheck budget isn’t the best option for beginners unless they want to dive into the deep end before wading through the kiddie pool. 

But if you’ve been budgeting for a while and you’re looking for something stronger, then a paycheck budget is perfect for you.

Think of it like levelling up your budget. 

#5 Those who earn irregular income or multiple paychecks

I’ve said this throughout this series, but if you earn an irregular income, if you earn multiple paychecks, or even if your income is above or below average then this is the only budget method I recommend for you.

The others we’ve talked about in this series just don’t account for the complexities of your situation. They were only made for one kind of person who lives a certain kind of life. 

And we may all be cookies, but we didn’t come from the same cookie cutter. So, our budgets shouldn’t either.

Who it’s not good for

Okay, so who isn’t the paycheck budget good for?

#1 Absolute beginners

I absolutely love my paycheck budget, I don’t think that’s a secret anymore. I think it’s the most sophisticated and strongest budget you can create. 

But I also think that there’s a time and place to use it. It’s definitely a more advanced budgeting technique. 

I recommend that anyone who truly wants control over their money and their future uses the paycheck budget method.

But it’s definitely not what I recommend for beginners. It’s a method that you need to graduate to as you get better at budgeting and as your needs and goals become more complex. 

So, the method that I teach, is what I call a graduation method. When you’re an absolute beginner, start off with the 50 / 30 / 20 method that we deep dived into in episode 8. 

You may love it and that’s okay. Or, you might outgrow it like I did, and that’s okay too. 

In that case, you then graduate to something a little more detailed and a little more complex, with a little more insight and control. 

And that’s the percentage based budget we talked about in episode 9. And then the same thing applies. 

You either love it or you outgrow it. And when you outgrow it, then you’d graduate to the paycheck budget method. 

I don’t recommend the paycheck budget straight out of the gate. It’s so detailed and requires more effort.

You’re more likely to get overwhelmed and confused and just never start because you don’t know how to. And I really want to avoid situations like that. 

Because if you never start, then you’ll never change your life and I’m all about empowering you to chase your dreams and build the life you were meant to live. 

#2 If you’re not willing to put in the effort / time

Following on from that, even if you’ve been budgeting for a while and you’re ready for a more advanced and sophisticated method — if you’re not willing to put in the time and effort that this budget demands, then just don’t do it.

There’s a reason I called the 50 / 30 / 20 budget a 2-minute budget. It literally takes two minutes. But there’s also a reason why I said it gave me 2-bit results. 

You get out what you put in. And the easier and quicker your budget is, the less detail and accuracy it’ll have.

Now, that doesn’t mean your paycheck budget will take 5 hours every single time. I can close out one budget and create another in a couple of hours every month. 

You could do it in less time, but I believe in taking the time to understand why you made the decisions that you did and what consequences those decisions had.

The point is that it’s not likely to take you 2 minutes. But if you want that level of control, you need to put in some time and effort.

And if that’s not possible for you right now, or you’re just not willing to make that commitment and sacrifice, then this isn’t the best method for you.

What the PMC budgeting philosophy is all about

So, now that we’ve covered all three types of budgets over the last few episodes, I wanted to draw your attention to something. 

None of these methods are new. They’ve all been around for a while, gone in and out of fashion and changed a lot over time. 

And it’s kind of like how civilisations adopted agriculture. Let me put on my tweed jacket with the suede elbow patches and go into a little history lesson. 

We know that agriculture was one of the things that created modern civilisation. 

It allowed us to produce more food than we needed, so that people could start focusing on other things — art, science, wars and such.

Before that, we were hunters and gatherers. But the interesting thing is that civilisations in different parts of the world, who never mingled with each other, all evolved some form of agriculture. 

They all arrived at the same solution to the same problem independently.

And the same tends to happen with a lot of things, managing your finances being one of them. 

When something logically makes sense, you tend to see it popping up all over the place. 

Now, why am I telling you this? I’m telling you this because you’re going to see a whole lot of budgeting methods and systems out there, especially on the internet — on YouTube, Instagram and just by Googling.

And, yes, some of those methods are going to be instances of financial experts reaching the same conclusion to a similar problem. 

But some of them are just going to be copies of each other. And I want you to remember that because here’s the thing: not all budgeting systems are the same.

And just because you see one method being more popular on the internet, it doesn’t mean that it’s the best method or that it’s the right one for you.

It might just be super shareable. Or it might have just come from someone who’s really popular.

You really need to think about the system you’re implementing and consider whether it’s good enough for your life and your goals.  

And don’t forget that necessity really is the mother of invention. If what you need doesn’t exist then don’t be afraid to create it. 

That’s exactly what I did.

What makes me different to most other financial experts

But at the same time, I’m not like most other financial experts.

Most financial experts have their favourite budgeting method and that’s the one that they teach and recommend. 

Now, don’t get me wrong, I have my favourite method too — but it’s my personal favourite method.

I don’t believe that budgeting is a one-size-fits-all solution. It can’t be. We’re all so different, with different lives and experiences and different goals.

We’ve gone through three budgeting methods in a lot of detail over the past few weeks. 

And it’s obvious that they each have their strengths and weaknesses — they’re not all the same.

But they all serve someone. They all serve a different part of your financial journey. 

I’ve used all three methods because there’s been a point in my life where each one of them gave me just what I needed.

So, it’s super important that you realise that your budget will evolve both as your needs change and as you get better with managing your finances.

There is no one right way to do this.

What my monthly budget looks like

So, in the next part of this episode, I wanted to share a little bit about what my personal budget looks like. 

Now, I’m sure I’ve mentioned this a number of times, but I use a paycheck budget as my regular budgeting method.

So, this is what my budget normally looks like, it’s not just an experiment this time.

I get paid once a month but I split my income in two and kind of turn it into two paychecks. 

So, I create two paychecks for myself — one is for our joint household expenses that I share with my husband and the other is for my own personal expense. 

Now, we’ll dive into relationships and money in future episodes. But for now, all you need to know is that I create two paychecks for myself, so I create two separate paycheck budgets every month as well.

Even when I only had one monthly income, I still used a paycheck budget because I liked how much transparency and control it gave me. 

I liked being able to build my budget up by dollars and be really intentional about where every dollar was going. 

So, for each of my budgets I have my income which includes both the actual paycheck amount as well as any opening balances for my transaction account and any money I’m using from my sinking funds. 

Then, I have my bills. An important thing to note here is that I have two budgets so my bills are split amongst each budget depending on which income source is going to be used to pay them. 

My bills aren’t all listed in one place. They’re listed against the income that will be used to pay them. 

And then I have my variable expense categories. Now, like I said before, I split my income between household expenses and personal expenses. 

So, on the household budget we have things like food and entertainment for when we go to the movies together or something. 

Not that anyone has been to a movie in a really long time around these parts.

But on my personal budget, I’ve got expenses that are mine alone. It’s things like my prescription medicines, clothes, fuel for my car, my fun spending and beauty expenses.

So, when I take my total income and subtract my bills and expenses, I’ve got some money leftover.

This will show you super clearly whether you’re spending more than you make, which we talked about earlier in this episode. 

But for me — I’m living within my means so I’ve got money leftover. And to me, this is where the fun stuff happens. 

This is where I get to reach my goals and make my dreams come true. I’ve already taken care of my needs — I can fund my survival.

I’ve also funded the “live your life now” part, right? My expenses include fun spending and entertainment. 

So, with the money leftover, which is my profit — so to speak — I’m focusing on preparing for the future and building wealth. 

Think of it like this — one part of your budget funds your lifestyle now, and the second part funds your lifestyle in the future.

I’ve got sinking funds for large future expenses like quarterly or annual bills, a new car and taxes. 

I’ve also got a sinking fund for travel and for spending money. My emergency fund is complete — we talked about that in episode 6.

So, I don’t need to set any money aside for it. And I don’t have any debt so I don’t need to make any extra debt payments.

Then I’ve also got my investments for retirement. And because I’m budgeting by dollars and not percentages, I get to really maximise how much money I can put into these goals. 

Because I can see everything — I can see every dollar and where it goes. And that’s what gives me so much control over my money.

Next weeks’ episode

And that’s all I have for you Girls on FIRE today! We made it to our 10th episode! I think that’s pretty exciting — any excuse to buy myself a cake will do!

My challenge for you this week is actually to head to papermoneyco.com and sign up for my free budgeting course. I’ll walk you through how to get your budget started even if it’s totally overwhelming and you don’t know where to start. 

I promise you that the hardest part is just getting started. But I’ll be guiding you every step of the way.

This weeks’ episode also wraps up my 3-part deep dive series into the different budgeting methods. 

On next weeks’ episode we’re changing gears just a little bit and talking about your net worth.

It’s one of the most important metrics to follow when it comes to building wealth.

It’s going to be super interesting so you’re definitely not going to want to miss it.

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Disclaimer

The advice shared on Girl on FIRE is general in nature and does not constitute financial advice. The information shared does not consider your individual circumstances. Girl on FIRE exists purely for educational purposes and should not be relied upon to make an investment or financial decision.


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