Are you one of the 38 million American families living paycheck to paycheck? If those paychecks come every two weeks, you might automatically earn a little extra cash this year.
Thanks to what some are calling a “payroll leap year,” if you get paid every two weeks, you may receive an extra paycheck in 2015.
“[T]here are 27 pay periods during the 52-week calendar year instead of the usual 26. This quirk happens about every 11 years, delivering a cash bonanza for many workers. Some employers will be paying that 27th paycheck on top of regular salary, resulting in about a 4[%] annual raise, while others will redistribute the set salary among 27 checks,” reports Yahoo Finance.
This means Americans who earn a paycheck every two weeks will receive an extra check at the end of the year — which could be in addition to other traditional holiday bonuses. If you’re living paycheck to paycheck, you could suddenly have several extra thousands dollars in your pocket as a result of this irregular calendar.
Since earning this extra cash is so rare — and may only happen once or twice in your professional career — it’s important to make the most of it. Here are a few savvy ways to maximize your extra paycheck:
1. Pay Off a Credit Card or Student Loan
Most Americans are buried in some kind of debt, whether it’s from a consumer credit card or a student loan you’ve been carrying around for a decade (or even longer). This kind of debt negatively impacts your credit score, which can make it more difficult to get credit in the future, get a good deal on a car loan or even buy a house.
If you receive an extra paycheck this year, consider using this “bonus” to pay off your debt. Even if the extra paycheck doesn’t pay off an entire credit card or completely eradicate that awful student loan, it could make a large enough dent to lower future payments, which can open up room in your budget next year to pay off another expense, invest more in savings or even to treat yourself more often with a weekly latte (or even two!).
2. Save for Next Month’s Rent
When you’re living paycheck to paycheck, it’s easy to get behind on payments — or at least feel like you’re always behind. To help alleviate some of that stress, why not put your extra paycheck toward next month’s rent or mortgage payment?
If you have an especially large paycheck (or, alternatively, a low cost of living), you could even set the paycheck aside to cover several months’ worth of these expenses. When you don’t have to worry about making ends meet, you’ll free up your budget to cover other expenses as they pop up — and you won’t feel like you’re living on the edge every month.
3. Create an Emergency Fund
What’s one of the worst things that can happen if you’re living paycheck to paycheck? An emergency, whether it’s a trip to the ER, a car accident or a broken appliance at home. If you aren’t setting aside money now, use that extra paycheck to create an emergency fund.
Create a second checking account or open up a savings account with your current bank that allows you easy access to funds. (Most banks allow you to transfer funds online between these accounts and your primary checking account for free, so try to stick with the same bank you already use for checking.)
After you deposit your bonus check, it’s important to remember this money is only for true emergencies. Don’t be tempted to withdraw cash just because you’re craving coffee or desperately want to go out for dinner!
4. Start a Savings Account
When you live paycheck to paycheck, you often barely have enough income to cover the basics, let alone enough to set aside for savings. Opening a savings or investment account with your extra paycheck could be one of the smartest moves you make with this extra cash. With the right type of account, the interest rate could help you earn thousands of dollars on top of your initial deposit over the course of your lifetime.
If this sounds like the right move you want to make, talk with your local bank to see what kind of savings or investment account is right for you.
5. Add a Little Extra to Your Retirement Account
This is another super-smart move to make with the extra money you’ll earn in 2015. If your employer offers a 401(k), sending this extra paycheck directly to your account will pay off when you’re older — especially if your employer matches your contribution.
You’ll need to make sure you haven’t maxed out your possible contribution, but if you haven’t, this is a great opportunity to put as much as possible into your retirement account. The best part? Your bank account or budget won’t ever notice the money isn’t there, but it will make a significant impact on your life when you’re ready to retire.
If you get paid every two weeks, it may be worth asking your boss or HR department how they’ll be handling this payroll “leap year.” You may discover that you’re in for quite the treat at the end of 2015!
Your Turn: If you earn an extra paycheck this year, how will you spend the money? Share your thoughts and tips in the comments!
Kelly Clay is a freelance writer and editor from Seattle. Her work has previously appeared in Forbes, VentureBeat and WearableWorldNews. Find her on Twitter at @kellyhclay.