Seriously, my decisions in the past few months have led me to quite the predicament for the upcoming month. You see, up until 4 months ago, I only got paid from my airline gig once per month. It was a choice I made years ago when I wasn’t working much and didn’t want a “draw” on my paycheck at the start of the month (5th) in the event I couldn’t cover it at the end of the month (20th). We’ve all heard about writing checks your butt can’t cash – same idea.
For those who aren’t familiar with what a draw is, in our case as hourly employees, we are paid for a certain amount of hours at the beginning of the month regardless of if we have worked them or not. When the second check rolls around they calculate our total pay for the month then deduct the draw we had at the start of the month. It is a great option for those who need help budgeting or for those that enjoy the twice monthly pay…I needed neither. However, what I thought I needed was to get a hold of my money earlier each month so I could invest it sooner.
Enter Dollar-Cost Averaging…
According to Investopedia, “Dollar-Cost Averaging (DCA) ) is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. It is also referred to as a constant dollar plan.”
My thought was if I could get my paws on some dough earlier in the month (and more frequently than once a month) I would reduce the amount of volatility and risk my money was subjected to by giving myself better odds at timing the market properly.
And that is all fine and good – but the amount of money I am investing isn’t worth the amount of hassle my twice monthly paycheck turned out to be…
As a once-a-month-paycheck kinda girl, my finances were on autopilot. I knew how much was going to my 401K (20%), HSA, ESPP (Employee Stock Purchase Plan), Savings, Investments, and Checking account. Whatever was leftover went directly into my savings account never to be touched again. Easy peasey, had I kept it that way. But once I switched over to a bimonthly pay schedule the shit really hit the fan!
Here is how it works – I get paid this month for the hours I worked last month. So in July I am being paid for Junes hours. With that in mind, I thought that meant they took my 5th paycheck of the month out of the same paycheck for the 20th. I was wrong. They took the money I was paid on March out of April 20th’s paycheck. Example:
- March 5 – draw $2800 from April 20th pay
- March 20th – Pay from all hours in February
- April 5 – draw $2800 from May 20th pay
- April 20th – Pay all hours from March minus March 5th draw of $2800
- May 5 – draw $2800 from June 20th pay
- May 20th – Pay all hour from April minus April 5th draw of $2800
- June 5 – draw $2800 from July 20th pay
Confused? I was. In fact, when I was paid that February 20th paycheck, I called payroll and told them they had forgotten to withdraw the money I had gotten on the 5th. Yeah. Right. Free money? That never happens (or does it…stay tuned). She explained it was a draw for the future paycheck and, after her going over it a couple times with me, I pretended to know what the heck she was saying and hung up in agreeance. I decided I would understand it in due time but, alas, it wasn’t until this month that I truly understood her explanation…more on that in a bit.
So – with a twice monthly pay schedule in place, I now had to change my direct deposit allotments as well. If I had allotted $300 per month to my ESPP, I now had to change my allotment to $150 so each draw would now equal $300 for the month. If not, I would continue to get $300 per PAYCHECK in turn purchasing $600 a month in my airlines stock…even at a 10% discount that thought was unappealing. So I went through and changed all of my direct deposits and automatic withdraws to meet the new pay structure. Done? No… The transition was anything but seamless and had me dodging curve balls for the next few months. Here is how it all went down…
1. Somehow, something glitched in payroll and they deposited the leftover savings to one of my accounts but not the one I had allocated it to.
2. Then, something went wrong with my ESPP and they didn’t deposit anything! When I called to inquire the lady couldn’t figure out why it hadn’t been deposited but assured me the next month it would…um, so yeah, I missed out on a whole month of contributions.
3. Then, one of my other direct deposits started depositing DOUBLE the amount of deposits and essentially giving me free money. Yes, free money! I checked my pay stub against the bank deposits and there was extra money unaccounted for. *This has since been straightened out but, had I not called again, who knows how long it could have gone on for!!
4. And, to top it all off, I had to keep on top of delegating my investment fund monies into the proper accounts now 2x a month instead of the one. Ugh…first world problems 😉
So, yeah, all of this time and frustration was not adding up to saving me from the volatility I was trying to avoid – whether it were my money or my sanity, I was losing it big time. I needed to smooth the curve once again. And so I did. After a few months of experimenting I decided the 2 paycheck deal wasn’t for me.
On June 20th, I set out to undo everything I had done and went back to the single pay period that I had been so used to. I put in the request and watched the confirmation number pop up…and I immediately relaxed. The ride of uncertainty was over – I was home free!!! For the past 30 days I have been looking forward to my July 20 paycheck. I planned ahead with a small cushion knowing the July 5th paycheck would no longer be deposited. I just had to make it through 30 days and I would be rolling in it. All was going swimmingly…until the 20th came around and I realized my fatal financial flaw…
I. Forgot. About. The. Draw.
UGH…Remember that nice lady from payroll that I had spoken with on the phone? Well, I didn’t. When July 20th came around, I excitedly typed in my bank name and password and scanned the page for my newest payroll deposit. There was none. $0. Zilch. I forgot to deduct the $2800 from my monthly pay that I had received on June 5th…in turn, I came up short for that account.
- June 5 – draw $2800 from July 20th pay
- June 20th – Pay from all hours in May minus May 5th draw of $2800
- NO JULY 5 PAYCHECK
- July 20th – Pay from all hours in June MINUS June 5th draw of $2800.
Shit, double shit. Thankfully I had enough to cover all of my usual savings accounts – HSA, ESPP, Savings 1 and 2, and my investment account. Basically, though my paycheck was not a large one, I effectively saved 100% of it in those accounts. Unfortunately, that left nothing to go into my checking. Nothing. Not a dime. I had prepared with a narrow margin for missing the 5th paycheck but I had not prepared for missing that one PLUS $2800 from the next. Adding insult to injury, in July I had some major expenses such as replacing my car radiator ($434), property taxes ($247) that needed paying, and a round trip ticket to Hong Kong that I couldn’t pass up (seriously, $461!!). All together hat’s a lot of mazuma!!
So what did I do? First, I flushed with heat and cursed my stupidity. Next, I took my $940 in cash reserves (AKA an emergency fund) and deposited them to my checking account. My taxes needed paying and I wasn’t going to incur a late fee. Then, I took the $800 in my travel fund and transferred it to my checking so I could pay off my entire June statement balance which, thankfully, was only $251.69…momma don’t pay interest. After that, my credit card balance dropped to $1041 and, it pains me to say, there it will stay until my next pay period on August 20th. I refuse to pull from my savings and, since the charges were made after the closing date of the last statement, this balance is technically not due until 8/25. Phew!! In the meantime, I now have $1200 to get me through the next month including a 4 day road trip to Washington DC with my 93 year old Nana AND a wedding weekend in Lake Geneva, WI… guess I won’t be replacing my box of wine this week! 😦
I have painfully relived this past month for you in an effort to shine the spotlight on the fact that complicating things for a few pennies often times is not worth the time it takes to sort it all out. Make your life as simple as possible. Do as I say and not as I did…
Automate everything that you can.