July is a 3-Paycheck Month for Many. Do You Know What to Do With the Extra Cash?

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Many people are waking up with a bonus paycheck in their bank accounts on Friday, July 31— and no, it’s not a fluke.

Here’s how it plays out.

If you’re paid bi-weekly, that means there are 26 pay periods in a calendar year, and you’ll receive a paycheck every two weeks. Most of the time, that means two paychecks a month. But because of how the days fall throughout the year, there are two months where you’ll receive three paychecks as opposed to the usual two. 

It’s hard to estimate exactly how many American workers are on this schedule, as companies typically keep this information private, but HR professionals say this is the most common type of payroll for salaried employees.

If you’re paid bi-monthly, you’ll get two paychecks a month, either at the beginning and the middle, or the middle and the end. If you’re on this schedule, you won’t receive the elusive third paycheck.

If you’re one of the lucky people getting a third paycheck this month, rejoice! You’re in a fortunate position, especially considering the dire unemployment crisis. It’s time to use this money intentionally.

While we definitely support a little mental-health treat every now and then, there are some things you’ll want to do with that paycheck before you go spending it.

Pro Tip

Many people, depending on their employer’s pay plan, will wake up to an additional paycheck in their bank account on July 31. Use it to your advantage by paying your bills, adding to your savings account, or investing in your retirement fund.

First things first: Take stock of your bills. This includes cable, Internet, rent, mortgage, and payments on any debt such as credit cards, student loans, or personal loans. Given the economic uncertainty ahead, the experts we’ve spoken to recommend making at least the minimum payments on all the debt you owe in order to keep current and avoid damaging your credit. 

Next up, if you haven’t started an emergency fund, or your emergency fund has less than several months’ expenses in it, now’s the time to put some cash away. “Unplanned expenses can happen at any time, and nothing helps you sleep better at night than knowing you have some money put away just in case,” Greg McBride, CFA, chief financial analyst at Bankrate.com, told us in June.

Once you’ve paid your essential bills, starting a rainy-day fund — or adding to what you already have — will help strengthen your financial safety net and deal with any unexpected issues.

If you’re feeling solid about your emergency-fund savings, you can put more money toward paying down debt. If you need to prioritize among multiple lines of debt, we can recommend using the avalanche method, which means tackling the one with the highest interest rate first. 

There’s one more major factor to consider: retirement. 

While we certainly understand retiring might not be the first thing on your mind right now, it’s crucial to keep investing in your future. If you’re able to cover all of your essential needs, like shelter, food, utilities, transportation and medicine, use this bonus paycheck as an opportunity to do so.

Salaried workers with access to a 401(k) or 403(b) can sign up for a retirement account or boost their contribution rate by talking to their Human Resources representative—but that likely won’t take effect for a couple of weeks. 

One thing you can do right now, though, is open a Roth IRA on the side. An IRA is a retirement account that you manage independently, separately from your employer. There’s a contribution limit of $6,000 per year, but it’s fine to start small. NextAdvisor contributor Jully-Alma Taveras says she started putting $50 a month into a Roth IRA when she was 19, and slowly increased her monthly contribution to $500. Now she says she’s on track to accumulate $1.6 million by the time she’s 67.

If you’re feeling pretty solid about your financial state and want to give back, we definitely encourage that, as well—and now more than ever, there are a handful of charities active in health, social and financial-literacy causes that need your help.

For example, World Central Kitchen, Crisis Text Line, and The New York Times Neediest Cases Fund — which recently set up a special fundraiser for coronavirus relief — should be on your radar if you’re looking to help those seriously affected by COVID-19.

In addition, if you’re looking to spend money at for-profit companies that support charitable endeavors, we recommend looking into how their giving works. Some companies factor charitable giving as part of their company’s mission — such as Patagonia —while others primarily focus on it during times of crisis or the holidays. Either way, it’s important to do some research and see where your hard-earned money is going.

You should also keep an eye on social media for influencers and celebrities offering matching opportunities, especially during the COVID-19 crisis.

If nothing else, now is a good time to reexamine your budget and assess all of your nonessential expenditures. With a little extra cash in the bank, you can have a cushion to land on if things turn upside down.