How to budget for monthly bills on fortnightly pay

Your pay lands every second week, but the car loan, the phone bill and the health insurance come out once a month. Putting half of each bill aside from every pay seems like it should line up. It does work, but over a year it sets aside more than the bills cost, because fortnightly pay comes 26 times a year, not 24.

Below, you'll work out how much each pay needs to put aside, see why two months a year bring a third payday, and check the money will be there on the day each bill comes out.

The example uses three monthly bills, $650 in all: a $300 car loan on the 3rd, $130 for phone and internet on the 14th and $220 for health insurance on the 22nd. The money for them goes into a bills account, which here just means money kept apart from your everyday spending. A separate bank account does that job, and so does one line in a spreadsheet.

How much to put aside from each pay

Fortnightly pay arrives every two weeks. A year has 52 weeks, so that's 26 paydays a year, not 24. To turn a monthly bill into an amount for each pay, work out what it costs over a whole year, then share that across the pays in the year:

1. Multiply the monthly bills by 12: $650 × 12 = $7,800 a year.
2. Divide by 26 pays: $7,800 ÷ 26 = $300 from each pay.

Halving the bills instead would mean $325 a pay, $25 more than you need. Across 26 pays that's $8,450, so a whole extra month of bills ($650) gets set aside each year. That can be handy for building up a buffer, as you'll see further down. Dividing by 26 leaves the $25 in each pay for you, as long as you also check the due dates.

You can do the same sum for your own bills in Clova's bill converter, one bill at a time or all of them together. The example below enters the same $650 of monthly bills.

Why some months have three paydays

Twelve months of two paydays only adds up to 24. The other two pays land in months that get a third payday. Which months those are depends on the date of your first pay in the year, so they change from one year to the next. To find yours, count forward 14 days at a time from your next payday.

The figure below shows a year like this, with pay every second week from 7 January. Each block is one pay's $300 for bills, marked with the date it arrives. The dashed line is the $650 the three bills take each month.

Two months a year bring a third payday

Pay every second week from 7 January. Each block is one pay's $300 for bills.

A paydayThe third payday in a month$650 of bills each month

1. 721$600
2. 418$600
3. 418$600
4. 11529$900
5. 1327$600
6. 1024$600
7. 822$600
8. 519$600
9. 21630$900
10. 1428$600
11. 1125$600
12. 923$600

JanFebMarAprMayJunJulAugSepOctNovDec

In the ten months with two paydays, $600 goes in and $650 comes out, so the bill money falls $50 short. In April and September a third pay adds another $300. Then $900 goes in and the account gets $250 ahead. Over the year it evens out: ten months that are $50 short add up to $500, and the two three-payday months bring back $500.

Check there's enough on each due date

Evening out over a year doesn't mean there's enough on every date, so it helps to start with some money already in the bills account. That starting money is called a buffer.

The figure below follows the bills account through the same year, starting with a $400 buffer on 1 January. Each dot is what's left at the end of a month, once that month's pays and bills have gone through.

What's left in the bills account each month

The hollow dot is the $400 it starts with on 1 January. Each blue dot is what's left at the end of a month, after its pays and bills.

$350$300$250$500$450$400$350$300$550$500$450$400

JanFebMarAprMayJunJulAugSepOctNovDec

Bills account at the end of each month, starting with $400

Jan	2 pays	$350
Feb	2 pays	$300
Mar	2 pays	$250
Apr	3 pays	$500
May	2 pays	$450
Jun	2 pays	$400
Jul	2 pays	$350
Aug	2 pays	$300
Sep	3 pays	$550
Oct	2 pays	$500
Nov	2 pays	$450
Dec	2 pays	$400

The account slips $50 in each two-payday month. April's third pay lifts it by $250, it slips again until September, and it ends the year back at $400. Month-end balances dip to $250 in March and $300 in August. The lowest point of all is $0 on 3 March, as the timeline below shows.

The car loan comes out the day before payday

1. End of February$300 in the account
2. 3 MarchCar loan $300Paid in full$0 left
3. 4 MarchPay adds $300

The lowest point falls inside a month, rather than at the end of one. A big bill that comes out a day or two before payday takes the balance lower for a day or so. At the end of February the account holds $300. The $300 car loan takes all of it on 3 March, the day before the next pay.

With $400 to start, that's just enough. With nothing to start, every balance would be $400 lower, and the car loan would be $400 short. That's how the $400 buffer was worked out.

To find your own buffer, list every payday and bill for the next twelve months in date order. A spreadsheet with one row per date makes this quicker than it sounds. Start with what's in the account today, add each pay's share and take away each bill. If the running total drops below $0, the lowest figure shows how far short you'd be, and that's the buffer to put in first. Add a little extra in case a bill goes up.

If you can't put the buffer in all at once, build it up. Putting half of each bill aside for a while ($325 instead of $300) adds $25 a pay towards it, and you can drop back to $300 once the buffer is there. Until then, check each bill date as it comes up and top up from your everyday money if the account would fall short. Working out what's left before payday helps you see how much your everyday money can spare.

Whichever amount you use, the question each month is the same: what's due before the next pay, and is the money already there?

Ask whether a bill can be paid fortnightly

Some bills don't have to be monthly. Many lenders, health funds and insurers let you pay fortnightly, and some let you choose the day. A bill that comes out every second week, the day after payday, matches your pay, so the three-payday months stop mattering for that bill.

Before you switch, ask what the fortnightly amount adds up to over a year, so you can compare it with the monthly bill. For a loan, also ask whether paying fortnightly changes the interest or when the loan ends.

When a bill or payday changes

Bills go up and paydays move, so the plan needs a quick update when they do. When a bill changes, work out the new amount for each pay and change your transfer from the next payday. Check the running total again too, because a bigger bill can need a bigger buffer.

If payday falls on a public holiday, the money may arrive a day earlier or later. Check how your employer handles it. When a bill and a pay land on the same day, don't count on the pay arriving first.

Every so often a year has 27 fortnightly paydays instead of 26. If you keep putting the same amount aside, the extra pay adds one more share to your bills money, which does no harm. Some employers spread a yearly salary over 27 pays that year, so check your payslip in case each pay is a little smaller.

If you can't cover a bill

If the running total shows a bill you won't be able to pay on time, contact the provider before the due date. Many can move the date or set up a payment plan. Electricity, gas, water and phone providers have hardship programs for people who are struggling to pay.

A financial counsellor can help you work through bills you can't cover, for free and in confidence. Call the National Debt Helpline on 1800 007 007.

Show the method and assumptions

The example year has 365 days and pay every 14 days from 7 January, which makes 26 pays. The three-payday months are April (1, 15 and 29 April) and September (2, 16 and 30 September). The other ten months have two pays each.

The bills are the same every month: car loan $300 on the 3rd, phone and internet $130 on the 14th and health insurance $220 on the 22nd. That's $650 a month and $7,800 a year. $7,800 ÷ 26 = $300 a pay exactly, so nothing needs rounding. Halving gives $325 a pay, or $8,450 over 26 pays, $650 more than the bills.

Two-payday months: 2 × $300 = $600 in and $650 out, $50 short. Three-payday months: 3 × $300 = $900 in, $250 ahead. Ten months × $50 = $500, and 2 × $250 = $500.

The bills account starts with $400 on 1 January, and every pay and bill is applied in date order. When a pay and a bill fall on the same day (22 July and 14 October), the bill is taken first, so the check doesn't rely on the pay arriving first. The month-end balances are $350, $300, $250, $500, $450, $400, $350, $300, $550, $500, $450 and $400. The lowest balance on any day is $0 on 3 March, after the car loan and before the 4 March pay. Starting from $0 instead, every balance is $400 lower, so the lowest would be −$400.

There are no fees, interest or price changes. A real bill may come out on a different day if its due date falls on a weekend or public holiday.

The bill converter multiplies a bill by how often it comes in a year, divides by 26 for fortnightly pay and rounds up to the next cent. For $650 a month that's $300.00.

The Clova card is a sample Monthly bills allocation in a two-payday month: $600 set aside of $650.

Budgeting guidance from Moneysmart, the government's free money guidance site supports listing each bill with how often it comes and when it's due. Its guidance on problems paying bills supports contacting providers early and the National Debt Helpline.