My first paying job was working for my father when I was about 10 years old. He was a homebuilder and part-time hobby farmer, and I worked a variety of jobs.
One of my favorite jobs was assisting with the framing of a new home. It was incredible to see the skeleton of a home go up so quickly, and the fresh-cut pine lumber smelled incredible. You could see so much progress. Near the top of the list of my least favorite jobs was chopping weeds out of the soybean fields in the heat of summer. Regardless of the task, it was worth it because I was paid money. I was paid upon completion of a specific task or at the end of each week. My twin brother and I managed to save enough money to purchase a Pentax K-1000 35 mm camera (which indicates that I am getting old) and a Honda C70 Passport motorcycle.
When I began work in my first engineering position, my employer paid me every two weeks. Since I was busy spending all the money, it meant that I usually experienced a feast-famine cycle each month. The first paycheck of each month immediately disappeared to pay all of my debt obligations, while the second paycheck presented the opportunity for some fun spending.
In December 2002, I accepted a position with a new employer. This new employer paid on an entirely different pay schedule – monthly. Not weekly, not biweekly or bimonthly. Monthly. My immediate reaction was negative. Was I ever wrong. Monthly paychecks provided us the opportunity to pay our monthly bills all at one time. It also made it much easier to plan our spending with a monthly budget.
WARNING: I am an engineer, and this means that I do ascend into nerd-like behavior at times. This is one of those times. I believe that my money management was absolutely affected by the frequency of my paychecks, and it has caused me to wonder if the same is true for most people.
For instance, what if you were able to be paid yearly? On Jan. 1, you would receive all your pay for the year. Would it cause you to manage your money any differently than you do today?
I believe that it would. I believe that more people would take the opportunity to immediately fund their savings for retirement, college, and other known upcoming expenses – like Christmas, vacations, car replacement and property taxes. It would also require individuals to become excellent planners. Knowing that this money would be needed to fund all expenses for the rest of the year would make a budget absolutely imperative.
Of course, I believe a budget is imperative regardless of pay frequency.
What about you? Would you be more likely to save more if you were paid differently?