Archive

For most of my non-student adult life I've worked as a salaried employee. I'd given little thought to how my hourly rate varied based on the length of the pay period until I read Brandon Hanson's recent article – Paid Twice a Month versus Every Two Weeks.

This hourly rate variance is especially significant when you are starting or leaving a job. In the article, Hansen explains mathematically how the payroll policy of the new or old employer can greatly affect the amount of those initial/final paychecks. He writes, "I've been exposed to two payroll systems: the once-every-two-weeks kind and the twice-a-month kind. Each has its own nuances and quirks, but only recently did I realize how they could impact my personal finances in dollars, not just monthly planning differences."

When Hanson started a new job where he was paid twice a month instead of every two weeks, he was surprised by his first paycheck. “I had worked exactly two weeks, but I had been paid less than 1/26 of my salary. Why? Because I started in the midst of a long pay period." Determined to figure out how the length of a pay period could impact an employee’s bottom line, Hanson did the math and found that you can receive a temporary raise of over 20% or a temporary pay cut of almost 10% for no other reason than when you start a new job or leave an old one.

Although it is probably impractical for most employees to time the start of a new job to take advantage of this temporary pay increase, Hanson uses the article to argue that employers should pay their employees an average hourly rate during their first or last pay period.

In the end, however, there are many more factors when determining what your time is worth as Mike Smith explained in an earlier article here on the Lending Club blog. Factors like your commute and jobs with long hours all play a role in how much you ultimately make per hour.

On our journey to a better financial place, there are many roadblocks and opportunities for accelerated progress. Those around you will have a significant influence on your propensity for success.

Your friends and family can have a significant influence on your financial successes and failures. The reason is that everyone needs help with their finances from time to time. Whether it’s to actually ask for advice, or simply to bounce an idea off of someone, the people around you are the most likely candidates for such discussions. Also, difficult financial decisions will require a support group to help you through the potentially difficult times that result.

In most cases where we want to improve ourselves, we look for professional help or expert advice. If you were training for an upcoming road race, you’d probably spend the most time with friends who had completed such an event previously. Perhaps because discussing money is a more private affair, it is generally only done with the closest of friends and family. With such a limited group of potential discussion candidates, you are much less likely to find someone who is professionally qualified to dispense such advice.

Would you be better off discussing your investment options with your best friends, if they themselves were not successful investors, or with a more distant acquaintance with more experience? While you may be able to talk more openly with close friends, the value of their contributions is much less than what a narrower discussion with a more qualified person would yield. Someone with knowledge of new investment methods, such as P2P loan portfolios on Lending Club, may be able to inform you about low risk options that most people are unaware of.

We all have friends and family members who have varying degrees of financial experience. It’s important to keep the financial situation of these people in mind when we solicit their advice. The fact that someone is a good friend doesn’t necessarily mean that we should listen to his or her financial advice. All discussions of personal finance have the ability to increase our knowledge of the subject, but some will clearly be more worthy of our consideration than others.

My recent post on the identity theft risks of mailing bills got me thinking more about the way I pay my bills online. I use a variety of methods that I would like to share with you.

When you talk about online bill paying, there are a number of ways to do it. You can use transactions initiated by banks, transactions initiated by service providers, or automated payment systems. I use a combination of all three.

Even though I pay all of my bills online, I still receive paper copies of the bills in the mail. I find that doing so keeps me more involved in my finances and helps me to track (and remember to pay) my bills better. I regularly monitor my accounts electronically to ensure accuracy. I do this for my bill accounts, my accounts at financial institutions, and even my Lending Club P2P loan portfolio.

For bills that are consistently the same every single month, I pay with automatic payment. That means that the cost of the bill is automatically charged to my credit card on the due date. My credit card is my preferred method of payment because I earn travel rewards with every dollar I spend and I always pay my balance in full each month. If I couldn’t afford to pay off my bill each month, then I certainly wouldn’t use my credit card. Travel rewards are hardly worth the fees and interest charges that carrying a balance would incur.

As I said, I only use automatic payments for bills that don’t change. A quick look at my statement shows that the proper amount was charged each month. For bills that do change, I like to have more control over the payment. I wouldn’t want a bill with an error in the amount due to be automatically charged. For all bills that can be paid online with a credit card, I go to the provider’s website and pay using that method. Again, I only use my credit card because I get something for it (reward miles) and it doesn’t cost me anything since I pay my bill in full.

For bills that do not accept credit cards, or those that charge a fee for using a credit card (about $3 is typical), I pay from my bank’s online bill paying area. I prefer initiating debit purchases from my bank to giving service providers my banking information. Unlike credit card transactions, which can be disputed, debit transactions take money out of my account when they occur. Recovering money that was taken incorrectly is a more difficult process than disputing a credit card charge, so I prefer to have my bank initiate any such transactions.

By using a combination of automatic payments, service provider initiated transactions, and bank initiated transactions, I have created a bill paying system that offers me the right amount of control, flexibility, and benefits. Your combinations and methods will likely be different depending on your situation. Whichever method, or methods, of online bill payment you choose to use, the process will likely save you time and money and make your bill paying experience more pleasant.