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If you are a W-2 employee and get paid biweekly, there are two months out of the year when you will receive three paychecks instead of the usual two.
August may be one of those months.
This is a great opportunity to give your financial standing a boost, experts say.
“Receiving three paychecks in August can seem like a welcome surprise, but it also affords us a great way to plan ahead — and potentially get ahead,” said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, based in Irvine, California, and a member of the CNBC Financial Advisor Council.
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The months in which you get three checks depend on your pay schedule.
If you received your first paycheck this year on January 5, your three-paycheck months will be March and August.
If you received your first paycheck on January 12, 2024, your three-paycheck months will be May and September.
How to make the most of a three-paycheck month
“It may feel like ‘extra’ income but it’s not, it’s just spread out this way, so treat it as carefully as a typical paycheck and don’t blow it on something you’ll regret later on,” Sun said.
Consider this a chance to financially “level up.”
To that end, start by putting the money to good use by paying down high-interest debt, such as a revolving credit card balance.
“Mathematically, paying off short-term debt is always going to have the most impact,” said Derik Farrar, head of consumer deposits at US Bank.
Typically, credit cards are one of the most expensive ways to borrow money. The average credit card charges an interest rate of more than 20%, according to Bankrate.
“If you’re fortunate enough to be debt-free, then add to your emergency fund,” Sun advised.
Most financial experts recommend having at least three to six months’ worth of expenses set aside, or more if you are the sole breadwinner in your family or in business for yourself. Many households have far less saved these days.
“As we get further away from the pandemic and those cash cushions, it’s probably a good idea to look at how to start to rebuild that again,” Farrar said.
After that, an extra paycheck should go toward future plans, according to Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth, a wealth management firm based in New York.
“Assuming they’re all topped off on cash, this money can be invested for long-term goals,” said Boneparth, who is also a member of CNBC’s FA Council.
Sun recommends putting some funds in a 529 college savings plan or a Roth individual retirement account, which has the added advantage of allowing account holders to withdraw their contributions at any time without taxes or penalties.
Contributions to a traditional workplace 401(k) plan generally cannot be withdrawn without penalty but could come with the added benefit of an employer match, which is essentially free money toward your retirement savings goals.
However, “it doesn’t have to be all serious with no fun,” Sun said, whether that means spending a portion of this paycheck on getting together with friends or family or even just a night out.
“Don’t waste the opportunity and go celebrate carefully too,’ Sun said.