Make use of extra ‘gravy’ at Christmas

Garry Marr  Dec 10, 2011 – 7:00 AM ET | Last Updated: Dec 12, 2011 1:18 PM ET

Christmas comes twice a year for some Canadians — or so they think.

The three-paycheque month is viewed across this country as some type of well-earned bonus that comes through the sleight of hand of being paid every two weeks as opposed to twice a month.

Instead of 24 paycheques a year, you get 26. When you get that “lucky” month depends on when your two-week pay period is calculated. For whatever reason, perhaps because people budget on a monthly basis, those two extra paycheques are considered gravy by many workers.

“Most people budget [monthly]. We do know people have their monthly mortgage payments and certainly households [expenses] are probably monthly but their paycheque is coming on a biweekly basis,” says Sandra Sutton, director of product strategy at Winnipeg-based Ceridian Canada Ltd.

Ceridian, which handles payroll for companies, says about 59% of Canadians get paid on a biweekly basis, opening up the possibility of the three-paycheque month. The good news is Ceridian also says 89% of people go for direct deposit — something that probably goes a long way to eliminating that feeling of money burning a whole in your pocket.

Ceridian can’t tell you specifically if people save more with direct deposit but the option does allow employees to split up their money into different accounts, pocketing some directly into a savings account or some other type of savings vehicle like an RRSP or TFSA.

Ms. Sutton says she herself gets paid semi-monthly but she once worked for an organization where people were paid biweekly and people did feel they had extra money.

“It was true. You had this extra chunk of money. You had already allocated for your regular two paycheques towards your mortgage and other bills. So, bonus?” she says.

Tom Hamza, president of the Investor Education Fund, says if you’re thinking you’ve got some sort of free month, then it likely means you are not doing a good job of co-ordinating your income with your bills.

“All of your payments should be co-ordinated,” says Mr. Hamza, well aware of the concept because he himself is paid every two weeks. “I’m a complete nerd. I think I’m the anomaly. We budget monthly based on paycheques. We put money aside. It makes sense that people think it’s free though.”

The problem is that’s a major mistake, and at the end of the day that third paycheque should probably be thought of more as opportunity.

“The other time people think money is free is RRSP time when they get their taxes [or refund] back from the government,” Mr. Hamza says.

“If you are complaining about not having enough money, use these opportunities to liberate what is yours. These are the times you should be dealing with your debt, if you are like many Canadians.”

Vancouver-based certified financial planner Anthony Windeyer, of Coast Capital, says there are a couple of ways of thinking when it comes to the so-called extra money.

“If you are an excellent saver and doing all the right things, I would suggest they could treat it like free money,” Mr. Windeyer says. “However, if you are having budget challenges and you know that’s the case, I would treat it as the ideal opportunity to get ahead of the curve and pay down some more debt.”

When you think about all the unpaid credit-card balances, leftover RRSP room, unopened registered education savings plans and underfunded tax-free savings accounts, there are plenty of places to put those extra paycheques.

In some ways, that extra paycheque is almost a bit of forced savings. It’s yours. Do what you want with it, but why not make it go a lot further by investing it?

Of course, it is December. So if this is your three-paycheque month, Merry Christmas

Angela Calla, AMP Dominion Lending Centres 604-802-3983