Would You Accept A Salary Advance?

In the world that we live in most employers offer one of two options for receiving your pay.  The Bi-Monthly paycheck, paid out on the 1st and the 15th of every month thus allowing 24 paychecks or the Bi-Weekly paycheck which results in getting paid every 2 weeks for 26 paychecks throughout the year regardless if you are hourly or salary.    Up until a few days ago I was part of the Bi-Monthly pay period and 24 paychecks and now as of 2015, 26 paychecks is my new way of life..  The big change for me is the first check in the New Year, I will only receive pay for 7 days instead of the usual 10-11 days within the Bi-Monthly period. To help employees ease into the change, the company is offering an advance on my salary.  Free Money Right?!?!  So would you accept a salary advance?



If you are like me you need some numbers to get your brain working.  Let’s say your gross salary is $3,000 your new Bi-Weekly(26 paychecks should be $3,000 (78,000/26 weeks)and no way am I getting into taxes on this. .  Because this is the first time your company uses this plan your first paycheck will be for the first two weeks of the year January 1st – January 9th , only 7 working days which amounts to the first paycheck being $2,100.  Going from 3k to 2k right after the holidays is probably a big hit for most people, who are living paycheck to paycheck.  That’s $900 that we will not be getting until July when we will receive 3 paychecks, that and to go along with a slighter lower paycheck each time is certainly a tough change.  In our scenario after the first big decrease  the remaining of the paycheck will be an adjustment of $250 less each paycheck than your normal bi-monthly check. ($3,250 with a Bi-Monthly, 24 paychecks).  Scary right?

Since the change affects so many people and comes right after a time when people are spending extra money on Christmas presents, travel to see family, and popping bottles of champagne on New Year’s, they decided to offer a Salary Advance.  Here was my initial reactions:

 I don’t need a  salary advance, I have my money budgeted.  I don’t live paycheck to paycheck.  I’m going to have to pay the money back anyways, I’m not doing that.  They probably charge you a bunch of interest and fees, nice try, but no thanks.




Here’s a brief summary of the company offer:

If you choose to have a salary advance you will receive 3 days worth of pay on your first paycheck in January, you will be expected to pay this amount back over the next 25 paychecks, there will be no fees or interest charges, but if you should leave the company the full amount will be due from your last check.

Here is your choice from our example above, do you want $900 now or do you want $36($900/25 Remaining Weeks) less in each paycheck this year?  I started explaining it multiple ways to myself like do you want $900 now or $36 every 2 weeks for a year?  Would you want a year’s salary upfront or paid out over the course of the year? This idea got me thinking this would be the greatest thing in the world for the employee and the worst thing in the world for every company out there.  Yes sir I want the entire salary mentioned above of $78,000, think of all the things you would be able to do with that and how you would live your financial life differently.  I wouldn’t worry about paying off my debt in April, I’d pay it off Today, Booyah!(Rest In Peace Stuart Scott) 401K, HSA, IRA, all done, Booyah!  Budgeting would literally be the most important thing in the personal finance world, I mean it is, but this would blow it up, I think every single person in the U.S. would be required to take a Budgeting class, because the downfalls of not budgeting your money would send everyone into a tail spin.  I can see the stories and headlines now:

Man Buys New Mercedes, Prefers Car over Food!  Women Dressed For Success with $30,000 New Wardrobe, Fired Week Later, Now on Scavenger Hunt for Receipts!  Couple Puts Paycheck on Red, Soon Finds Out, So Are They! 

I could go on forever on this one, but let’s get back to the real life example for a minute.  So $900 now or $36 every paycheck.  I am in the NOW.  I want to pay off my student loans and any extra money coming in is going to be great, because remember I’m sacrificing my a$$ off right now to pay them off by April.  It’s very similar to an annuity option that you may have closer to retirement, do you want your lump sum payment or your monthly annuity?  Which really depends on what interest rate you are receiving over that time and if you are able to do better.  In my case I am paying off my student loan which is at around 4% interest, this would result in approximately $36.67 in interest over 1 year, I used this compounding calculator to figure this out.  The end result is I’m going to save money by taking a salary advance.  While not saving tons of money, I am still saving some money by taking a salary advancement.

While my option was to have 3 days of my salary advanced to me, let’s make this more fun and answer these questions.

What would you do with a 1 year Lump Sum Payment from your Employer/Self Employer?  Would you be able to handle the pressure of handling your budget for the year and the consequences if you didn’t?  What would your headline read,  would it read like mine?


Even Steven pays of Student Loans, Maxes Out Retirement, and Eats Only Ramen Noodles in December!


Featured image courtesy of 401K Calculator found at Flickr




12 Responses to “Would You Accept A Salary Advance?

  • Oh man, I don’t think I would want to receive a lump sum salary advance. I say this because I tend to worry and over analyze everything. Even if I was on track with my budget, I would still worry. To me, that’s not worth it.

    But in your specific situation, I believe I would take it since I am also working to pay off my student loans. Since it is advanced interest free, I would apply that money to the interest accruing debts and come out ahead. If, on the other hand, I didn’t have debt, I’m not sure I’d take it since it wouldn’t really make a difference in my budget.
    Jessica recently posted…Save Money on FitnessMy Profile

    • EvenStevenMoney
      3 years ago

      Yeah the lump sum salary advance is a bit scary, having that much money in a lump sum for the year takes a lot of discipline.

  • I think it would be difficult for most people to stay motivated. Without that carrot every week to remind you of why you are there. A big problem lies in what would happen if someone got fired, or demoted. How and in what method would they have to pay money back to the employer?

    As far as the individual budgeting end of things go, it would be amazing. I think you are right, many people would have a problem with getting through the year. I could see many running out of money by the third quarter and some burning through it in a month.
    John C @ Action Economics recently posted…How We saved $2,000 at Meijer in 2014My Profile

    • EvenStevenMoney
      3 years ago

      Yeah it would be the worst thing possible for the employer, asking for madness. I mention the salary advance because in many ways this is how early retirement will play out for many. I don’t think thing it would be as extreme as the year advance, but many will do quarterly, my action plan is to have a year’s salary built up to work off so in my situation this is my exact plan in many ways.

  • I get paid your old way, and the husband gets paid your new way, bit both incomes are variable so we have to have a little bit of padding in our budget. We’re not sitting on a huge, huge emergency fund, but we have a tiny bit of slosh money. At my first grown up job I got paid monthly. I’ve always been a neurotic budgeter, though, so things panned out well.

    If you’re carrying interest bearing debt, you’d be a fool not to take it all up front, right? It’d save you money if you could pay the bill off now rather than installments. As long as you had the self discipline to manage the rest correctly so you don’t end up racking up even more debt later in the year.
    Femme @ femmefrugality recently posted…Favorite Free Grocery Shopping App & $50 Amazon GC #GiveawayMy Profile

    • EvenStevenMoney
      3 years ago

      The Bi-Weekly paycheck didn’t change up to much with my budget other than rearranging my transfers and a little less savings/debt repayment as a whole until those months with the 3rd paycheck.

      Exactly on the taking it up front, I was trying to figure out why it was wrong and in fact it was right, so I took it.

  • If I had my entire year’s salary paid upfront, I’d be way too tempted to put that money straight into the stock market as soon as I got my hands on it. Then I’d probably be very upset when the reality hit that I need to sell some stocks during the year – which I’m sure wouldn’t be financially or emotionally good for me.

    In reality, I’m sure I’d put all that money straight against my debt to save on some interest, and draw from it during the year as I needed it for living expenses. Hmmm, maybe I should go and ask my boss the question…

    • EvenStevenMoney
      3 years ago

      That’s interesting I don’t think I would have thought of doing that way, I also have this hatred of date so I’d still take it slow and steady for the repayment, well lump-sum on the debt part.

  • Admittedly it doesn’t address the topic of your article, but I have a little bit different perception on the transition from bi-monthly to bi-weekly paychecks.

    Assuming a $31,200 annual salary (for mathematical simplicity), 24 bi-monthly paychecks would be $1,300 each whereas 26 bi-weekly paychecks would be $1,200 each. Most of us budget expenses on a monthly basis and cover those expenses with monthly income. Therefore, realized monthly income – that is the amount of money earned in a one month period – would be $2,600 under the bi-monthly scheme and $2,400 under the bi-weekly scheme. The initial observation is that we have $200 less to spend on a monthly basis. However, two months out of the year bring paychecks of $3,600 each under the bi-weekly scheme, which is a $1,200 surplus in those two months. The result is basically a forced savings plan. Trim a measly $200 out of your budget each month and be rewarded with an extra half-month’s salary twice a year. Or, if you’re keeping track…a full month’s salary once a year.

    What’s the next best thing to early retirement? Earning a 13-month salary in exchange for 12 months of work.
    Mr. Maroon recently posted…A Glimpse Into RetirementMy Profile

    • EvenStevenMoney
      3 years ago

      Love this, you are 100% spot on, couldn’t have said it better myself! That’s what I did when I was going through my 2015 budget, I cut it to my zero budget for the month of what I will receive, then in those 2 months I will use that towards buying a Maserati, jk probably paying off debt or increasing my investments.

Trackbacks & Pings

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge