There may have been times when you've been in a bind and needed cash immediately. You probably had to take money out of your savings account, ask a familiar member or bank for a loan, or even gone to a payday lender. Being in a situation where you need cash right away to pay for a parking ticket, groceries, or gas to get to work can be stressful. In comes DailyPay, a payment method that you can use to get quick access to your income from your employer before payday.
That's good news—well, not always. Let's look at DailyPay's advantages and disadvantages when you have difficulty managing your finances.
The Advantage of DailyPay
If you've been out of work for a while and started a new job, you may have some expenses that you need to catch up on. For example, gas to get you back and forth to work daily or increased rent costs if you live in rent-subsidized housing. Where do you get this money if you haven't received your first paycheck? With DailyPay, you can get a portion of your pay in advance when you have a participating employer. By getting an advancement in your pay, you won't need to ask for or borrow money from anyone. That's great news, but it could also cause financial problems if you do it too often.
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Limited Ease of Access to Your Income
With DailyPay, you may assume you can get your full pay in advance. However, there are limits. Your employer can put limits on how much you can withdraw. For example, if you are paid $500 weekly, you can receive 40% or $200 in advance using DailyPay. Your employer will pay the remaining income to you on your regular payday.
Once payday does come around, you will notice that you're going to receive a $300 (pre-tax) deposit. This may be a little shocking to you. If you continually request DailyPay, the cycle of receiving various paycheck amounts can make it difficult for you to manage your finances.
Inability to Manage Your Finances Using DailyPay
Emergencies tend to occur when you least expect them. Things like getting a flat tire, having a boot put on your car, increased utility costs, or your air conditioner failing can cause you to scramble to find the funds you need to pay for these events. If you don't have an emergency fund setup, you may be tempted to use DailyPay. Triggering the DailyPay option will cause your monthly budget to get out of alignment quickly and can leave you scrambling to find the necessary funds to cover your bills at the end of the month.
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It can also lead to insufficient fund fees being charged when your bill payments are automatically drafted from your bank account. The insufficient fund fee of $35 or $75 may seem minimal when you are in a bind, but it tends to add up over time if you continually receive them. Having a budget that can eliminate the need to use DailyPay and the dreaded insufficient fund fees is essential.
Spending Without an Income Schedule or Budget
You can make transfers using DailyPay as often as your employer allows. You can transfer your funds daily, every other day, weekly, or on another schedule. The downfall is that you won't be able to predict your income to budget for your weekly or monthly expenses. If you aren't used to budgeting your income, this can lead to dire situations where you can't afford your living expenses. It can also become a habit of requesting your pay in advance, leading to the inability to plan for your future expenses.
Predicting your income is critical when establishing a budget for expenses. It will also help with future planning for the goals that you want to set for yourself.
What Can You Do To Prevent DailyPay Usage to Predict Your Income and Manage Your Spending?
Here are a few tips:
Reduce the usage of DailyPay so you can get paid on a set schedule.
Establish an emergency fund to reduce the need to use DailyPay.
Write down your monthly income and expenses.
Create a weekly or monthly budget for the income you plan to spend, save, or invest.
Establish future goals that you want to achieve using the SMART method.
Reduce your impulse spending on eating out or shopping.
Only use DailyPay when it's critical!
If all else fails, disenroll from DailyPay or delete the app from your phone.
Do you find managing your finances challenging? Book a complimentary consultation to discover the benefits of financial counseling.
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