Welcome to the New Year, a time for fresh starts. For many people, keeping track of bills and paying them on time can be a hassle. Here are three daily money management techniques you can use to make a fresh start and streamline your bill paying.
1. Create and use a financial calendar
A financial calendar keeps track of payment due dates. This helps you avoid late payments and their associated penalties and fees, which can be costly. You can also have your financial calendar keep track of regular income deposits, remind you to review your account statements, and to reconcile your accounts.
There are many ways to keep a financial calendar. The method isn’t important; choosing one that you will actually use is. Those who like pen and paper can dedicate a 12 month calendar for this use, keep track in a notebook – one page for each month, or create a chart on a single piece of paper. Those who prefer electronics can use financial software, calendar reminders, apps, bill payment services, and spreadsheets.
To create a financial calendar, comb through your bank statements, bills and checkbook register to find all the bills you pay and their due dates. Locate your regular income and deposit dates. Transfer this information to your calendar. When noting when to pay bills, leave sufficient time for the payments to reach the vendor.
2. Automate your bill payments
Automated bill payments save significant amounts of time. You don’t need to handwrite or print checks, or spend time making online bill payments. You save money on stamps. Electronic payments are also considered more secure than mailing checks. When payments are set up to arrive before their due dates, you don’t need to worry about forgetting to pay a bill and incurring late fees.
There are two basic ways to pay bills automatically:
- Automatic or direct debit is where service providers take the funds directly from your bank account or charge them to your credit card. The exact amount due will be paid each time.
- Online bill payments are where you log on to the bank’s website and instruct the bank to send payments to vendors. You can automate payments to be sent regularly on the dates you predetermine. If there are variations in the amount due, you will need to make adjustments.
Many banks will gather bills that can be sent electronically. You can then view the bills on the bank’s website.
There are also independent online bill paying services. These sites help you aggregate your electronic bills and set up automated payments from one or more bank accounts.
Some of my clients express concern about losing control over their bill payments or not knowing how much money is being deducted from their checking accounts. When companies debit your account, you will receive a bill before the money is deducted. This gives you time to review the bill and call the company with any concerns.
If you hesitate to have vendors automatically draft your primary checking account, you can reduce your exposure by charging bill payments to your credit card or by setting up an auxiliary “bill-pay” bank account from which they withdraw the funds. With an auxiliary account, you can keep the balance to just a little more than what is needed to cover the bills. You will need to monitor the account balance and regularly transfer funds into the account to cover the bill payments. Transfers can be automated from your bank’s online banking feature.
3. Prepare for large lump sum payments
I have frequently seen people struggle to pay large bills that are due once or twice a year, or irregularly. These bills include property taxes, insurance premiums, heating fuel pre-buy programs, and estimated income taxes. You may have others. When people don’t plan for these bills, they have cash flow problems. The trick is to set aside money each month so you have it in-hand when these payments are due.
To figure out how much you need to save each month, determine the annual amount due and divide that amount by 12 months.
Many people struggle to keep these reserves in their checking or savings accounts. If the money is there, they see it as available to spend. One technique is to remove it from your primary account and store it in an account dedicated only for this purpose. Set up an automatic transfer from your primary account to the “storage” account. If your employer can do this, have money from each paycheck direct deposited to the storage account. (To determine how much to save, divide the total amount you need to save each year by the number of pay periods in a year.)
If you do not trust yourself to not raid this account for purposes other than the bills that this money will pay, make it hard to reach. Open it at a different bank. Skip setting up online access. Do what you need to do to keep this money available to pay those infrequent big bills.
By employing these techniques, you can make a fresh start this year and reduce a lot of stress around paying your bills.
This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.