The world of “grown ups” is littered with responsibilities. One of them, the one that constantly rears its ugly head over and over again is that of bills and finance. It seems like everyone wants a piece of us, that we are working just to pay the next bill. Every service provider you have – electricity, insurance, mortgage, phone etc – issues a bill to you at different times. This makes it seems as though there is always some bill that needs to be paid, and this sits in the back of your mind, eating away at you until the dreaded due date arrives. Then you might realise that it hasn’t been paid yet and scramble to make a payment before you receive another lovely letter in the mail letting you know that you now owe more money as a “administrative fee” to handle the late payment (it baffles me how some companies can justify such exorbitant late fees… for what?). And what if your simply unable to make a payment?
So how should you handle this never ending torrent of recurring bills and invoices? All at once!
Almost every company or service provider that you have an ongoing relationship with is going to send you a bill on some regular interval. Your car registration and insurance is probably due once a year, while your internet access will likely be due every month. It’s rare to receive a recurring bill more frequently than monthly, but anything is possible.
Generally the bill or invoice you receive from each service provider is for about the same amount each time. There may be some variance, for example phone or electricity usage, but for the most part these variances can be easily accommodated.
Think of every one of these regular bills as a monthly expense. For example, let’s say you’re currently on a $59/month plan for your mobile/cell phone. That’s an easy one – you need to set aside $59 for next month for this (if you often exceed this amount you’ll need to take that into consideration and perhaps allocate more than the $59). Now look at your car insurance. Let’s assume the insurance is $1200. Break that down into monthly chunks of $100 and squirrel that away for next month. Repeat this for everything and you’ll end up with a number that you need to set aside every month so that when a bill arrives there are no surprises.
YNAB (You Need A Budget) is incredibly simple budgeting software that makes this process really easy to manage and to visualise. For example, breaking the $1200 insurance bill into monthly allotments of $100 can make it difficult to keep track of that $100. With YNAB a category can be setup for “Car Insurance” and every month that you allocate $100 you can see the accumulated total continue to climb.
Early Big Ones
In starting out this process it’s highly likely that some of the big bills coming your way are not 12 months away. For example, your car insurance is likely due in less than 12 months from today. That being the case, let’s assume the insurance is due in 7 months time. Instead of dividing the $1200 into 12 monthly allotments, break it into 7 monthly allotments of $172 until it is paid. As soon as it’s paid readjust to allocate the $100 instead, since it won’t be due again for another 12 months.
Again, tracking this allocation of money is much easier done with a trusted personal finance system such as YNAB.
With the preparation done it’s time to wait… To wait until those bills arrive. When they do it’s time to make any adjustments to the money allocated for the month the bill is due to cover any variances. The phone use for example, perhaps the bill arrives and is for $72 instead of the planned $59. Adjust this amount wherever you track the monthly allocation of money.
For items like this a good trick is to overestimate the monthly amount. Instead of allocating just $59 and then dealing with anything extra as it arrives and trying to scramble together that extra money, set aside $70. Then, those months where the bill is for just the $59 will leave a positive balance in that “bucket” and perhaps the next month you wont need to set aside another $70 – as long as the regular balance of that bucket stays at the $70 mark.
With any adjustments made store the bill itself in a trusted system so you can refer to it later when payment is made. I recommend using Evernote for this. You can find a full guide on tracking bills and receipts with Evernote in my upcoming book, Evernote Every Day.
Execution – Your Next Actions
It’s time to get moving on this! Here’s how to get started.
- On a piece of paper, or in Evernote, list all of your recurring bills. Think of everything. Smaller more frequent bills, right through to larger less frequent ones. Leave no stone unturned. Here are some ideas to get you started:
- Fixed line phone
- Mobile/cell phone(s)
- Internet access
- Car insurance
- Car repayments
- Car registration
- Mortgage payments or rent
- Next to each one note down the expected amount of the next bill along with the month it will need to be paid. For those bills where the due date is a few months away, take the total amount and divide it by the number of months until the month before the month the bill is due (this will allow you to pay all your bills at the start of the month, instead of trying to find those last few dollars on the actual due date. It may help to look through the last few bills if you still have them to work out an average amount due or any recurring amounts that catch you by surprise. You now have the amount you need to put aside every month to insure you never miss a due date again.
- Budget for these expenses first. The items you’ve now listed are your primary expenses. They are fixed expenses that will cause a lot of pain if they’re missed.
- Use YNAB to track each expense category (bucket) and watch the size of the bucket grow each month up to the due date.
- When you receive your bills in the mail, if they are due in the same month, pay them right away (there will be enough money side aside in the bucket to take care of them). If they are due the following month track them in a trusted system and on the first of the next month (or as soon as practical) get all those bills together and pay each one. Track the receipt of payment against th bill for your records, either stapling them together and writing (in a nice big happy marker) “PAID” and the date you made payment, or store both documents together in a system such as Evernote, or doo. You can find a complete guide on tracking bills and receipts in my upcoming book, Evernote Every Day (subscribe to Cloud Productivity for early access).
- Finally go and enjoy a stress-free month, knowing that all your dues are paid.
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