Everybody has to pay bills, and everybody has to pay their bills on time. Really the first step in getting your finances in order is to start a budget. Without really knowing how or where your money is spent, you have no way of really understanding how to make your financial situation better, or have a way to manage the monthly barrage of bills that we normally have to deal with. Building up your financial freedom starts with the most basic of premises…paying what you owe.
It’s amazing how many people are struggling with this month in and month out. It can be frustrating and demoralizing, and it makes it very hard to better your situation if you are stuck in your check to check rut without seeing any progress. I have been in that exact situation before, and here’s what I did to organize my finances. That organization allowed me to manage my money better and see where I could really change things up for the better. Here are some steps to budget your money and pay your bills on time.
- Organize your bills
- Pay your bills online
- Make use of automatic payment plans
Organize your bills
Knowing your monthly inflow and outflow is the single most important aspect to getting your finances in order. Just like anything, paying your bills is a routine that you have to work at until it becomes second nature to you. The first thing you need to do is to take the guesswork out of your finances. To do that you have analyze and organize your money and bills into a system that you understand and can easily manage. Here is a step by step guide to doing that.
Understand your paycheck
A common problem people have with budgeting their money is that they overestimate their paycheck. For instance, if you make $35,000 a year and get paid biweekly, you can easily do the math (35000/26) and see that you will get a gross amount of $1346.15 per check. Sounds good right? The problem is that people will budget from this amount and wonder why they’re always short. Once you take out income tax, money paid for benefits, and any money you decide to have put away for retirement…your check can be much lighter. On average I would say we get about 75% of our actual paycheck. So, that $1346.15 becomes $1009.62. That extra $300 makes a big difference when it comes time to pay bills.
A good rule of thumb is to be conservative with all of your budgeting. Always leave room in the budget for variations in your paycheck, it’s better to underestimate your check than to overestimate it. Take the lowest amount of your last 5 checks or so (assuming that they stay fairly much the same) and use that as your income in your budget.
Understand your bills
A very similar problem people have when trying to manage their money is miscalculating the amount of their bills, and the dates they have to pay them. Some bills are of the same amount, and sometimes due on the same day, every month (mortgages, loans, etc). Others can vary depending on usage like your electric or water bill. The best thing to do is gather up all your bills and take down the amount due and the date due each month. For those bills that vary in cost from month to month, just take your highest bill of last 6 months or so as a guideline. Why the highest? Because it’s always better to be conservative when it comes to budgeting. Convince your mind that you make less than you do, and that your bills are higher than they really are…and you’ll be somewhat happy every month when your extra cash is a little more than you expected from your budget.
Now that you know your paycheck and your bills, you need to find a way to organize them in a way that is easy for you to use. There are many ways to do this and we’ll talk about a few of them below.
Use spreadsheets
For a quick and simple solution, you can use your favorite spreadsheet software. A basic 2-column list can provide you an easy way to track bills and the amount you owe on them. The benefit of using a spreadsheet (over a pad and pencil for example) is that it can do all the calculations for you…eliminating the chance that you mess up some numbers. This allows you to get a pretty reliable matrix of your monthly finances in a format that is easy to change or update. If your water bill is a couple bucks higher this month, just change the value in the spreadsheet and it can update all of your totals automatically.
Use Quicken / Microsoft Money
Personal finance software is widely used nowadays. For a more advanced solution, you can try something like Quicken or Microsoft Money. These programs can do much more than just organize your finances. They provide ways to chart and track your spending, analyze investment portfolios, and even pay your bills, right from the software! I would recommend these only if you have the desire and time to keep up with it. There is a little bit of set up involved to get everything going, but for those that want an advanced look at their financial picture, they really provide a nice solution. An added bonus is that you can usually export data out during tax time to simply your filings with the IRS.
Pay your bills online
One of the great things about the internet is that some things have become much simpler. Paying bills is definitely one of those things. Just about every bank has a website and has a bill payment system for their customers to take advantage of. If you already have an account with one of the larger banks in the country (Bank of America, Wells Fargo, or Citibank) then you may already be paying some of your bills online, as they’ve had systems in place for years.
Paying your bills online with your bank is a great benefit since it makes it easy to organize and see all your bills in one place. Furthermore, a lot of these systems have trending reports available to you so you can see how you spend your money over a period of time. This is a great feature that can make it easier for you to see where you can save some money. Also, mixing your bills with your money (online banking) is an obvious advantage. It makes it so easy to see how much money you have available at any time, including when you are about to pay your bills.
Lastly, using an online bill payment system is much quicker. You don’t have to write any checks, buy stamps, or mail your payments in. It is almost always more reliable as well. Depending on the payee, the payment may actually process electronically, which can provide you with a faster way to pay. You can’t beat being able to pay all your bills in the matter of minutes, or even seconds.
Make use of automatic payment plans
Many companies nowadays offer automatic payment plans for their services (such as cable, telephone, etc), that make it easier for customers to pay their bills. It is an advantage for them as well, as it makes it more likely that they will receive their money each month. Automatic payment plans usually consist of allowing companies to automatically draft out of your bank account (or credit card) each month when your payment is due. If you have a hard time remember to pay your bill, this can be a great option to make your payments on time each month. You can set it up once and never have to manually pay your bill! The downside is that you have to ensure you have enough money in your account at all times so that you don’t get charged any overdraft fees. However, if you are able to use them in a smart way, automatic payment plans can greatly simplify most of your bills.
Auto pay from your credit card
In addition, being able to auto pay from your credit card gives you the added benefit of not having to actually have the cash in your account at the time the bill is due. This can help to consolidate multiple bills into “one payment” per month. Basically, you have all your bills on automatic payment from your credit card…then when you get your paycheck you only have to pay your credit card bill. Sounds great, doesn’t it? There are some drawbacks to this approach however.
First, you have to make sure you are paying off your credit card every month, otherwise you risk building up interest charges. Doing that can defeat the purpose of budgeting, as you are essentially paying more for your bills then you normally would paying them manually. Next, not all bills can be on auto pay with your credit card. For instance, mortgages and auto loans (or any loans for that matter) cannot be paid with your credit card.
Properly understanding and organizing your monthly bills is the first step in achieving good financial health. Usually the first step is always the hardest, and that can definitely be the case for those just starting to manage their money. However, what you’ll find is that once you can get passed this step, the others seem much easier. The more momentum you can gather for yourself and your finances, all the rest seems to just fall into place. One of the main points to learn about budgeting is to use a system that is easy for you to understand, and you will be likely to keep up with. Making it routine is the key. Lastly, when coming up with your numbers try to be conservative with your estimates. This allows you to prepare for the worst, and hopefully be pleasantly surprised with your available cash most months.
February 17th, 2008 at 7:57 am
[…] great inspirational pieces. One article you might want to start with for managing your money is How to budget your money and pay your bills on time. It gives a great overview of how you can set up your finances for success and make them easier […]
April 8th, 2008 at 11:45 am
The best way to learn how to budget your money is learning how to save money and whatever your Parents tell you how to save and budget your money.
I can learn to budget my money by buying the things i Need or buying just a few groceries in the grocery store if I am going to be living by myself.