Thursday, January 5, 2012

It's those variable bills that really mess up your budget and cause you to steal from Paul to pay Peter and pretty soon neither one of them has any money. Never heard of that saying? Well, it means taking money from your food bill or your car payment to pay off your insurance payment or vise-versa. Pretty soon, you are in the hole financially and don't know how to get out. Often it means your credit card is run up and you can't pay off your balance every month.

It's not that we plan on failing financially, we just fail to plan efficiently. I'm not saying we can plan for everything but we can ease many of the bumps in the road, if we are in financial shape to weather them.

I have a friend who puts aside money each month for hunting, Christmas, summer vacation, etc. and she has a bank account for each of these categories. A separate bank account isn't necessary but, for her, it made it easier to watch the accounts grow and motivated her to save. They had six children and one modest income making unexpected expenditures expected.

It might be a good idea to set up a savings account to pay into for those 3-month, 6 month- or yearly bills you know are on their way but can't seem to remember them all and exactly how much and when they are due. Next, you need to record them on a sheet of paper under the months they are due.  

This is a separate sheet from your monthly budget. Don't have one of those either, well we'll get to that in another post.

The monthly budget part I managed pretty well for years but it wasn't until I started controlling the intermittent bills that I finally got a grip on our finances. Since this time of year it's out will the old bills and in with the new 2012 bills, I thought we'd start with looking at those bills you are about to throw away. For now pull out those bills that come every 3 - 6 or every 12 months, that really have a tendency to twist your money into a bind. 

The first thing I did, years ago, to get them under control was to ask as many of my providers as were willing to send me monthly bills instead. This cost me $12 dollars more in service charges a year for each insurance bill but it was worth it in aiding me in getting these intermittent bills under control. This step was a good start but not the end. 

Eventually, I changed back to six months with my insurance bills and even turned some of my three month and six month bills into yearly bills.

I was doing really well and then I grew laxed. This Christmas I was given a wake-up call. Several of these intermittent bills came due in December and to add to this were several medical bills and a large vehicle repair bill heaped on top of the financial strains of Christmas. 

Yes, I was able to pull off Christmas and pay my bills because of past obedience to budgeting, not because I'd been a good girl lately. The next such financial episode will put us in a mess so repentance is in order.

I'm returning to the tried and true method of keeping these now and then bills in check.

I just finished taking a piece of paper and writing down every month of the year, the bill and its amount, the due date and if applicable the amount of time this cost covers.The following example has fictitious numbers and dates but gives you an idea of what I'm talking about.

Pickup Insurance - (Jan 1 → May1)  ($275)
Life Insurance - (January 1) $700
Car Taxes - January 20th $60.00
Garbage - Jan 1 → March1) ($99.00)

 Continue until you have done all `12 months of the year. Include those months you don't have any extra payments. You can then see that these are those months to get ahead.

Next, I tallied the total expenditures for each of the months of the year.  This is always an eye opener to give me a good view of just how difficult some months are to make all the expected payments.

We include in this, a budget for hay which includes gas and also tires for a vehicle or some other expected large expense a vehicle will need such as change the fuel pump at 100,000 miles type of thing. This also is a good reminder to get it done. This paper is where you would add vacation or hunting expenses etc. The less surprises on your budget, the better.

This plan helps us to know if a bill will be coming due at the first of the month and we know then that we have to pay it the month before in order to get it there on time. 

This  bill information for each month is transferred over to the monthly budget sheet for which we have a sheet for every month of the year. Car insurance is written in pencil in the Fixed Expenses category for that month since it is a fairly fixed amount and it reminds me to look for this bill in the mail and pay it. I'll talk about the monthly budget another time.  

This plan has several benefits even though the amount of the bill you get for your insurance is a little more than what you planned on, it is still only a few more dollars to come up with, not an unwanted surprise in the mail. "Oh yeah, I've got to pay this this month. Wonder where the money will come from?" Been there many a time.

This plan also allows you to keep tabs on the variation in your bills such as insurance which varies a little from six months to six months but if you see an unusually high spike, you can visit the service provider for an explanation. I can't remember all of my bill amounts and I'd never know the difference unless it was really high like when we had electricity at the corrals. We only used it at kidding and lambing time when the kids had 4-H stock and a little in the chicken coop. When we received a bill for $800.00 dollars, I phone up the electric company and said, " I don't think my girls, the chickens, could possibly be running up such a high electric bill. They aren't that scared of the dark." The representative laughed and agreed to checked it out. This was off the monthly budget sheet but still the principle is the same. 

After listing all the bills under each month due, I then tally up the total costs for each month and the entire cost for the year, divided by 12, which is the number of months of the year. This amount is your monthly bill to be paid to savings. This levels out your budget and insures that the money will be there when the bills come due.

I still did this sheet even though I had my insurance bills coming monthly for there are a few bills that can't be paid by the month. This gave me a total of insurance costs for the year, a good motivator to keep the costs down. 

Why did I switch from monthly to six months and a year? It's only one bill I have the possible chance of being late on and being late means no insurance, a scary thought. You know insurance companies aren't going to pay if they don't have to. This more sporadic payment schedule also saves money, service charges, checks, time, stamps, and stress every month.

To get started,  you will have to divide by the number of months you have to save up the money not by 12 months for the whole year because you don't have a whole year. It might be tough, I know, I've been there, but squirrel away as much as you can, disciplining yourself to save more and more. I write out a check to my savings account each month and just consider this another bill.

When possible, I pay the 3 month, six month, or yearly bill, which ever it is, without dipping into the savings account set aside to draw from. That puts extra money towards emergency savings. You know those unexpected bills like the pickup repair and medical costs. Yeah, you know they are going to come, you just don't know when but your vehicle won't run smoothly forever and someone, especially if you have a family of someones, is going to get sick. And yes, I do have a medical savings program that is directly taken out of my husband's pay check, but it never covers all of our costs.

Knowing what you have is a good start to managing it.

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