You’ll specifically use this article in Step 2 of The 9 Steps to Financial Freedom. However, it’s beneficial to review it in all steps.
Remember back in high school when your finances were easy?
You didn’t have any financial obligations.
It was typical to just get a part-time job, collect a small paycheck and blow the money on whatever your heart desired. Financial management was easy.
Now, we live in a world where dozens of fixed and variable expenses are the norm.
You have a mortgage (maybe two) to pay, a cell phone bill, daycare, credit cards, SUV payments, Netflix… I think you get the point.
You know what else? All of these things are due at different times and it can get quite confusing.
Do you ever find yourself checking your balance to make sure you have enough money to make the payment?
Are you neglecting your electricity payment to make sure the mortgage gets paid?
Are you paying your bills on time, but find yourself buying groceries with a credit card knowing that you’re not going to be able to pay it off?
These types of financial behaviors can be stressful and sometimes financially crippling.
A simple way to get these expenses under control is to set up a bill payment spreadsheet listing when they’re due and how much you need to pay.
Creating Your Bill Payment Spreadsheet
First, grab the following blank bill payment spreadsheet I created for you. If you use the PDF, you may need to print multiple copies.
Next, go through all of your bank and credit card statements and highlight your recurring expenses. Assuming that they apply to your situation, you’ll have the following expenses highlighted:
- Mortgage or rent
- All utilities (electricity, cable, cell phone, etc.)
- Credit card payments
- Other loan payments (car, personal loan, student loans, etc.)
- Insurance payments (auto, life, etc.)
- Subscriptions (Netflix, Hulu, newspaper, etc.)
- Any other recurring expense
After you’ve highlighted all of your recurring expenses, list them on your spreadsheet in the order that they need paid during the month. For example, if your rent payment is due on the 1st of every month, it will be at the top of your list.
Then, add in the typical cost of the bill. If you need to estimate, use a “worst-case scenario” number.
If you’re currently carrying a balance on your credit card from month-to-month, enter in the minimum payment. If you pay your credit card off each month, just enter a “-” in the payment section.
Reviewing Your Bills
Now that you have all of your recurring expenses down on paper, it’s time to review them to make sure your payment arrangements are working properly for your situation.
Start by looking for patterns. Does it seem like all of your bills are due around the 1st of the month? The 20th?
If that’s the case, it may be difficult for you to make sure everyone gets paid on time without using a credit card to “float” your income to the next paycheck.
If you’re doing that, you may want to see if some of your creditors will change your due dates. Most credit cards and utilities will easily do this for you.
If you have a large mortgage payment, you could also consider going to a bi-weekly payment schedule. This will increase your total monthly outlay slightly, but it will also assist you in balancing your income and expenses. It will also help you pay off your mortgage faster.
Adding Your Bills to Your Budget
If you want to break the paycheck-to-paycheck roller coaster, you need to understand when your money is projected to come in, and when it’s projected to come out.
For those of you that are facing overdrafts and/or find yourself “floating” checks, you should focus on daily budgeting at this juncture.
Daily budgeting helps you project your checking account balance over the next several weeks in extreme detail. For example, if you see that you’ll only have $85 for groceries between now and your next paycheck, you need to make sure you stay within those limits.
If you have more flexibility in your budget, you can skip the daily budgeting and jump right into creating your annual budget and then your monthly budget.
When you budget your income and expenses, you want to only work off of what you have available.
For example, if you have $450 available to budget and you need to pay your $100 electric bill plus your $290 car payment before your next paycheck, you need to be aware that you truly only have $60 available to spend.
In that example, if you spend more than $60 before your next paycheck, you’ll overdraft your account or take on debt to bridge the gap. That’s a slippery slope.
In additional to adding the due date of your bills in your budget, I also recommend taking the information and adding it to an electronic calendar.
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Listing out all of your bills will not cure all of your financial woes. It’s just a beginning step to financial freedom. However, when you combine the list with other things such as a budget, you can change your financial issues for good.