Paying bills is an inevitable part of everyday life, but that doesn’t mean it has to be stressful. Here are some ways to get control of your budget and perfect the art of stress-free bill paying.
- Make a budget. Knowing what you are making and what you are spending is essential to proper bill paying. First, find out how much you are making every month and then subtract the static items such as rent or mortgage payments, credit card payments and cell phone expenses. Then, budget out how much you will need for other essentials (such as food and clothing). Once the essentials are accounted for, you can look at the money you have left and decide where to allocate the rest.
- Find a budget tool that works. One of the best ways to get a handle on your finances is to use a budgeting app such as Intuit’s Mint or PocketGuard. You can securely link your bank accounts to these apps and download all your transactions in the app. Your bank may also have an app to track your spending, so also check with them. You can then choose which tools to use to make a budget and categorize the transactions to be allocated to a certain part of the budget (such as food, car, housing, etc.).
- Set up autopay. Put recurring bills such as utilities, internet, and your cell phone on autopay so they will be automatically deducted from your account on their due date. If you decide to use autopay, it is still a good idea to look at the amounts being deducted every month to make sure everything is correct.
- Consider your non-regular payments. Don’t forget to account for bills that come due occasionally and plan for the cash outlay. Common examples of this are property tax payments, income taxes, and annual/semi-annual insurance payments. You will need to plan to have enough cash on hand for these expenses when they come due.
- Adjust due dates. Paying bills isn’t as stressful when you know that you can afford to pay them, and what better time to pay bills than right after you get paid! The money will be there and you can pay those bills before that money has a chance to go anywhere else. Consider asking if you can change the due dates for some or all of your bills to correspond with when your paychecks are deposited into your bank account.
- Don’t forget to pay yourself! One of the best ways to start developing a savings account is making yourself part of your budget! Take however much you think you can spare and set up an automatic transfer to a separate savings account. Use this money to establish an emergency fund of approximately six to nine months of expenses. This extra cushion will come in handy if something unexpected occurs.
A recent study found that 47% of American workers live “paycheck to paycheck”. The path to achieving financial milestones like paying for a college education, buying a car, owning a home or retiring at an early age always begins with one step – saving for the future. Based on this survey, many Americans aren’t saving – and are unprepared for the unexpected.
The survey also found that:
- More than half knew that an emergency fund should hold six months of living expenses
- However, two-thirds don’t have that amount in savings
- How many don’t have any emergency fund at all? 30%!
- Retirement planning – more than half don’t contribute to a 401K, IRA or other retirement plan
- Two-thirds of baby boomers carry their credit card debit into retirement
Start small and start NOW. Begin with a small goal – put away $10 each week. As that reserve grows, focus on building an emergency fund with three to six months of living expenses. The unexpected can and will happen to all of us – will you be prepared?
Last week we gave you the first half of a list of essential economic concepts that every high school student should understand. Here’s the second half of the list!
The strength of investing – The most valuable investment a young person can make is in themselves. Whether it is a college degree or a trade school diploma, your child can create tremendous value in skills that will provide a positive financial return each year.
Mutual fund and stock understanding – Once your child grasps self-investment, next consider teaching some of the basic investment alternatives available to them. Stocks and mutual funds are the most common, but also consider explaining bonds, CD’s, annuities and other investment tools.
Budgeting – Help your student create a basic budget and then help them track their saving and spending against the budget. Don’t forget to mention an emergency fund to prepare for the surprises in life.
Cash flow – The hard way to learn the lesson of cash flow is when bill collectors are calling and there simply isn’t money to pay them. When creating an initial budget, show your child the flow of funds each month. An easy example of this is to show the flow of funds that relate to car. There are everyday expenses like fuel, there are monthly expenses like a car payment or insurance, and there are periodic expenses for licensing and maintenance.
Calculation of net worth – Assets (what you own) minus liabilities (what you owe others) equals net worth. This is the math of banks and businesses. The sooner your child understands this concept, the easier it will be to plan to purchase a car, a house, or any other item of value.
The value of identity – The value of a personal identity is the most undervalued asset owned by your child. Online media may seem free, but your child has paid for this access with their identity. With the advent of identity theft, government/employer access to personal online information and the proliferation of online advertising, consider helping your child understand the value of having a small online footprint. Help them establish healthy habits that will protect their personal information.
I hope you find this information helpful in preparing your child for a sound financial future.