Wednesday, January 21, 2015

Budget planning tip - stabilize and prepare

Today's post I would like to talk about something that I have used for a long time that has helped me a lot when it comes to budget planning for my monthly expenses.  There are some caveats that you should check with your utilities and monthly expenses that are variable amounts and verify that they don't have an issue with this payment method, and possibly more importantly that you won't have any issue getting any overpaid amounts back should you need to cancel, move, or change services.

Monthly bills like water, electricity, gas or other bills vary each month.  This can be a real challenge for planning your finances.   Seasonal variation due to weather, gardening season, heating season, cooling season all play into this a great deal. It can put a strain on finances when suddenly your heating bill kicks in and now your playing catch up to pay it or keep up.  It makes it hard to plan for other things in our montly planning.

Secondly if your focused on being prepared we don't know what the future may hold.  Job losses, illness, job absences, rate changes with companies you pay, and other unforeseen events that can make paying the bills a problem. 

So what I did was contact the companies that I pay a monthly bill to and asked them if I overpaid my bill would it be a problem?  Will they allow me to carry a credit balance with them through the year.  You might be asking why would I want to overpay my bill?  I am glad you asked... Let me give you a simple example.

Heating bill expenses:
So lets look at a simple example.  I will just use round numbers for the sake of clarity.  Let's say my average summer time energy use for heating/cooling is $60.  And lets say my average winter time power use is $120.  Now the variations can be a challenge in monthly budget planning.  So what you can do is start to pay $90 a month starting in the summer months when your bills are lowest.  By over paying you will carry a credit balance.  Going into the winter you keep paying the same $90 and any bills over that amount will draw down your credit balance with your utility company.  If you work at reducing your power consumption and becoming more efficient then you can possibly save even more and build up more of a credit balance to handle any fluctuations.  Just keep an eye on your bill to account for rate increases or changes.

Other bills:
You can use this same method with other bills also.  For example lets look at your cell phone bill.  Let's say your monthly bill for a phone is $48.  You setup a monthly payment of say $58.  Allow your credit balance to build.  The idea is that you build up a buffer with your cell phone provider.  I try to build a buffer(credit) with as many of my bills as possible to build up a 3-6 month buffer in case of job losses or other unforeseen issues.  Having this padding and knowing that I am not worried about how to pay the bills for a little while is a big relief.

Personally I would plan and budget for a 3-6 month buffer with all your bills.  Keeping money in the bank pays no interest so it really is pointless at this point other than convenience.  With the stability of the banks being in question keeping our money there may not be a great idea to begin with.  When there are bank runs and they start locking down access to accounts we won't have access to funds.  When carrying a credit balance with companies like your utilities, water, phone, garbage should help ensure that those services will continue for you and hopefully the banks will sort things out by the time you need to draw funds from your account.

So give this a try.  I try to do this with all of my "essential" bills that happen on a monthly basis.  It is a piece of mind and I find it helps level out my monthly expenses.  I know exactly what I am going to pay each month and it doesn't change.  I make sure that my overpayment helps me build a credit each month that continues to grow until I get closer to having the amount of buffer(credit) that I want then I decrease the amount of the payment so that it is closer to what I need to meet the seasonal changes to the amount due.

Simple examples:
Seasonal bills:
Heating/Cooling bills:
Summer time: $60(I don't use AC)    Winter time: $120    Split the difference: $90

Garbage service:
Regular Bill: Quarterly $60  Pay monthly: $22   (I called the company and they allowed a monthly payment on a quarterly service)

Water Bill:
Winter: $56   Summer: $100  Split the diff: $80

I have to give one word of warning.  I have used this method for managing my bills for a very long time.  I have moved to various places across the country and have had ZERO issues with this type of payment method budgeting with ONE exception.  That was a San Jose CA city garbage service.  Once I terminated the service when I moved it was HORRIFIC trying to get my money back from them.  So please reach out to your essential services companies and make sure you won't have any issues with them should you need to make changes, leave etc.  It took almost 2 months of fighting with the city of San Jose before I managed to get my money back.  I frankly had given up hope that I would get the money back.   It is a long story which I won't bore you with, but I did eventually get my funds back.  In a case like that I would not over pay these people and just build your emergency cash on hand.   Having emergency cash in your possession is never a bad idea anyway.  Avoiding companies or in this case cities that are out of control nightmares would be best to avoid letting them hold your buffer or credit balance.

Of course building up emergency cash that you could use for this purpose is good advise.  How you decide to manage/juggle the cash on hand and the payment of your bills is a personal thing.  I am working to do both so that I have some line of defense and can be prepared the best I can.  It can be a struggle at times, but we do the best we can.  Just like a massive project list of things to get done this is yet another thing we have to work on.  If we do it a little at a time it over times adds up and can give you a peace of mind.  Of course your mileage may vary. 

I hope you find this helpful.  I have found this to be very helpful personally making my monthly bills manageable and knowing that I have build up a buffer that could help in the event of bank issues or job losses etc. I know my job is as stable as a one legged chair in this lousy economy so anything that gives me a little peace of mind is worth it in my book.  So look at your seasonal differences in your bills, figure out how much you can overpay to try and split the difference between the lows and highs and average out your payment through the year.  It makes things easier to budget and your not straining under the bills as they go higher in the peak seasons. 

Of course our best efforts are in conservation.  Learn how to cut energy use.  Adjusting for an off grid world.  So we are in that exercise mode now cutting everywhere we can and monitoring our use.   Conservation, saving anyplace we can is the best investment we can make.  That frees up money we can put into many other important projects and tasks that are needed.  I touched on the Kill-a-watt meter in a previous post.  But energy audits, turn down that thermostat, bundle up, and look for power consumers.  So go back and look for that post.  Every little thing matters and adds up to big things. 

Take Care,

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