I really do love to pay my bills. I like to seat, go through my routine: fill the amount and push the “Pay” button on my computer or sign a check, seal an envelope, and drop it to the postbox. I love the feeling of the done deal, feeling that I don’t owe anything and freedom coming from it. Easy-breezy
I must confess, only a year ago it was a mess. I was anxious, I was sweating and try to postpone the moment of payment as long as possible. When I finally force myself to seat and start to sort out the bills, I was already confused: what should I pay, what if I don’t have enough money, what if I forget something. Moreover, after this torching process, my seemingly significant checking account was heading to zero, and this fact set me into stress again. I always lived from paycheck to paycheck.
I clearly remember how a year ago I was laying during a hot summer night, wishing to buy new a/c and freaking out of the thought, that I don’t know if I can afford it, and that tomorrow I need to finally pay my bills. I cried and prayed, I wanted to be better with my money. In that morning I woke up with a firm desire to be better with finances, and my journey has started.
Let me share with you what I changed during this year. Probably my tips would also serve good advice for you. It’s strange, but when I think back, it seems there were not so many changes I actually implemented to be when I am now.
Change 1. Where are they going
Each time I had a huge stressing question “do I have enough money?” But if you think about it, it’s just reverse of the question “how much do I have to pay?”
So I started according to the book: I had to track all my spending. I must confess, I had several false starts. I tried to use the bank standard feature (hint: it’s unmanageable if you have more than 2 bank accounts). I tried to use spreadsheets (sarcasm: yes, from one day I started to write down all expenses into a neat spreadsheet).
Finally, I landed on a budget app. Here are “must-have” features in any budget app:
- Ability to link your bank accounts and use direct importing
- Ability to create/change custom categories in your budget (grouping items by types is plus)
- [important!] All transaction must go through manual validation before landing in a category (hint: if the app doesn’t support it, the mess will become bigger)
So I caught a transaction, assigned it to an appropriate category, if there was no appropriate category, I created one. This way, step by step I created the full list of my bills (or my categories, as I named them).
One more tip: some payments are not monthly, rather quarterly or even annual. There is a big chance to forget about such bills. So take into account, that the process of capturing all expenses will take time. For me, it took about 3 months to capture all.
Change 2. Types of expenses
During my exercise of capturing expenses, I started to notice, that the bills differ from each other based on their nature. Other words, you can divide all types of spending into the following categories:
“Subscriptions”. Something you have to pay periodically (in most cases monthly) and you can tell how much you will pay almost exactly. Now, though I name it as a subscription, please, treat it wider: for example, for me, “Mortgage” is in this category, as I know exactly how much I have to pay as my minimum payment.
“Must have”. This group has to be paid, but you don’t know how much exactly. The bright example of this category is grocery. The group itself is very subjective. For example, I have “Dining Out” in this category as well, but for somebody, it can fall to the next one.
“Nice to have”. These bills are coming systematically, but you realize that you could spend less for it (or even refuse them all). For me, these are shoes, books, hobby items… Again, the specific items are very subjective.
“Savings”. Something you have to save money for, something you cannot afford with one transaction. This category usually appears because you are smart (or want to be so): for example, you want to go on vacation on your saved money, not on available credit. All types of investments are coming to this category. If you want to pay off any kind of debt faster, such money falls into this category as well.
Change 3. Be honest and plan
Be truthful to yourself: if you have to pay “subscription”, you will pay it eventually (unless you cancel the respective service).
When I first look at my “Subscription” total, it was devastating. It was thousands and thousands of dollars for something I don’t even notice! But it also was liberating: when you have facts in front of you, there is no point to freak out. You already know what to do. And basically, you have 2 ways:
- Either to cut unnecessary expenses (this gym membership you don’t use or car wash subscription you forgot)
- Or to plan to pay them. Set aside money in advance and you’ll just execute when the time comes
I think the latest point here was most game-changing for me. What is the point to stress out, if you already planned in advance and now you just need to push a button or sign this check?
The other thing which became clear, that as got two paychecks per month, I don’t have enough money to pay even for “subscriptions” from a single paycheck. (Remember, my “Mortgage” is in the “Subscriptions” category?). So I found it more efficient to stick to my paycheck cycle: I divided the “Subscription” category into 2 parts, distancing the biggest payment (i.e. “Mortgage” and “Car”).
I spent 2 months cleaning out my subscriptions and sticking to my payment cycle.
Change 4. This mythical “emergency fund”
Ok, now I plan to pay bills, which eased my immediate stress. But I still had anxiety regarding the future. I still lived paycheck to paycheck. What if I lose my job?
Now, believe me, I always knew the “emergency fund” concept, and from my very childhood, I saw that people over and over failed to implement it. How to even think about it if you have any kind of debt??? As soon as you get any extra money you’ll though it to beat the debt. How to get out of this vicious cycle?
I already had my big financial picture in mind: I knew how much I got, what was my non-changeable monthly payment, and what was my other categories of spending. The logical step was to optimize the rest of the spending, in particular, “Must have” and “Nice to have ” categories. There are multiple tips and tricks (which I’m not going list in this post), but in 3 months I finally felt, that I have them nailed. And I didn’t sacrifice my lifestyle: my “Nice to have” is not down to zero.
After such obvious manipulation as natural consequences, I’ve got some leftover, which goes to the “Saving” category. In general, this category can be subdivided into the following:
- Emergency fund: in nutshell, it’s saving covering you 1-2-3-[what makes you comfortable)]-months spending for your first three categories (“Subscription”, “Must have” and “Nice to have”)
- Debt payment: loan, mortgage, etc. – anything above minimal payment (the minimal payment lives in “Subscription”)
- Saving for big (vacations, new car, house, or helicopter – whatever you cannot afford from single paycheck)
I can tell you, this change was the hardest. I can advise only: consistency, consistency, and consistency. Step by step I optimized my spending, drop by drop my savings categories grew. Finally, in 6 months I achieved my “3-months emergency fund” goal.
Now I can tell: it’s so a pleasure to pay my bills! I know what I pay for, I’m in total control of the bills. I know that my expenses are optimized, but my lifestyle is not compromised. And I know also, that I don’t depend on my next paycheck, I have full freedom.
Katty's Wallet 