I burst into laughter when I came across this post on Instagram - “I paid all my bills for this month. Does anyone have some good recipes with water?”
We’ve all been there before. Your job giveth, and your bills taketh away. There are two common causes of this predicament. Either your bills are higher than your income, or you spend before considering your bills for the month. In this post we will tackle the issue of spending before considering your bills. The best solution to this problem is to make a plan for your money before you receive it. Here's how:
Step 1: Make a list of your monthly income by pay date, recurring bills (by due date), other monthly expenses and savings.
The most important element is the due date of each bill. Let's say that this is what you came up with:
Step 2: Distribute your bill payments based on their due dates and your pay dates.
Let’s continue to use the month of September as an example, and assume that you get paid on the 15th and 30th of the month.
The check that you receive on September 15th should cover bills due from 9/15 through 9/29. The check that you receive on September 30th should cover bills due from 9/30 through 10/14. Let's say that this is what you came up with:
In the example above, the bills highlighted in pink are listed in the column with the 9/15/19 check because they have due dates between the 9/15/19 and 9/29/19. The bills highlighted in green are listed in the column with the 9/30/19 check because they are due between 9/30/19 and 10/14/19. Note: The example above assumes that the September bills (i.e., those due by 9/10 and 9/13) for bills with an * were already paid with the previous check. Therefore, the next payments are due 10/10 and /13.
Rent is highlighted in orange because although it’s due by the 1st and could technically come out of the 9/30/19 check based on its due date, $1,200 is a lot of money to take out of one check. You can ease the burden on yourself by instead allocating $600 from each check.
Step 3: Decide what you want to do with the rest of your cash.
Continuing with the example, after you allocated your bills to be paid with the 9/15/19 check, you still have $740 remaining (see blue highlight above). How do you want to distribute that amount over the remaining areas that you identified (i.e., the lines from clothing through emergency fund)?
The only rule that applies to this step is that your remaining income can't be a negative number, which would indicate that you allocated more than you earned. For example, if you allocated the remaining amount as depicted below, the remaining income would be negative $150 because you allocated $890 to these rows when there was only $740 to allocate. That means that you have to reduce a line item by $150 in order to not overspend.
You can play around with the numbers until you arrive at the allocation mix that works best for you. Your plan belongs to you, so it should reflect YOUR expenses and priorities. No two plans will look alike.
Below is an example of a balanced allocation. It is balanced because Total Income equals Total Allocations. I personally like to have a balanced allocation because it means that I made a plan for every cent that I earned. I have found that money you don't account for has a way of disappearing.
Step 4: Execute the plan.
It's game time! It's the morning of 9/15/19. Here is the play-by-play of your plan in action:
On the day that your check/direct deposit arrives, pay all of the bills that you allocated to be paid with that check (highlighted in pink). Do not wait until each individual due date to issue the payments or you may risk forgetting to make the payment.
The rent payment can be handled a few different ways. You can send the $600 payment to your landlord immediately. If you have the discipline to not spend the money on something else before the due date, you can leave the $600 in your checking account until the 9/30/19 check when you can make the full payment of $1,200.
You can transfer the $600 to a different account so that it's out of sight and you don't confuse it with funds that are truly available to spend. I love PNC's Virtual Wallet Account. One account is subdivided into three accounts: Spend, Reserve and Growth. When I used to rent, I would transfer my rent allocation to the Reserve account so the funds wouldn't appear in my Spend account. Then I would make my full rent payment from the Reserve account.
There are a few ways to handle to the remainder, but I handle it similarly to how I handled rent. I immediately transferred the savings allocations to a savings account and left only what I intended to spend (i.e., from lines Clothing to Entertainment) in my checking account.
You're done! You successfully paid all of your bills, made strides toward your savings goals, and took care of yourself like a boss!
Zikora is a Certified Public Accountant (CPA) by day. When not assisting and advising clients, she can be found writing, singing, songwriting, exercising, cooking, and or plotting her next move. She is a sounding board for friends and family and enjoys showing people that they can indeed do things that they believe to be difficult or impossible. She can be reached at firstname.lastname@example.org.