Paying bills

Back in 2017 when the Financial Mindfulness journey began we asked our growing army of Facebook followers what were the biggest financial stressors in their lives.

Paying bills – including card and loan repayments, energy bills, groceries and other recurring obligations – were among our followers’ main contributors to financial stress.

Further work we did into looking at financial stress showed correlations between people who struggle to keep up with bills (and even avoid financial obligations) and financial stress.

People who identified at suffering financial stress were seven times as likely to struggle with mortgage repayments, and four times as likely to avoid financial obligations and struggle with regular bills than people who did not suffer financial stress.

That is why paying monthly bills was included early on as a module in the Financial Mindfulness app.

The stress caused by keeping up with bills remains a major stressor. Dozens of other studies and research papers into financial stressors have similar findings: that staying on top of bills can be a big driver of financial stress.

This week we unpack the stress of dealing with bills and look at how to get on top of them.

The difference between regular and variable bills

Not all bills are created equal. There are basic but significant differences many of us don’t take into account when managing our money.

Some bills recur at the time for the same fixed amount (with perhaps usually small incremental increases). These include mortgage, rent, rates, insurances, car registration, school fees and health insurance.

Other bills are variable, meaning the payable amount and date due can changes significantly.

These include servicing a car, paying for trades to fix something in your home.

Even though you know they are coming, you won’t know exactly when they will occur or how much they will be.

When it comes to managing your bills, always pay for your essential needs first. These usually include:

    • mortgage repayments;
    • rent;
    • food;
    • power; and
    • transport.

From what is left over you can then pay for discretionary items or wants, such as:

    • eating out;
    • streaming services;
    • magazine subscriptions;
    • restaurants;
    • holidays; and
    • house cleaners with what is left over.

A vital first step in managing bills is to identify the difference: which bills are for your needs and which are for your wants.

Think carefully about this: is the bill for something you want or need?

Then there’s spending money out of habit – spending based on emotions, impulses and sometimes without much awareness.

That can often leave us wondering at the end of the month exactly where all the money has gone.

Budgeting as an important tool

For people who have struggled to budget, even the word ‘budgeting’ can be difficult to accept. But what is budgeting really?

It can help to think of budgeting as forecasting your household cashflow.

Doing this will help you become more intentional with your spending and encourage you to spend the way you planned, on purpose rather than by habits.

A good budget will help you to prioritise paying for your needs first and wants and values second.

If you have a surplus left over, you can then use this towards other things such as your savings goals, paying off debt, investments, holidays and retirement savings.

Budgeting requires ‘mindful spending’.

Mindful spending is not about restricting your spending, but instead being conscious of how, when and where you spend your money – every day, every week, until this becomes your default way of spending.

One way to become a better spender is by doing a spending audit.

This is a simple process of taking a good look at your bank statement or online banking transaction history, download or your paper statements and assess where you have been spending your money

You can also download an app to track your spending.

There are also many apps out there that you can download and they will classify your spending into categories for you!

As you pay bills it is important to keep an eye on whether the amount was what you expected.

If it is larger than you planned for then review the bill to understand what has changed.

If there is nothing untoward then ensure you increase your allowance for this bill so that it does not surprise you next time.

How to pay bills

To get control of household bills it’s important to have a full master list of bills – including regular and variable. Note the likely amounts payable and likely due date.

Consider taking some time to think about those items that are essential, but not regular. Think about the frequency that you would like to plan for those items and what amounts you might need to put aside

At the beginning of each month, create a checklist (separate from your master list) of the bills you are expecting to pay and the approximate amount.

It is wise to do this not just for the current month but the following month as well.

This list can be handwritten or electronic. Allow space on your checklist to mark if the bill was received and when the bill was paid.

This is what you should do when bills arrive – either in your mailbox, inbox or by SMS notification.

    • Don’t ignore your bills.
    • When they arrive open them.
    • Read and ensure you understand them. Is the bill correct according to your records?
    • Check the amount and time to pay.
    • If it’s urgent, pay it as a matter or urgency.
    • Keep all your bills together so it’s easier to keep track of them and pay them.

Set aside some time each month to pay your bills in line with how often you get paid. An hour is usually enough.

Mark each one as paid and keep a copy in a paid bills folder, whether this is electronic or physical.

Set up a calendar reminder for a convenient time that works for you.

The easiest way to deal with bills is to automate them, so set up a direct debit on your online banking account.

Do this for expenses that do not change every month, for example mortgage or rent payments. You can also set up regular direct debits for your ongoing expenses such as telephone, electricity and water rate accounts.

Create a calendar reminder for due dates of your bills. Check your calendar at the beginning of each week to see what bills need to be paid.

Set up a filing system to store your paid bills. Use a folder and have separate tabs for each of the bills you pay. Alternatively keep track by a similar filing system on your computer.

What if I’m behind on bills?

Being behind in payments can be very stressful and may feel overwhelming. Don’t panic.

If you can’t afford to pay all of your bills this month here are some things you can do to take control of the situation.

It’s inevitable to worry, but try not to spend a lot of time worrying about future events that haven’t happened. No matter how much you worry about potential consequences you do not actually know if those things will occur.

Stay focused on the things you can do today to improve your situation and regain control of your finances.

Identifying what is making it difficult to make your bill payments involves some basic detective work. Some helpful questions to check in with yourself include:

    • Are you spending more than you earn?
    • Are you forgetting to pay your bills?
    • Have you had an unexpected expense?
    • Are they variable or even steadily increasing and you are underestimating them?
    • Is there any other reason you can’t pay that you don’t want to face?

Write down the reasons that prevent you from paying bills and brainstorm solutions to each one. Spend some time doing this.

Review your list of bills and identify which ones you can stop, replace or cancel that isn’t essential.

Things that can be paused until you are ‘on top’ of your issues with bills might include:

    • Pay TV;
    • Streaming services;
    • Subscriptions;
    • Extra phone features; and
    • Paid memberships (especially if you rarely use them).

Mark all bills that are necessary for your survival as a top priority (i.e. mortgage or rent, food, electricity etc). Pay these first.

Then identify any debts you have as your next priority and pay these.

Any remaining bills are the ones where you could potentially cut back or speak to the creditor about alternative payment plans or arrangements

Be honest with your creditors and let them know your situation.

There are options that can help you out. Call each one up before your bill is due and explain your situation.

Ask if you can negotiate a deferred payments scheme, or reduce the payment amount, have a late fee penalty removed, or have an extended due date.

The longer you leave this task the worse it will get. Leaving debts, never ever makes them easier to resolve.

If it is possible to speak to all of your creditors before you pay any of your bills for the month, you’ll be in a better position because you’ll know what the terms for each of them are which will help you to prioritise.

Prevent bills from becoming a problem again

Creating a buffer is a great way of minimising the chances of bills becoming a big problem again.

Save some money each pay, even if only a small amount so that you have a buffer.

You can start with saving as little as $5 or $10 a week. Over a year that could give you over $500 towards an unexpected bill.

Brainstorm ways that you might be able to make more money or bring in some extra cash.

Paying bills on time means you don’t have to pay penalties or additional interest and this increases the amount of money you can save.

All of us have experienced at some time a nasty unexpected expense.

Check out our blog on ‘Unexpected Expenses’ for advice ad suggestions on dealing with these.

Become a mindful spender

Unfortunately the world we live in seems to encourage us to spend ‘mindlessly’.

Online shopping is a good example.

The pandemic has placed enormous pressure on the global supply chain, which has led to retailers warning goods will take longer to arrive than they would have before the pandemic.

This message has been distilled in recent weeks and days into attention-grabbing headlines, such as ‘start Christmas shopping NOW, retailers warn’.

Another similar message, is ‘Christmas is just around the corner’. Or maybe you’re seeing ‘don’t miss out!’ reminders about the upcoming Black Friday/Cyber Monday shopping period, from November 26 to 29.

Faced with such powerful sales and marketing strategies, it’s important to be mindful of how they can drive our spending habits, especially when shopping online.

Why? Because we much as you might trust a brand or a store, or online retailer, it is not their brief to help you avoid financial chaos, let alone build wealth. That is up to you.

What does it mean to be mindful with money?

We refer to it as financial mindfulness.

Financial mindfulness means being aware and paying attention to your finances, and that may mean seeking help.

Mindful shopping is not natural for people who spend to enjoy spending to deal with boredom or other uncomfortable feelings.

The good news is mindful shopping can be quite a systematic process that works by following a few simple steps:

    • Here are some steps to help you become a mindful shopper;
    • Allocate set amounts of your income to spending categories (creating a plan for your spending);
    • Plan your purchases;
    • Shop with intention and not just for something to do;
    • Take a list and stick to it;
    • Unsubscribe to the constant sales emails and offers;
    • Ask yourself questions like “do I really need this?” before buying;
    • Wait before you buy something;
    • Don’t buy something if you’re not 100% sure you really need or want it;
    • Choose your shopping buddies wisely; and
    • Remember your goals and weighing up if a purchase will get you closer or further away.

Good luck with improving your management of bills. You can do it!

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