Is your business struggling to pay the bills each month as you wait for customers to pay their invoices? If so, what happens when those yearly expenses like annual report filings and tax preparation fees come due? Are you stressed, worried, and panicked about how you are going to pay for those bills? Do expenses in general tend to take you by surprise? If so, here are 9 easy steps to eliminate stress and start getting ahead of these bills. Following these steps will allow you to have money already set aside a year in advance.
Steps to Get Ahead of Your Bills:
- List out every single yearly or quarterly bill that you have, including the month that it is due and total amount. Don’t forget about the membership dues and annual software subscriptions.
- Sort these bills in order of month due. (i.e. List all the bills that are due in January, then February, March, etc.)
- For quarterly expenses, such as quarterly tax return fees, multiply that number by 4 and put that number in the total amount column.
- Calculate the Total Yearly Expenses to be Budgeted.
- Take the total yearly expenses and divide by 12. This is your Average Total Expenses to be Budgeted per Month.
- Divide the Average Total Expenses to be Budgeted per Month by 2 to calculate Amount for Future Expenses Per Paycheck. (*Note – this assumes you get paid semi-monthly.)
- Open a separate savings or checking account called “Future Expenses Fund.”
- Create an automatic savings rule to save the amount calculated in #5 from each paycheck.
- When you get the bill for the yearly expenses, use the money from the Future Expenses Fund to pay for it!
If these calculations seem confusing or you want a ready-built tool to help you calculate this, please contact us to get started on financial coaching.
For those of you who pay your property insurance or car insurance premiums in full each year, you are definitely in the right direction. But if you can’t foresee being able to pay for an entire year’s premium at once, you can implement these steps and start to get ahead. Insurance companies usually give you an incentive and cost savings by pre-paying in advance. Otherwise, you may be charged a service fee anywhere from $6 – $24 which you may be unaware of.
Real-life Example: In looking at one of my previous car insurance quotes, here are the price differences in the different payment options and how paying in advance saves you money:
- Plan A – No Service Charge: $641.98 Total Premium
- Plan B – No Service Charge, with down payment and final two payments in Month 2 and Month 3: $653.98 Total
- Plan C – $6 Service Charge with down payment, next payment in Month 2, and last payment in Month 7: $691.98 Total
- Plan D – $9 Service Charge with down payment, payment in Month 2, payment in Month 7, and last payment in Month 10: $694.98 Total
- Plan E – $24 Service Charge with down payment and 8 remaining installments: $709.98 Total
There is a $68 difference in Plan A ($641.98) versus Plan E ($709.98)! Over five years, that’s $340 savings and over ten years, that’s a saving of $680! This is how you get ahead and start pocketing the money for yourself. Don’t pay extra for things because you didn’t plan ahead.
Take Action: Do this yearly expenses exercise today. You will more than likely be surprised on the $ amount calculated for Average Total Expenses to be Budgeted per Month.