Wednesday, July 29, 2009

Budget by Date - When Are My Bills Due?

I've been working on a new type of budget - one based on time.

That's right, time.

You see, I get paid twice each month, on the 7th and the 21st. Almost all of my bills (well over half) are due sometime in the middle of the month so they are paid out of that 7th paycheck. The other part of my bills are paid after the 21st, and so come out of it, but here is the sticky part - my 7th paycheck is not enough to pay for all the bills that are due then. This means I have to save some out of the 21st to pay for the next month's bills. The question is, how much? How much many dollars have to stay in my checking account from the previous month to pay for the following month?

Confused? Try living it.

I needed to calculate that carryover number for a couple of reasons: 1) I hate worrying about money. If I know how much has to be in the account, then I will make sure that happens, but without knowing the dollar amount, I feel like I am floundering. Knowledge is peace of mind. 2) If something does go awry, I'll know. That gives me the chance to fix it... rather than finding out when I get an overdraft slip in the mail. 3) Extra money that I earn and that is left over is going to my house painting fund. I need to know how much I can take out, while still leaving a buffer.

The first thing I did was print out a couple of my bank statements, and then I went through and made a list of my bills and when I pay them...

Here are some examples:

7th - Gas bill, cabin
7th - Electric bill, cabin
7th - Gas bill, home
7th - Monthly transfer to car registration fund
7th - Mortgage, cabin
8th - Mortgage, house
13th - Gas credit card
18th - Electric bill, home
1st, 7th and 14th - Weekly transfer to insurance fund
1st, 7th and 14th - Weekly transfer to Christmas fund

21st - Monthly transfer to water bill fund
21st - Phone bill
22nd - Monthly transfer to trash bill fund
22nd - Monthly transfer to emergency fund
21st and 28th -
- Weekly transfer to insurance fund
21st and 28th - - Weekly transfer to Christmas fund

Even though I haven't included the amounts in here, you can easily see how heavily loaded the first of the month bills are. In fact, the last part of the month is almost all transfers - these are small amounts I take out each month and have auto-deposited into accounts I have set up for specific annual reasons, like my Christmas fund and my insurance fund (which pays for auto and life insurances.) In addition, after that first paycheck each month I have been taking out the money for my envelope system grocery and home improvement budgets. That makes for a sort of lopsided bill payment schedule. See I have the money to pay for everything - I just need to make sure I have it when I need to pay it.

So, along with listing all my monthly expenses by date, I jotted down the amount of each bill. This allowed me to add up all the expenses and figure out exactly how much I need in my account at any one time - as well as that magic carryover number. Now on the 30th of the month I know how much I need to keep in checking for the following month, which also tells me how much extra I can siphon into that house painting fund.

My time budget is not going to replace my standard budget, but it did point out a couple of things. For one thing, I realized that instead of doing weekly transfers, I would be better doing monthly transfers at the end of the month. One of the first things I did was adjust those to one lump sum to be transferred on the 22nd. I did the same thing with my car registration fund transfer - moved it from the 7th to the 22nd. (I should note that some of these funds are for very small amounts of money, but I hate having "unexpected" bills of $100 or more. Because I budget monthly it is so much easier for me to have a little taken out regularly over the course of the year rather than have something hit when I am not prepared.)

The other thing I realized is that I don't have to wait until the 7th to take out my grocery & home improvement money. Actually, it is smarter to take it out on the 1st. Making these changes will take some of the burden off the 7th and spread it out a little more evenly. It still isn't a perfect system, I still have to make sure that there carryover, but its getting better, and I definitely have a better handle on it.

Photo by: RG of CS.


Dr. Faith said...

One thing that I did was call up some of the bill companies that were in odd days of the month and have them move my due date. Most of them didn't mind doing it (especially if it was moving it FORWARD in time rather than back, i.e. moving a bill from Sept 10th back to August 23rd and just paying that bill twice in one month to get the cycle moved around).

Jessie said...

I'm paid bi-weekly and have found that budgeting bi-weekly (rather then weekly, or monthly) makes sense for me.

It's a small thing, but I think a lot of people forget, or don't think, that budgeting based on your pay cycles is the way to go!

Dawn said...

Dr. Faith - That is a BRILLIANT idea. I might see if there are a few that I should do that too as well. I like it - a lot!

Jessie - You are so right. Budgets should be flexible according to what works for you and your pay cycle. Making them monthly should not be set in stone.

psychsarah said...

I was reading this post nodding incessantly!! I was going insane calculating how much of every pay cheque (my husband and I get paid alternate weeks, so luckily we have some money coming in every Thursday) should be transferred into our other account where automatic bill payments come out. I finally added up everything that will come out in a month and divided by four-way easier!! I had to have a bit of a buffer for that first month, as the moeny wouldn't have been there before it had to be pulled out, but after that, easy peasy! Plus, I have the bonus of banking our few "extra" paycheques a year for other savings goals-I find that it gives me a psychological boost to add a larger amount every now and then :)

Kari said...

I love that I get paid weekly, budgeting is that much easier. I think I'd cry if I had to budget like you are.

J. Money said...

Hah! I do almost the exact same thing :) I split the major bills 1/2 and 1/2 for each period, but the rest are based on the due dates of the other bills as well.

I like the way you describe it though - very interesting. And great idea indeed from Dr. Faith!

You earned a spot in my weekly roundup ;)

Dawn said...

Thank you so much J. Money! And I liked Dr. Faith's idea too, in fact, I am going to act on it this week and shift a few things around to even up my billing cycles.

Dawn said...

Kari - Nah, you'd be able to do it! It just takes a little practice. Honestly it isn't too bad unless funds are really low, otherwise it goes fairly smoothly.

Psychsara - That makes perfect sense! I liked the way you worked it out.

Anonymous said...

I get paid bi-weekly and my husband gets paid twice a month (15th and 30th). Some weeks we get 2 paychecks and sometimes we get one every week. I like the months where I get paid three times :)

I've split up all of our bills & transfers into the envelope systems into 1/4s. I then pay bills and make transfers on Sundays for the upcoming week. The two extra paychecks a year go towards reducing our debt.

Dawn said...

Kreestee - It is kind of funny that your system sounds confusing to me, but I bet if you walked me through it it would be simple and easy. I think that is really the bigger morale to the story - budgeting and bill paying can feel really complicated, but once you find a system that works - it all comes together.

Greg Witulski said...

Hi Dawn! Funny you should mention this - I've used a time-based budget since September of 2003. After trying a few different ideas, I finally decided to create a custom budget calendar in Excel. Each "day" holds two columns, one for numbers and another for descriptions. At the bottom of each day, in orange, is a running tally of what my account should hold, and when.

It's been a fantastic way to track money. I can instantly see how incomes & expenditures will affect my month as it progresses. Since I do a lot of freelance stuff that pays irregularly, it's been very helpful. You can see a screenshot here!

(CFD hipped me to your blog. Nice work!)

Anonymous said...

We used to do a similar plan for
a long time and then decided to do
something radically different. We
saved up one month's living expenses little by little. This does take awhile to do and it isn't
easy by any means. Once we had that amount saved we started living
on the previous month's income.
It's a little hard to explain. For
example..let's say you saved up one
month's income by the end of August. You would then use that money for September's bills. In the meantime all your earnings for September would go towards October's budget. So this way you
always have one month's income in
the checkbook. It gives you breathing room, eases cash flow
and allows you to write out your
bills the day they come in the mail. If an emergency like a job
loss occured, you would already have a month's expenses in your
checkbook, giving you a little time
to figure out what to do next. It
wasn't easy saving up the initial
amount....but we finally did it and
are so glad we did.

Bucksomeboomer said...

I also get paid twice a month and do the same partial budgeting from one paycheck so I can pay the entire bill the following payday.

I have a question for you. Why do you make weekly sinking fund payments if you get paid twice a month?

Dawn said...

Buck - Truth be told, I set those weekly payments up not thinking about my pay cycle at all. It was more the ease of it - have a little bit taken out each week and at the end of the year have a fully funded Christmas fund, you know? I was thinking more about the end result. It wasn't until I saw my budget laid out in this time line that I realized that the weekly payments didn't make much sense. I just switched them to monthly - falling after the last paycheck.