Getting Comfy with Your Money

Chapter 2:
How Your Money Works
Bills

Types of Bills
Bill Payments
Payment Methods

Bills, also called expenses, are financial obligations for the goods and services in your life on which you are required to make payments.

Most of the bills you will have are predictable, such as:

  • Rent or mortgage
  • Telephone/Internet
  • Utilities (electricity, water, garbage, sewer)
  • Loans (auto, home, personal, etc.)
  • Insurance (home, health, auto, etc.)
  • Gym memberships
  • Subscriptions (magazines, newspapers, Netflix, Amazon, Hulu, etc.)

There are also unpredictable expenses. You may not know in advance when unpredictable bill payments will be due, how many payments there will be and/or how much the payments will be. Examples include:

  • Medical/dental care
  • Household services (plumbing, electrical)
  • Contractors
  • Veterinary services

Then there are the emergency expenses that are totally unexpected. These bills could require only one payment. A large, due-on-receipt bill payment often translates to unexpected debt payments.

  • Repairs (auto, household, etc.)
  • Urgent medical/dental care



Types of bills

Regardless of how or when you incur expenses, bills can be categorized by whether or not the payments are due on a relatively fixed schedule with fairly consistent payment amounts.

Regular Bills

Regular bills have payment amounts that are fairly consistent and for which payments are due on a predictable schedule. The payment amounts for regular bills may vary slightly from one payment to the next, but there is a predictable maximum for each payment that can be used for budgeting. Examples of regular bills with fixed payments are:

  • Rent, house payment
  • Entertainment (internet, Dish, Netflix, Amazon, Hulu, etc.)
  • Subscriptions
  • Memberships
  • Loan payments

Examples of regular bills that normally have variable payment amounts could include:

  • Utilities
  • Telephone

Unscheduled Bills

An unscheduled bill has either sporadic payment amounts and/or payment due dates that are on an inconsistent schedule. Examples include:

  • Medical/dental care
  • Household services (plumbing, electrical, pest control, etc.)
  • Contractors
  • Auto expenses (service, tires, etc.)
  • Seasonal lawn care



Bill Payments

As discussed previously, there is no standard schedule for when employers will pay their employees. Bill payments, on the other hand, are universally scheduled on some form of a monthly schedule. Changes to these monthly schedules are typically the result of a due date falling on either a Saturday, Sunday, or holiday. When that happens, the due day might be moved to either the following or the preceding workday.

Scheduled By Month

Bill payment due dates are typically scheduled on the same day:

  • Each month
  • Quarterly (each third month)
  • Semi-annually (each sixth month)
  • Annually (each twelfth month)
  • Multi-yearly (in the same month every so many years)

Due Dates

A due date for a bill is the date by which the payment is to be received and completely processed by the payee.

The date on which you send or personally make a payment doesn’t matter. If the company to which you are making a payment cannot process your payment on or before your due date, your payment is late. For example, having a payment postmarked a week before a payment is due does not matter if the payment does not reach the company on or before the date on which it has to be received and processed.

The main reason for paying attention to payment due dates is that late payments often result in you being charged a late payment fee and/or paying interest. In the case of credit cards, for example, when a payment is one day late, in addition to a late fee, you will also be charged interest on your total unpaid balance before the payment amount is deducted.

Not paying your bills on or before the payment due dates can cost you a great deal of money.

Lead Times

When planning to make bill payments, the method of payment will have a lead time. This is the time before a payment is due when a payment must be submitted to ensure that the payment is received and completely processed on or before the due date.

For example, a person lives in Idaho and mails a monthly payment to a subscription service in Florida. Payments are due on the fifteenth of each month. The usual time for a letter to get from Idaho to Florida is four days. Payments could be mailed on the eleventh, but that is assuming payments will always be received within four days and that the company will open and process the payment before the close of business on the same day the payment is received.

In the example, there is no allowance for unexpected mail delays or for due dates falling on weekends and holidays. When the fifteenth falls on a Saturday, does the company move the due date to the following Monday? If not, payments that could have arrived on Saturday will probably not be received until Monday. Because of the weekend, the person gets dinged with a late fee.

One solution could be to always mail the payment that is due on the fifteenth by the first of the month, thus allowing a two-week lead time. But that does not eliminate the ever-present hazard of a payment getting lost in the mail.

A much better solution would be to take advantage of electronic payments.

  • If a company has an autopay option, using this option puts the responsibility for making payments on time with the company. There is no payment lead time. Late fees are avoided regardless of whether or not a due date falls on a weekend or holiday.

  • If the company accepts credit card payments, make the monthly payments online on the company’s website or by calling customer service. The minimum payment lead time for each payment will depend on whether the due date is a workday, weekend, or a holiday. Late fees are still possible if you forget to make a payment on time, but the concern about possible delays with mailed payments are avoided.

Not paying attention to bill payment lead times can result in late payments, which to reiterate can cost you a great deal of money.



Payment Methods

There are many options for making bill payments differentiated primarily by how much effort is required on your part.

Automatic

  • Cash withdrawal (no lead time) – You authorize automatic payments to be made with electronic withdrawals directly from your checking account.
  • Bill pay check – You use your bank or credit union’s online bill pay service to schedule the automatic mailing of checks that draw from your checking account.
  • Auto credit card (no lead time) – You authorize payments to be automatically charged to the credit card on file with your account.

Internet (web browser)

  • Cash transfer – You transfer money from your checking account using an online money transfer service like PayPal or Venmo.
  • Bill pay check – You use your bank or credit union’s online bill pay service to arrange for a check, which draws from your checking account, to be mailed.
  • Credit card – You charge the payment to a credit card.

Manually (payment is mailed or you hand deliver)

  • Check – You write a personal check which draws from your checking account.
  • Money order – You purchase a money order from a store like Walmart or from the Post Office using cash or a check that draws from your checking account.
  • Cashier’s check – you get a check, that is guaranteed to be good, that is issued by your bank or credit union (the money is withdrawn from one of your accounts at the time the check is issued and held in escrow by the issuer so that the check is guaranteed to clear when cashed).

Manually (cash)

  • You pay in person.
  • You pay a fee to a business, like Walmart or Western Union, that offers a money transfer service.






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