One of the problems that many people who are disorganized have is problems managing their money and credit. Errors in same can result in wasting a lot of money on finance charges, lost cash, etc. I am an accountant (not a CPA) and this is one of the few areas in which I rarely have a problem. Following are some thoughts which might help you a bit. Oh, I know, you are rolling your eyes and thinking of clicking to get out of here and look at cat pictures, but I promise I try to make it easy and it is important. (Nothing here is intended to be specific accounting advice.)
First, you must have a system to collect all those credit card slips and the like that come into your life. There are three reasons for this. It is good to know where the receipt is if you need to return something. It is good to know where the receipt is if there is a problem with something which needs to be fixed under warranty or if you need it for your income taxes. Lastly, it is a really, really good idea to match the slips to the bills for them when they come in. Especially in today’s world where one’s credit information may be stolen, it is a good idea to match the slips to your bills when you get them. I have a section in my wallet set aside for them. I take them out of my wallet on Friday nights and Sunday nights and sort them into folders - you can sort them into envelopes and hold the envelopes (small manila ones are good for this) together with a rubber band. (You may notice that I use all different kinds of office supplies - I like them and they can be used for all sorts of purposes, my husband has been known to shop in office supply stores for gifts for me.)
Second, you must have a system of some sort for your unpaid bills. I am a paper bill person, I don’t trust doing anything financial online (I have worked with computers since I learned to program in Fortran in the early 1970's on a main frame computer and don’t think there is a safe website - as evidenced in recent years by hacking of the websites of large banks and insurance company.) If you pay your bills online this might be a bit easier for you as you will have all of your bills available on your computer - but still match the slips to the bills. The system doesn’t have to be fancy, but you do need to keep track of your bills and pay them on time.
I have a rather simple system - I have a plastic pocket attached to the wall next to my desk. When a bill comes in I check it. If it is a credit card or other bill for which I get slips for items charged I match the slips to it to make sure it is correct. Even I will end up misplacing some slips over the year, but I have most of them. After the slips are matched or the bill is checked (always check that your prior payment has been correctly posted to the bill) I put the bill and payment envelope back into the envelope and write the amount due and mark the date seven days before the bill is actually due as the date to pay the bill on the outside edge of the bill and put the bill into the pocket on the wall with the date and amount due showing. By using this date instead of the actual due date I mail the bill payment out a week before it is due and it has plenty of time to arrive on time. If there are only a few slips I will put them in the envelope with the bill and envelope. If there are a lot of them I will staple them together and put them in a folder I keep for this purpose in my desktop stack of files (I will get to what this is in a future post). For you, get a large manila envelope, folder, anything similar so that you know where the matching slips are when you pay the bills. There are some bills such as for my newspaper, snow clearing, heating oil etc. which need a quicker turnaround and I will send them as soon as possible. If you are paying your bills online you might want to set up reminders for 7 days before the bills are due.
When I sit down at my desk for the day (I do this at sometime during each day although not always on weekend days to check email and anything else I need to do in our home office) I look to see if any bills are dated as due “today”. If there are I will make sure to pay them - write the check, circle the amount due on the bill, write the date and check number next to the circled amount and staple any slips which are listed on it to the bill. I use a computer program for my bills, but will not get into posting them now. If you have any payments which are tax deductible or for business purposes you should mark them with something to make them obvious - perhaps a red star - in your checkbook (unless you are posting them right away). If you are not going to have the chance to pay your bills daily or if you don’t want to deal with them daily, pay them at least once a week. I know that many organizing books tell you to pay them once a month - I know I never have all my bills in the house at the same time during the month to do that. ALWAYS list and subtract your checks from your checkbook. Bounced check fees are rather expensive these days - why give away money to your bank when you don’t have to and if you bounce a check to a company, it will know about it in the future and it does affect how the company looks at you, especially if you do it a lot. Also do you want to take a chance on bouncing a check to your niece, grandson, best friend, etc.? They will then be hit with a fee from their bank also. (Also always make sure to list your deposits in your checkbook and add them in to your balance. Mark the source of deposits, not just as “deposit”. - Write Deposit - gift from Aunt Joan, or Deposit - dividends from XYZ corp - in your checkbook so you can check back as to what has been deposited and what has not.)
Third, mail the bill payment in the envelope provided if there is one (or make sure to send it out electronically if that is what you do). Make sure there is a stamp on the envelope (unless it is one of those rare companies which pay the postage for you) and that there is a return address on the envelope, just in case - if the company prints their address as the return address, I put mine on the back flap. Always include the stub with the amount you are paying filled in - I will put a line across any space which is for a change of address, etc so no one else can fill it in. Seal the envelope with everything in it and mail it. (I normally do this the day after I write the check.) If the company does not give you the envelope preprinted to mail the payment (such as when there is a payment book) I put the address in the address book of my word processing program so it is easy to print an envelope when needed and I don’t have to worry about putting on the wrong address or the label with the address falling off the envelope. Have a specific place to put outgoing mail so you don’t forget. I have a wire pocket hanging from my desktop file holders which holds the outgoing mail. If a piece of mail is too large to fit in the pocket, I have an envelope shaped card which reads “Mail to go out” which is put in the same pocket to remind me to take the other mail which does not fit in the pocket.
Don't forget to shred any papers you are throwing out from your bill payments - including envelopes.
We pay all of our credit cards in full every month. Neither of us is comfortable owing money. Over the years we have had a mortgage, a few car loans, an RV loan in addition to our credit cards. The mortgage was paid off in half the time it was for. One car loan was paid off early as we got rid of the car, the others paid on time. I often pay additional principle with the RV payments to cut down on the overall cost of the loan as I will pay less interest over the time of the loan.
I know most people are making payments on their credit cards and not paying them in full. I understand that average person in the United States owes $15,000 in credit card debt. That is a lot of money to be paying off, especially since it is likely increasing at the same time. We have been very careful to make sure that we do not buy things unless we can pay for them - this includes a driveway, a fence, siding, windows, and a new roof over the years. If you are on the credit card payment debt wagon you need to get your accounts paid down. When you are not paying finance charges/interest you have more money for you. I will not go into what to cut out to bring your expenses down - it varies for everyone. (I hate when there is an article about how to cut one’s expenses and the ideas offered are such as to stop buying coffees and to bring one’s lunch. We don’t drink coffee and we already bring lunch.) What is necessary varies for everyone, but look at what you spend money on and think about if it is really needed or wanted. So see where you can cut back to help you have more money available to pay off your bills and stop them from increasing so quickly. I will go into suggestions based on what we do to save money in another article.
Here are suggestions which will help with paying down your bills. The first idea will actually speed up paying down the bills. Figure out which of your credit cards has the highest interest rate. Presuming that you are paying more than the minimum now on your accounts, pay the minimum amount on the accounts which are not the one with the highest rate and pay the difference of what you can pay for the month towards the one with the highest interest rate. This will lower the amount of interest you are paying monthly the quickest. When that bill is paid off use it for the new amounts you are charging if you can, and pay it in full EVERY MONTH so you do not pay interest on your new purchases. Then repeat with the next highest interest rate card. Think about it , if you owed, say, $2,000 each on 5 credit cards by paying off the one with the highest rate first, you will have less to pay off on each of the others as their interest rates are lower. In addition as one pays down the account one owes less interest on the account each month and by paying off the highest rate, one cuts down the additional amount one owes the fastest. Using simple interest (which credit card companies do not do, they make you pay interest on the interest you owe, so the difference is even more dramatic) -
If you have a credit card at 25% and another at 18% -
You pay (at simple interest) $500 a year in interest on the 25% interest card.
You pay (at simple interest) $360 a year in interest on the 18% interest card.
If you pay the 25% card off first you will no longer be paying the $500, but will have added $360 (less any minimum payments) to your debt.
If you pay off the 18% card first you will no longer be paying the $360, but will have added $500 (less any minimum payments) to your debt.
Therefore by paying off the 25% card first in full you will have gotten rid of more debt and paid out less in the interim than if you did it the opposite way or paid off part of each debt during the year. Again, since I have used simple interest the effect is even more dramatic as in real life you would pay more than the amounts listed since you are paying interest on the interest. ALWAYS MAKE THE MINIMUM PAYMENTS on the other cards which you are not paying off. This idea is the one I like and the one that makes the largest monetary difference.
The second idea is aimed more at making you feel that you are accomplishing something. Pay off the smallest account first, paying the minimum amount on your accounts. This will result in your seeing that an account is paid off quickly and is over with, but may result in your paying more overall and taking longer overall to pay off all your accounts in full.
If you have a card which pays you cashback on purchases - have the cashback applied to the balance due.
As you pay off your accounts use the one which has been paid off and has the lowest interest rate for your new charges and pay that account in full every month - this will keep you from accumulating more debt.
Now, I know there are times when one has to charge something and pay it off due to emergencies. I know someone whose husband was hospitalized for an extended period when they were young and first married and they lost his salary while he was ill in addition to all the expenses that came about. They were very careful afterwards and in 2 years they had paid off all their credit card balances from the period he had been ill and they used a different credit card while doing so. This way the new charges they made while they were paying off the bills were paid in full and did not accumulate interest.
I will talk more about bills and banking and keeping track of both in the future. The important thing is to make sure that you make a start at keeping track of what you owe and what you have and getting your credit card debt paid down - and don’t forget to pay any car, mortgage bills, etc. and your rent. The better you are at paying your bills the higher your credit rating will be and the less you will pay for interest in the future.
You may now go and look at the cats.
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