When should you pay bills?

Sunday, March 30, 2014

Timing is everything when it comes to bill payments and there’s more to it than just paying on time. Here’s how to make the most of each month.

Don't pay early


You might want to pay all your bills on pay day to get it done. But before you do that, find out from your bank whether you earn interest on any money in your account. If you do, rather pay your bills just before their due date – the longer you have money in your account – and the more money you have there – the more interest you earn. You also make the most of compound interest, which is really where your money starts working for you – you earn interest on your interest.

Here’s how it works:


Say you have R100 in your account, and it earns 10% interest. At the end of the year, your balance will have grown to R110. If you don’t touch that money it keeps earning interest over the year – this time 10% on your original R100, and on the extra R10 you earned last year. So without any effort from you, your balance now would be R121. So, the longer you keep your money in your account, the better your chances of earning interest on interest.

But don’t pay late either...


Do pay on time – your credit record depends on it. Remember that if you’re paying online or by EFT, some banks take around two working days for the payment to clear so you’ll need to pay three days before the due date. If you can’t pay an account, don’t ignore it. Rather see if you can negotiate a change in payment terms, just until you’re back on track.

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Pace yourself


Stagger your spending. The aim again is to have as much money as possible earning interest in your account. Interest gets paid into your account monthly, but it’s calculated daily so the more you have in your account each day, the better. Work out how much you can spend on groceries, transport, luxuries and entertainment each week and stick to it instead of using up all your money at once. So for example, if you buy a month’s worth of groceries in one go, that’s a major outflow of cash. It might be better to do it weekly to keep your money in your account longer.

Clamp down on credit


Living off a loan or your credit card is never a good idea. Although there’s usually a grace period of 55 days on credit cards, if you can’t bring your credit card balance to zero once a month, you’re not making smart money moves. Paying only the minimum 10% amount you owe on your card each month will cost you dearly over time.

Get budgeting


Think about saving for big expenses like holidays and car services. On pay day, before all your money gets swallowed up by bills, consider putting a little money aside towards these big expense, so you have a fund available when the time comes. Try to live by the50/30/20 rule. 50% of what you earn is for living expenses like food, transport and other basics. 30% is for important financial planning like medical savings, retirement, insurance and saving, and 20% percent is for you to spend on yourself.

Plan longer term


Some bills (like school fees, rates and taxes) cost you less if you pay them up front and in full each year, because you get a discount for doing this. But be careful – in some instances, it might be cheaper to put that money away in a savings account that earns interest and then you can draw down from it monthly to pay those bills.

To work out whether you’re better off paying bills annually or not, try this example. If your school fees are R10 000 a year, and you get 5% off for paying up front, you’ll save R500, which is a saving of R42 a month. Compare that to the interest sum to see which option saves you more.

Don't forget that buying in bulk can also keep costs down. This is especially true for grocery items, for example. A 15kg bag of sugar costs a lot upfront, but it often works out cheaper than buying sugar kilo by kilo.

Calendar


Fill in your bill due dates on the useful calendar below and use it to remind yourself of what needs paying when. Also fill in how much you have for weekly expenses and luxuries on each Sunday of the week. Schedule an afternoon towards the end of the month to budget and consider your options for saving. If you make a date to do it, it’s more likely to happen.

Source: Capitec

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