Articles

Mar 11

Paying it Forward

Posted by Peter Marmara-Stewart at Monday, March 11, 2019

Do you ever get to the stage when you think you have just got on top of your finances and then a big bill arrives?

You know what it is like... one of those bills that come in on a quarterly, half-yearly or annual basis. It may be house insurance, council rates, body corporate fees, electricity or gas or private health insurance.

While insurance companies and similar providers may offer a facility to pay premiums on a regular basis, even as frequently as weekly or fortnightly, some service providers don’t.

So how do you manage those big bills and avoid the shock of receiving one large bill of $1,000 or more?

One thing you can consider is to work out roughly how much you will pay for that service over the course of the next year. When I do this exercise, I add a bit, generally around 10%, to the estimated annual amount to allow for increases in the cost of the service.

Then divide the annual amount by the number of paydays in the year. This might be 52, 26, 12, or at irregular intervals for self-employed and casual workers.

Each pay, you then put the nominated amount aside so that when the bills come in, the money is there to pay it. Alternatively, a separate bank account can be set up for these regular amounts to be deposited to.

But, being human, idle money sitting aside for a special purpose may be raided for other uses. You know how it is:

‘I will just borrow $500 from my ‘bills account’ for a weekend away. It’s OK, I have plenty of time until the bill comes in and I will save a bit extra to make sure it is covered’.

The reality is, unless we are very disciplined, we never make up the amount borrowed and then when the bill finally arrives, desperation sets it – or we just pay the bill using a credit card – which is not a desirable outcome on so many fronts.

So, is there an alternative?
Many service providers allow bills to be paid using BPay. Provided your ‘customer number’ remains the same from bill to bill, you can set up a regular payment to your service provider using BPay. However frequently you are paid, regular instalments can be paid to your service provider.

These then accrue as a credit to your account so that when the bill finally arrives, the outstanding amount due is either very small or zero. In some situations, particularly when bills may fluctuate seasonally, such as with electricity and gas, you may even find your account carries a credit balance which can carry over to the next bill.

Before a ‘pay forward’ system like this, check with your service provider to ensure that pre-paid amounts will be credited to your account and not lost in the ‘ether’.

I have been using this practice of ‘paying forward’ for a couple of years now. I use it for my electricity, body corporate fee, council rates and health insurance. Receiving bills in the mail (or by email) is no longer met with a sense of dread and loathing.

By Peter Kelly, Retirement Strategies and Solutions