Avoiding the Shock of Unexpected Expenses
25% of electricity customers in Australia struggle to pay their bills on time. Many times it’s attributed to the fluctuations in costs of these periodic costs. Other periodic costs like telecommunications and car registration can cause significant stress and be disheartening to people who are trying to streamline their personal finances.
Whilst bill smoothing was initially introduced by energy companies in Australia…its principles can be used across any type of periodic expenses, especially high cost bills.
Bill Smoothing – The Ultimate Budgeting Tactic
Bill smoothing is a fantastic way to provide structure within your budget, even in the presence of periodic expenses. Depending on what you have available to you, services like Centrelink provide Centrepay which allows for you to streamline rent and mortgage expenses, phone and internet, utilities, school fees and expenses, child care, and medical expenses.
*Consider your annual car registration fees, insurance plans, and utility bills. When determining your monthly budget, it can be a struggle to remember that in a future month, you’ll have a big bill coming out that you normally don’t include in your monthly expenses.
Opting for bill smoothing would solve that issue by creating a monthly expense that would add up to the cost of the otherwise, periodic expense. For example, let’s entertain the idea of bill smoothing with regard to home services like pest control. Your pest control contract may currently be billed quarterly, bi-annually, or yearly. While you set your budget for the month, you may not be considering the out of cycle bills like the infrequent pest control bill which can negatively impact your monthly budget .
Instead, you can check with the pest control company and see if they will set up a formal payment plan, or informally make payments to them on your own.
Essentially, this simple process would include totaling the yearly cost of this service and dividing it by weeks, fortnights, or months. Once you determine the frequency with which you’d like to pay, your monthly budget will now include this service and you’ve eliminated your quarterly budget dilemma.
Quick tip: In instances where services providers don’t accept out of cycle payments. Create a saving account for that bill and deposit a monthly amount which will cover the cost when the bill comes due. Create as many of these accounts needed for any type of bill and or purchases.
Stay out of debt by creating micro saving accounts for holidays, events (Christmas), etc.
What are some of the ways you could benefit from increasing the frequency and standardising the costs of your periodic payments?
*This article is opinion only and should not be taken as financial advice. The information is general and has not taken into account your objectives, financial situation, or needs. Check with a financial professional before making any decisions.