A One Touch Approach To Managing Household Finances

By Jason White on 18 May 2008 (Updated 20 May 2008) 16 comments
Photo: elliottcable

I did it again. I let a small utility bill slip through the cracks and got dinged with a $1.50 late fee. I know, it is only a $1.50, but since I'm on a daily mission to spend less and save more every little bit I have to pay in "stupid tax" gets in the way of success. Most of our household bills are on autopilot, but this is one of the few than I have to keep up with manually and send in a "snail mail" check. Over the years I've implemented eleborate tickler systems, email reminders and various other ways to remind myself not to forget to pay these few paper bills. At some point they all fail, usually due to my own procrastination or some technical or procedural glitch. That was, until I implemented a fool-proof plan I refer to as the "One Touch System" for household budgeting.

When a Bill Reaches Your Hands, Pay It

I used to be the world's worst at picking up a bill, reading over the numbers, and then returning it to the stack without resolution. My streak of procrastination extended into other areas of my life as emails sat in my inbox waiting for response, voicemails went unanswered, and a number of small household projects added to my "honey-do" list stacked up incomplete. This latest scheduling screw-up was the last straw. From that point forward I vowed to pay things immediately as I received them. No more stacks of bills and unopened mail. From now on I would force myself to stop what I am doing, sit down and write the check, address the envelope, apply a stamp and move it to my dresser so I would remember to drop in a mailbox on the way to work in the morning. The first few times I stuck to this routine really annoyed me. It seemed I was always in the middle of something, or simply not in the mood to sit down and pay a bill.

No More Paycheck to Paycheck

Of course, this approach also required some changes in our household finances in order to pay a bill as soon as it came in. In the past, bills stacked up and were paid once or twice a month, usually around the time I received a paycheck. The thought of paying something early seemed impossible because I usually needed the next paycheck to cover the next set of bills. To implement our new "One Touch System" we would somehow have to get ahead and accumulate a sum of money in our checking account to provide a "float" from which we could pay monthly bills. To do this, we saved $1,000 in a savings account over the course of a few weeks by moving some from each paycheck, selling a couple small items on eBay, and saving any "found" money we encountered from rolled coins to the occasional gift. Once the $1,000 was in place we moved it to our checking account in a single transaction, and then moved the amount left over back to savings. This left us with exactly $1,000 in our checking account the night before my next paycheck was scheduled to be deposited.

The $1,000 deposit from savings would become the floor amount for our checking account, instead of the usual zero-dollar balance we occasionally approached. The newly implemented floor amount allowed us to occasionally dip below to pay a bill that would be covered by a paycheck a few days away, without fear of an overdraft fee from our bank. Before implementing the "One Touch System" we would let that bill sit until pay day, which depending on billing cycles could be dangerously close to the bill's due date, as was the case with the last bill we were late paying. Critics point out that by giving up this "float" we are losing some opportunity costs that our money could be earning. Perhaps, but by paying these bills as they arrive I no longer have to manager the open loops in my brain to remember when they are due, and I don't have to rely on software to remind me when to pay. For me, this is worth any gains we could realize by investing these relatively small amounts elsewhere.

I'm proud to report that implementing this budgeting system has eliminated late payments and "oh-crud" moments from our monthly budget. Now, if I could just apply the same system to this stack of emails in my inbox.

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Guest's picture
Cashola

Excellent post, the advice is great.

Guest's picture
Ken

Good advice for all. (Should tidy up your office space tho!)

Jason White's picture

Ken, this isn't actually my office, but from the looks of it I'm ashamed to say it is fairly representative of mine!

Linsey, some people can pull off as little as $100 a month buffer in some cases.  For us, I consider the $1,000 part of our emergency fund (as a local, easily accessible option).  

Linsey Knerl's picture

I have been slowly implementing a 1-touch approach to everything in my house.  (Clutter is our enemy.)  The bills wasn't so much an issue for me, as we have been used to paying bills immediately so that I always have an accurate snapshot of our financial picture.  The household decluttering wasn't as easy for me.  It's hard to stop what you're doing when you find something that has to be dealt with and do it right away.

But I always find a reason to be distracted... so it's NOW or NEVER.

Thanks so much for simplifying this for others.  I especially like your $1,000 "buffer" (as we call it.)  We live in an area of our life where $500 worked just fine for us.  But it's still the approach we have used successfully for over 3 years!

Thanks! 

Guest's picture
funkright

I have, for year, paid bills weekly.. I take the average monthly bill and divide it by 4 and pay this amount every week via my banks autopayment feature.. Just love it..

Guest's picture
pfostpfilms

if you just set up an interest-earning checking account (my tiny local bank offers a "sky-high" interest of 4% on a regular checking account...or just use ING Direct), then you'll earn a decent return on that 1000 floor AND you'll never pay the "stupid tax" again. sounds like a win win!

Guest's picture
FrugalZen

My checking account has a $2500 Ending Balance or a $1500 Average Daily Balance in order to avoid(Waive) the Monthly Maintenance and Per Item Charges.

So I keep at least $2500 in the account...avoiding $25 a month ($300 Year) plus in Fees IS THE SAME AS (note the emphasis!!!) as having $2500 invested in a CD that earns 12% Interest.

As long as the "Return" is high enough from using your money to Avoid Fees it can be considered a Prudent way to "Invest".

Oh Yes!...Its also Tax Free.

~ Roland

Jason White's picture

As Roland correctly points out, another benefit of keeping a sum of money in checking is fee avoidance. Many banks, particularly those that offer interest-bearing checking, require a minimum daily or average daily balance to avoid an account maintenance fee. We are fortunate our bank doesn't charge such a fee, but if we had such an account I would definitely consider making that the "floor" checking amount.

Guest's picture
Guest

i just write my bills on a three monthe wet-erase board. it's where all appointments, activities etc go. i pay the bills immediatetly, but it's nice to track $ amounts.

Guest's picture
EL

I try to do the same thing, but I use Web Billpay. This way, when the bill comes in, I schedule it online and then I can pay it whenever I want and I never miss a bill.
Cheers!

Guest's picture
Paul

I pay bills as they come in, but I don't put them in the mail. I write the due date on the envelope and drop them in the mailbox when it is about 1.5 weeks til the due date.

Guest's picture
Guest

Rather than drop everything to pay your bills every day as they come in, why not just pick a day to process your bills. I process mine on Tuesday (every Tuesday). I have one place specifically for putting bills (and other things I want to look at when paying bills). This works especially well for bills that have some lead time before they are due (such as automobile registration renewals, since sometimes you have to get a smog check, so you can't just pay it immediately anyway). I see the notice every Tuesday, but I have the flexibility to decide if I should pay it this Tuesday or put it off until the next Tuesday, etc. Also, by seeing it every week, I am reminded to get the smog check done as well. If I plan to be out on Tuesday, I simply move the process to Wednesday (or to Monday, if I know in advance).

Guest's picture

Once I get a bill, I go online to my bank's website and schedule the payment and the payment date. It is easy and once I do that, I forget about it. Of course, you have to make sure you have enough money in the bank so the payments will go through.

Guest's picture
Guest

I have all of our bills but two go directly onto the credit card. This isn't an issue, since we pay the CC off in full every month. The two remaining bills come in at about the same time of month, and I pay them using free online bill pay from my credit union as they come in.

So almost all of our bills get paid at a single time during the month, and I never miss a payment. If I ever get charged incorrectly, I can challenge the bill on the credit card. (This has not happened to date (2 years).) The only reason that I haven't moved those two remaining bills onto auto-payment is because one has a fee for using credit card payment and the other doesn't offer it at all.

Guest's picture
Guesta

What I do, is when I get the bill I write a check, put it in the envelope and then stamp it.

On the back in the lower right corner of the envelope I write three things.

The amount the check is written for (example: $42.12)
The Bank I'm paying from (I have 4 checking accounts)
And lastly the Date the bill is due (example: 06-17-2008).

I put it by the door. When I go out to check my mail I look though them and take any of them that are close to the due date to the box.

Guest's picture

This is great advice. It is much easier to address finances when financial paperwork is in order. The beast just isn't as big or inimidating when it is pulled out from the stack of papers and put under a light. Excellent post!