Pay Ahead

A little more than 10 years ago, I was recalled to Active duty in the US Navy after the attacks of September 11th.  I used that opportunity when I would not have any rent or utility bills to pay off a lot of debt.  Upon my return, I hatched a plan to make sure that I never financially struggle again.

Once I returned home and started getting utility bills again, I decided to pay ahead on them.  I took a looked at each of my bills (from my previous apartment) and determined what my average for each bill was over the course of 12 months.  I then set a month automatic payment to each utility at that amount plus $5.00 so the payment would arrive a week early.  This ensured that I would make my payment and never be hit be a late fee.

For seasonally changing bills, you will need to check each month to make sure you sent enough to cover the bill.  For example, when I did this, we were heading into winter.  I would have to sometimes pay $50 extra dollars to cover my electric bill each month.  Once summer came around, I did not have to do that.  Make sure you check your bills every month for a minimum of 18 months.  At that point you should be far enough ahead that you will be safe.

One of those bills should be your “Focus Utility". This one you will pay $10 a month above your average to get ahead faster.  You also need to decide how far ahead you want to be.  It is a good idea to have 6 months of cash reserves on hand.  Personally I have most of my bills 24 months ahead.  That means if I have a financial disruption, I can go 24 months without my power, water, or other utilities turned off. 

Once you get ahead at the level that you want (Say 12 months) on a bill, reduce your over pay from $5 to $2.  This will help to cover cost increases due to inflation.  Take that extra $3 and add it to your “Focus Bill”.  Remember at the end of each year to review your bills for the last 12 months.  Average the Charges (Not the amount owed) and adjust your automatic payments accordingly.

This is a long term process.  I said that I am almost 24 months ahead.  It has been 10 years since I started.  This process provides minimal disruption to your finances, but once in place it will be there if you need it. 

I was once told “I can’t do that.  I have to have money in the bank to do that.”  That is the point of doing this.  So you will have to have money in the bank.  You have to make a change somewhere.  For many, this means paying an additional $35 to $45 a month.  You can find ways to do it if you are willing to look.

Summary:

• Set up online banking.
• Determine the 12 month average for each bill.
• Set up an automatic payment for each bill so they will be paid a week early.
• Set each bill to pay its average plus $5.
• Focus on one bill by overpaying by $10.
• Determine how many months ahead you want to be.
• Once you are ahead, reduce the monthly overpay to $2.  Add $3 to your “Focus Bill”
• Check your bills for the 1st 18 months and do an extra online payment to cover seasonal highs.