A blog about spending wisely in your twenties, with advice on everything from cooking to saving money on gas; how to teach yourself to save money instead of spending it, traveling without breaking the bank, and much more.

Monday, July 7, 2008

Bare Bones Cash Flow Management, or Pay Your Frikkin' Bills On Time!

When I first began to gain control of my finances, I meticulously tracked every single penny earned and penny spent. I didn't find any leaks in my spending that I didn't already know about, but I did learn to manage my cash flow. Before I learned to manage my cash flow, I always had the money to pay everything eventually but I spent a small fortune in late fees and I was never really sure just how much money I had at any given point. Rent was due when I got paid, dammit - not the first of the month! I couldn't very well pull money I didn't have yet out of a hat, could I?

Turns out, I could. I am going to say something now that might shock a few people:

If your total income is greater than your total expenses per month, you have no excuse not to pay your obligations on time.

If you get paid bi-weekly, sometimes your paycheck is going to come long before rent is due. "It's cool," you might think on the 22nd, "I get paid on the 5th - so I can just blow this check on whatever and pay rent on the 5th!" Of course, when your check comes on the 5th you spend every last cent of it on rent, and then you end up having to dig up beer bottles to redeem at the recycling center just so you can put the eensiest amount of gas in your car.

Not that I've ever done that or anything.

So here's a quick and dirty list of tips for getting your cash-flow awareness into shape:

(1) Track your spending and income meticulously for at least three months. If you care at all about getting your finances in order, you should be doing this anyway.

(2) Pay your bills on time. As in "when they're due" not "just in time to avoid disconnection."

(3) If the gas bill is $42 due on the 8th, you have $82 to your name, and you get paid on the 11th - you don't have $82. You have $40. Don't take your bank balance at face value. Consider what that balance must pay for and treat the upcoming expenses as checks you've already written, debits that cannot be avoided.

(4) Try to pay as many bills as possible the day you get paid. Get them out of the way so that you can't spend the money for your cell phone bill on a $50 bar tab or whathaveyou.

If you track your expenses while paying on time for two months or more, you'll begin to get a feel for when bills are due relative to your income schedule. You'll also be able to fairly accurately guesstimate the amount of every flexible bill. If you get out of the habit of spending your survival money on stuff you don't technically need, you can blow the extra. Or, you know, save some so that when you really don't have any money, you have a little something to fall back on.

Coming Soon: A kick-ass Cash Flow Tracker in spreadsheet form for everyone to download.

1 comment:

DerekL said...

One trick - when you deposit your paycheck, write (and record!) checks for all upcoming bills. It's the balance in your register or software that matters, not what the bank thinks you currently have. (Of course for your register to be accurate, you have to balance your checkbook monthly.)