25% of Americans do not have an emergency savings.Anna Bahney, CNN Money
In the wake of the recent government shutdown, it has become even more apparent that a vast majority of the American population is not prepared to deal with a severe financial crisis.
According to CNN Money, only 29% of Americans have the recommended six months worth of living expenses saved in case of a financial emergency.
25% of Americans do not have any emergency savings and only 50% of Americans have 3 months or less of their living expenses saved.
However, when you are struggling financially and living paycheck to paycheck it can be difficult to find money to set aside.
Before we became a single income household we were living paycheck to paycheck and like most Americans, we didn’t have an emergency fund set up.
Before we transitioned to one income we were able to set aside some money in our emergency fund.
However, we have not been immune to various financial emergencies and have had to dip into that account on several occasions.
Even after dealing with these major issues we have been able to save a little each month to put back into our emergency fund by paying our bills weekly instead of monthly.
This payment strategy has allowed us to save money and pay down our debts.
I’m going to walk you through the 3 steps I used to set-up a weekly bill payment plan and how you can use it to save money and pay down your debts.
1.Gather Your Bills
The first part, and the most tedious part, of the process, is fairly straightforward.
You will need to gather all of your monthly bills and write them down. Sort your bills into two categories: Predictable/Recurrent bills and Irregular Bills.
Predictable bills would be things like: rent/mortgage, cell phone, internet, credit card, and car payments. Pretty much any bill that is the same amount every month.
Irregular bills would be things like your gas, electric, and water bills that fluctuate depending on how much you use.
Depending on where you live you may be able to turn some of your irregular bills into predictable bills. For instance, our electric company will allow you to enroll in their budget billing plan.
Once you are enrolled in the plan your electric bill is the same each month no matter how much electricity you use that month.
For example, our monthly electric bill is $160 every month. Before we joined the budget billing plan our electric bill would range anywhere from $120- $200+ depending on the season.
Now that you’ve divided your bills into two separate categories write down the due dates and the amount for each bill. Use these numbers to calculate how much you spend per month.
(If you can gather bills from the previous months you can use this information to get a better understanding of how much you spend on average per month.)
This is also an excellent time to create a budget if you haven’t already.
Since you already have all of your monthly bills in front of you might as well kill two birds with one stone.
If you’re interested you can read my post on budgeting here.
2.Create A Way to Track Your Spending
There are many different methods you can use to calculate your weekly spending. We record our bills in a Google sheet like the one below.
I like using Google sheets (you can do the same thing with excel) because all I have to do is input the due date and the amount due and it will automatically break down how much we need to pay per week.
However, unlike Excel, you can share a Google sheet with other people and all of your information is automatically saved when you put it in.
I share our Google sheet with my husband, which works out well because sometimes I forget to put in how much we paid onto the sheet. He can easily go into Google sheets and add the information for me.
It took me about a year to get this Google sheet to look and work the way I wanted it too. But I’m going to let you download it for free.
All of the formulas have already been entered into the cells. All you have to do is enter the information in the spaces provided.
I’ve also set it up so you can see how much money you’re spending per month, how much you should be spending per week, and how much you actually spent each week.
3.Automate Your Weekly Payments
Once you’ve set up your spreadsheet and you know how much you should be paying towards each bill every week, then you’re next step is to automate your payments.
Most bank accounts have an online bill pay system. Once you enter all of the necessary information you can arrange to have a recurring payment monthly, biweekly, or weekly.
In step 2 we determined how much we would need to pay each week. Now all you have to do is put in the amount you want to pay and set the payment frequency to weekly.
Now you’re all done. You can sit back, relax and let the system take care of the rest.
All you have to do now is fill in your spreadsheet and keep track of your due dates.
That’s it. You’ve just created your weekly bill payment plan!
Now we’re going to look at how you can use this method to save money and pay down any debts you may have.
How To Save Money & Pay Down Your Debts
Now that you’ve gotten everything set up let discuss how you can use this method to save money and help build your emergency fund.
On average the total amount of money my family spends for a whole month is about $3000. Now, that total includes things like food, gas, etc. But these are all expenses that we include in our monthly budget.
I added them to our spreadsheet because it helped me see what I should be spending per week on food.
But I find it easier to keep track of our budget expenses using our budgeting app, Mint, there are several free budgeting apps out there. I just prefer to use Mint.
If I take out all of the other expenses and just look at how much we spend on our bills we average about $2500/month. If I divide this number by 4 our weekly bill expenses are on average $625/week.
My husband is our primary source of income. He makes about $900/week after taxes. After we’ve brought food and other necessities we usually have about $50 left over at the end of the week.
Or a total of $200 of extra money at the end of the month. This money can be transferred into a saving account or used to help pay down debt.
Paying Down Debts
Maybe you don’t want to use this system to pay all of your bills, but I highly recommend it as an effective way to pay down your debts.
Credit cards, students loans, car loans, etc take forever to pay off because we are paying the financed amount plus interest.
One of the best ways to pay off your balance, outside of coming into a large sum of money, is to pay on your debt weekly.
When you pay on your loan weekly more of your payment goes to the principle, which reduces the amount of money you owe on the loan at a faster rate.
When you pay on your loan monthly most of the payment goes towards the interest. If you don’t believe me try it and look at your next statement to see how much you paid in interest vs how much you paid on your principle.
In addition, any extra money you manage to save weekly can be put towards paying off any debt you’ve accumulated.
Issues To Be Aware Of
Like all new things that we try there can be a few issues that we may encounter when trying to incorporate a way of doing things.
Here are a few that we ran into when we made the transition to paying our bills weekly.
Adjusting to The New System
Adjusting to paying your bills weekly can seem like a challenge if you get paid monthly or every two weeks.
We are fortunate that my husband gets paid weekly, so it’s easy for us to keep track of what has been spent.
However, no matter how often you get paid if you’re disciplined paying your bills weekly can still work in your favor.
I would suggest having at least three accounts that you transfer money into one for your bills, general expenses, and savings.
Getting Behind On Bills
Initially, you may get behind on your bills. When we first started paying our bills this way we ended up being a week late on a few of our bills.
The nice thing about paying your bills weekly is that you can adjust the amount you pay based on the number of weeks you have to pay them.
For instance, if my power bill is due in 3 weeks. I can change the number of payments and divide by 3 instead of 4. Now here comes the fun part.
I could decide not to pay anything that 4th week or I can pay something towards it. Preferably, whatever the payment would be for 4 weeks, and effectively get a week ahead of my bill.
This should also solve the due date issue and put you back on a 4-week payment plan.
Forgetting to Pay Your Bills Weekly
Most of us are used to paying our bills monthly. So changing how frequently you pay your bills can be somewhat of a challenge.
That’s why I strongly encourage you to use your bank’s bill pay feature to automate your weekly payments from your account.
Some people don’t like using the automated system and prefer to take a more hands-on approach to pay their bills.
You can do it manually, but in my experience, it’s better to just have it automatically taken out of your account.
It eliminates the hassle of remembering to sit down and pay your bills each week.
We’ve tried it this way before and it never fails that we miss at least one payment each month because we got busy and just forgot to pay it that week.
All Bills Are Not Created Equal
Now, there are some bills, like your mortgage/rent, that you may not be able to pay weekly. You will have to call your mortgage company or talk to your landlord.
Some mortgage companies will allow you to make payments every two weeks and some won’t even let you do that.
You can still use this process to pay these types of bills, but instead of paying it to your lender you would have that money transferred into a saving account you created specifically for your mortgage/rent payment.
Then you could have the money drafted from that account once a month.
Unlike your credit card company or the car loans, which apply your weekly payment to your balance, most mortgages will just hold your weekly payment in an escrow account until you’ve sent the full amount.
I learned this lesson the hard way.
If you want to tackle paying down your mortgage I would suggest seeing if they will allow you to pay your mortgage every two weeks.
This will add up to 1 extra mortgage payment each year. It doesn’t seem like much, but it will make a difference.
Alas, we have come to the end of this blog post. In my opinion, paying our bills weekly has been the best financial decision we’ve ever made.
We’ve had some ups and downs adjusting to this new method of paying bills, but it has been worth it.
However, what works for us may not work for you. It’s all about finding what will work best for you and your family.
If you would like to use the Google sheet I created you can download it here.
If you are interested in learning how we transitioned to living on one income you can find that post here.
Please feel free to leave any questions you may have about the spreadsheet or any comments you have in general in the comments section.
If you thought this post was helpful and insightful please feel free to share it with others or pin it for later.
Until Next Time,
The Crafty Afro