Aligning Your Cashflow
Tons of people have been writing with questions similar to this on from EM:
I’m usually a really organized person but struggle with ways to get the cash flow organized well with the money coming in at different times. I’m paid bi-weekly and my husband is paid on the 15th and 30th of each month. When I look at the monthly numbers, we should have a surplus of cash but many of our expenses (childcare, RRSPs, life insurance, car payment etc) come out at the beginning of each month and I’m feeling like I’m out of sync. The mortgage payments are bi-weekly and align to my paydays. I try to “move” money mid-month to put it aside for 1st of the month bills but struggle with how much to move there vs. what to apply to our line of credit and when (owe about $20K there, have no other debt aside from our mortgage and car loan). Can you please recommend tools or systems which would help sort out my constant misalignment?
Sometimes people’s cash flow is out of alignment because of how often they are paid. Sometimes it’s because of when their bills hit their bank accounts for auto payment. Mostly it’s because people don’t take the time to sit down and plan when the money goes out based on when it comes in.
The first thing to do is to make a list of what you have to pay by date. If your mortgage comes out on the 5th, and that’s the first bill of the month, it goes at the top of your list. (This assumes you have enough income to cover all your bills. If you don’t, you’ll have to find a way to Make More Money.)
When you’re managing your bill payments remember that you can’t wait until the due date on the statement to pay your bills. While some companies have a grace period following a bill’s due date, if you try to pay on the due date using online banking, telephone banking, or bank machine, and the payment isn’t posted that day, you’ll be charged a late payment fee. Get in the habit of paying all your bills at least three days before the due date.
Now plot when those bills and the amounts you must pay on a “month at a glance” calendar. You can simply photocopy any month at a glance and use it as your template. There now, you can quickly see when the money needs to come out of your account.
Now put in your pay days. That’s when the money is coming in. Actually write on the calendar the amount that being deposited to your account.
If you get paid on the 30st of the month, that money will actually be used at the beginning of the next month. So people who are paid semi-monthly will pay half their bills from the 1st to the 14th with the money the deposited on the 30th, and the other half of their bills with the pay they got on the 15th.
If you get paid bi-weekly, there will be some months when you get paid 3 times instead of twice. You need to determine how many months of the year this happens, so you can allocate the “extra” paycheque appropriately. For your budget’s sake, you may have to live as if you only get two pay’s a month, and use the “extra” for boosting things like “home maintenance,” your “vacation fund,” “savings”… anything that doesn’t HAVE to be deducted monthly.
The trick is to pay only the bills for which you have money in the bank during any period. To that end you may actually have to call some of the companies you deal with and change your billing date. Yup, you can do this. It’s a pain, but a little effort now will make managing your cash flow a whole lot easier over the long term. Keep in mind that you’ll have to pay a pro-rated bill when you change your billing date, but after one month it’ll smooth out.
Okay, so back to your calendar. Look and see which bills can be paid from each paycheque, and whether any billing dates must be moved. Allocate your pay to bills so that you not only cover everything, but have the money you need for things like groceries, gas and transportation, entertainment and whatever else comes out in “cash” including your debit card transactions. Go back to your original list and rate the “paid” date in beside the bill, so you have a quick at-a-glance list of when all your bills will need to be paid.
One of the biggest benefits of having all your bills visible on a calendar and list is that you can track them as they come in. If for some reason a bill doesn’t arrive when it is supposed to, you’ll know the bill is missing, and can call and get your balance and make a payment before late fees and interest start to accumulate.
Doing this takes some time, but not as much as you might think. And finally having a system for when each bill will be paid will mean you’re not scrambling to find money so you don’t rack up interest and late fees. It’s definitely worth the effort.
BTW: Jessie in Calgary is interested in joining or starting a Gail Club. If you want to hook up with Jesise, email me at firstname.lastname@example.org and I’ll send on your contact info.