The bills & utlities account

One of the most common budgeting frustrations is how to always have money for bills. The answer is by making them a priority, yes, it's that simple. If you always want to make sure that you're bills are paid and reduce the stress of 'bill shock' when you receive a bill, then you need to make the decision that bills and utilities are a priority in your budget over other discretionary expenses. 

We often worry about where we are going to find the money to pay bills, amongst life's other expenses. Over many years of doing this, I have found that the easiest and least stressful way to make sure that all of my bills are paid in full and on time is to have a dedicated bills & utility account. This is an everyday bank account that has been set up specifically to hold money and pay for bills & utilities. From each pay, I transfer a dedicated amount of money to my bills and utility account so that when the bill arrives, the money will be there and I can pay it almost immediately after it arrives. The trick is not to touch this money for non-bill/utility related expenses. As long as you don't get tempted to touch this money and spend it on things that aren't bills & utility related, you will always have enough money to cover your bills and utilities. 

So how do you get started? I've made a step by step guide below for how you can get started, along with an example. 

Step 1. Open an account and name it 'Bills & Utilities'

So that you can differentiate what money is allocated to bills & utilities vs. money for other things, open an everyday spending account. This shouldn't be a savings account - as they often restrict how much can be withdrawn from it each month, and because you will be paying bills a few times a month you want to be able to withdraw from it without penalty. This step usually takes a few days for the bank to open the account once you've applied for one (my bank will allow me to open a new account easily from within my online account and it takes about 1-2 business days for them to open it and make it accessible for you to use. 

As for naming your accounts, once it's open and accessible your bank usually will allow you to customise the names of your accounts so that you can identify what you're using this account for vs. others. I have several different accounts that hold money for different things like emergencies, called sinking funds. Each one is named by what the money is allocated for. 

Step 2. Make a list of all of your bills

This is a really important step. So that you can make sure that you've got enough money in your bills and utilities account to cover every bill that you have, you need to make a list of all of your bills and utilities. This includes expenses like mortgage, water, electricity etc. Really anything that needs to be paid regularly, that you know about. This isn't an emergency fund.

Once you have your list, mark next to them how often they are due. E.g. Fortnightly, Monthly, Quarterly, Annually.

Step 3. If there is anything 'optional' that you don't want or need anymore, cancel it. 

This is a great opportunity to audit your spending. When you go through all of the things that you're paying for and listing them, we often find that there are things that we are paying for that we no longer want, need or use, then this is a great opportunity to cancel. The money that you're paying to these subscriptions or services can be better utilised somewhere else.

4. Take all of the bills that require payment and divide the regular payment or average cost by the number of pays between bill dates. 

Now that we've got our account open, have a list of bills/utilities and cancelled anything that you aren't using/want/need anymore, we can get to the part to start finding out how much money from each pay that we need to put into our bills and utility account to make sure that all our bills are covered and can be paid in full and on time. Every time. It also allows you to capitalise on pay on time discounts..woohoo, more money savings!

The first step is to write down how often you get paid. Weekly, Fortnightly, Monthly? This will determine how we need to breakdown our bills/utilities. I keep this so that I don't have to do it all over again if I need to add, deduct or adjust a bill. As you'll sometimes need to do this and it makes the whole thing easier. 

Let's get started. Meet Deborah, she gets paid fortnightly, which means that every year there are 26 pays. (weekly = 52 pays, monthly = 12 pays)

Deborah used the table below to find out how much money she needs to transfer from each pay. You'll notice that she's listed the item, how frequently the bill is sent to her, how many times she gets paid within those periods, how much the bill is and how much needs to be transferred. If you have bills that aren't the same every month, then total up the last 3 bills and divide by 3 (you can do the last year if you want to). This will give you the average bill cost. 

When you first start, you may need to put more money in, when I first started I contribute an extra $500 to this account to make sure that  I would have enough money in there, as when you first start you may be halfway through a billing cycle. But after the first 2-3 months, there will be enough money in the account to cover all of your bills. 

Bill / Utility	Frequency	# Pays per Cycle	Cost / Average Cost	Amount to transfer to Bills & Utility Account
Mortgage	Fortnightly	1	$750	$750
Internet	Monthly	2	$60	$30
Mobile Phone	Monthly	2	$40	$20
Electricity	Quarterly	6	$150	$25
Water	Quarterly	6	$150	$25
Car Insurance	Yearly	26	$600	$23.10
Home Insurance	Yearly	26	$300	$11.55
Total				$884.65

Now that we've got the amount we need from each bill, we can go ahead and total the amount that we need to transfer. In Deborah's case, she would transfer $884.65 every time she got paid, to cover her Bills & Utilities. You can, of course, transfer each item individually, but this can be tedious, so I total the amount and transfer the lump sum into my bills and utility account. There will be times when this needs to change if a bill needs to be added or deducted or adjusted. You would just add or deduct this amount to your transfer amount. 

6. If you have direct debits, swap them over to this account and if a bill to be paid comes in, pay it from the money in this account.

Now that you have your bills & utility account in place, remember to swap any direct debits to this new account. That way you can set and forget this account and just transfer money into the account for bills every payday. When your bill comes in, pay it from the money that you have in this account.

I hope this has given you some great information about how to allocate money from your income to pay your bills and utilities without having to worry about where you're going to get the money from when they arrive (and capitalise on any payments on time discounts that this provider offers).

If you have any questions please leave a comment and I'll be happy to answer these for you.