Avoiding Financial Setbacks Part 2: Bills & Unexpected Charges

March 27, 2008 – 7:00 am

This is a five-part series designed to educate readers on Avoiding Financial Setbacks.
These will not be displayed daily but as time passes on. This is a continuation from Avoiding Financial Setback Part 1 where I took a look on how you can avoiding lending out personal loans and gave a few tips on how to limit your lending. Now I want to take a quick look into one area that I know that we all face, which are Bills & Unexpected Charges

Before my own personal road to recovery, I cannot tell you how many times I would use my money on splurges with no regards to the upcoming bills for the month ahead. Those bills would have to be delayed and not only would I have to pay two or three months worth of bills in one sitting, I’d also have late fees and any other additional charges to pay off.

It didn’t stop there. In 2005, I paid over $2,000 in overdraft fees to my bank! When I purchased video games or any other leisure items and then attempted to pay bills, I found myself paying $40 a pop because I didn’t have enough cash reserved to pay all of those items.

So now I want to pass the advice on to you on the steps I had to take to organize my finances, so instances such as these never occurred again.

Cut Expenses
I didn’t have many utilities and bills but I had several subscriptions and other expenses that ate away my cash little by little. Make a list of your expenses and figure out what you NEED. I had a cell phone and a landline. I needed an open line of communication, so I ultimately decided to rid myself of my landline and kept my cellular by my side at all times. That was a significant savings of around $60/month, that’s $720 per year!

There are bills you are probably paying for that you feel you need, but you really don’t. Consider the differences between leisures and necessities. In fact, make a 3-column chart and in the first field, list your expense. In the second field, make short note categorizing which are leisures and which are necessities. Lastly in the third, write the average price you pay each month for each expense. And here’s what you’ll find out. You’ll find out that small amount you spend on necessities and the large amount you could be saving on leisures.

In my opinion, the only expenses that fall under necessities are:

• Rent & Mortgage
• Electricity
• Water
• Food

I feel that there are some leisures that are somewhat necessities, primarily phone, because I feel we all need some type of communication source open especially in case of emergencies. Cable is a leisure. A car, for some people, is a leisure. I think you get the basic idea. Some things we consider necessities can easily be removed or at least reduced from our finances.

Reserve Cash (Budget)
Next, it’s time to budget your cash and reserve your money. After I took the step to cut out the main money eater of my finances from splurges and reduced expenses, it was time to develop a system to reserve my cash and budget new and available money.

What was once difficult to pay bills, I found it easier to handle those and unexpected charges without having to pay my bank unnecessary overdraft fees. Then I was easily able to reserve cash for savings for more long-term prospects, which brings me to my final point.

Emergency Fund
This is the last and final step, yet the most useful. There’s been a little battle over how much to save in an Emergency Fund. Some say save at least $1,000, some say save 3-6 months of your income. Both are great answers for their own scenario, but I developed a system that worked best for me and you should too. My scenario is to put away what you can afford until you reach your maximum goal. Don’t overwhelm yourself, these things take time and patience. As long as you are continuing down your path, you will reach the end of your journey.

The most positive aspect of an emergency fund is that you’ll have that extra cash and cushion available, if for any reason your available funds are not enough to take care of unexpected charges. For example, just last year I had to use my Emergency Fund to settle expenses. If I didn’t have it, it would have seriously set me back. Seriously, consider building an Emergency Fund if you haven’t already. It has already proven to be a useful tool for me, and I know it will be able to do the same for you.

This completes part 2 of the “Avoiding Financial Setbacks” series. There are tons of ways you can save money, one useful site I found was “101 Ways To Save Money”. You may can’t do it all, but I know some of the ideas presented may be useful to help cutting your expenses. I still look over it time and time again to see if there is anything more I can do to save an extra dollar. In the next series, I want to speak more on finding ways to save money by speaking on Splurges. I’m going to provide some useful ideas to consider even when you feel that you have to absolutely have that product that your eyeing. So stay tuned, there’s more to come.

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