Avoiding Late Fees and Overdrafts
In This Chapter
Finding a system that works for you
Choosing the best payment method
Minimizing bill-paying hassles
Learning to stick with your system
Just when you think you've finally got it together, BAM!, in comes another overdraft notice. It's enough to make you throw up your hands in defeat.
Don't despair. With all you've accomplished in the first two chapters, you're well on your way to perfecting every aspect of your financial organization. You have a system for tracking your income and expenses and for keeping your accounts balanced; add the skills and tricks you learn in this chapter and you just might make bounced checks and overdrafts a thing of the past.
In this chapter, you add to your financial organization with a reliable bill-paying system. We also consider some of the intangibles professional organizers look for when a client cries, "Why can't I just make myself do this?!?" With sharper techniques and clearer motivation, you'll be on your way to a life free of late fees and those dreaded overdraft notices.
Ready? Let's get those bills handled!
To do list
Discover the factors that impact your ability to manage your finances.
Find out whether your work style is "sprinter" or "jogger."
Incorporate what has worked in the past into your new system.
Learn how to share a joint account without constant overdrafts.
When Time Flies, So Does Money: Finding a System for On-Time Payments
You've heard the expression, "Time is money," perhaps from a boss who doesn't believe in lunch breaks. Indeed, this saying is typically used to motivate others, not oneself, but it's worth internalizing. It becomes much more palatable when you're using it for your own benefit, not that of a company that gives you too little of both time and money to begin with!
Professional organizers know that time is an exhaustible resource, just like money, and it's even more precious because, unlike money, there is an absolute limit to the amount of time you can "make" in a day. We also know that mismanaging one invariably costs you more of the other: If you neglect money matters, you'll have to spend time to get back on track, and if you're not careful with your time, you'll end up losing money somewhere, somehow.
And so it goes with your personal finances. If you don't have a system for paying bills on time, you'll incur late charges and possibly damage your credit rating. If you don't keep your financial records up-to-date with regularly scheduled reconciliation times, you'll bounce checks and incur still more fees and ill will from creditors.
I believe that awareness is half the battle in all organizing challenges; therefore, if you struggle with time management as it relates to your finances, you'll make huge strides toward helping yourself to improve if you become aware of a few things:
What makes on-time payment difficult for you?
How do you approach the task of bill-paying?
What methods have worked best for you in the past?
What can you do to get yourself on-track with bill-paying?
What special money-management issues do you face, including managing shared accounts?
The following sections help you explore all of these questions in more detail, so you're better able to come up with a bill-paying system that works for you.
What Makes This So Hard for You?
Is it solely a time-management issue in that you just forget to do it? Or is there an emotional component? Often we procrastinate or avoid a task without even realizing we're doing it, and the reason is an emotional one. It could be fear: Dealing with bill-paying stirs up your insecurity and anxiety about money, success, and making something of yourself. It could be resentment: You resent having to pay money for some things, whether it's substandard phone service or a loan you had to take to pay for something that turned out to be a rip-off.
It could be that old bugaboo, perfectionism: If you can't do it perfectly, completely, on time, every time, then your heart's just not in doing it at all. It could be boredom: This is a pretty boring task, and many people have a low tolerance for duties that do not engage the imagination. It could be confusion: You just don't "get" money or your current system is too complex.
Acknowledge the factors that are keeping you from fully engaging yourself in this project. Accept that these are valid emotions, and stop judging yourself for having them.
Are You a Sprinter or a Jogger?
I learned this one from Wilma Fellman, author of Finding a Career That Works for You. If you're a jogger, you prefer to do a little at a time, taking a steady pace and completing projects in a more or less peaceful, predictable manner. If you're a sprinter, you tend to complete projects in bursts of energy, focusing your entire being on one thing for a short period of time and then walking away from it to regroup for a while. A jogger prefers to enter transactions into a financial management system every day; a sprinter prefers to do them in a batch once every week or so.
Sprinters are much more susceptible to spontaneity, and at times much more productive because of it. The inherent problem with a spontaneous approach to money management is that the consequences of falling behind and catching back up tend to be more severe than in other areas of life.
If you're a sprinter, endeavor to create just enough structure to prevent missed deadlines while still allowing for your naturally spontaneous nature.
What Has Worked in the Past?
If there was a time when you were on top of the bills, what was different? Was there someone in your life who served as an anchor or motivator to keep you on track? Did you have more money, or less? Were there fewer bills? Assess what has worked for you and look for ways to bring it back into your current system.
What Do You Do Now to Finally Get It Done?
Do you pull an all-nighter before tax day? Do you rely on overdraft protection to cover you and then use your panic to motivate you into getting the bills settled for another couple weeks? Perhaps you thrive on adrenalinethe rush of saving the day at the last possible minute. Do you find it harder to motivate yourself to pay bills when you have a smaller amount of funds available? It could be that working in fine detail to allocate each dollar precisely is just too overwhelming for you. Does it take someone else prodding you into action (the angry spouse, the tsk-tsking mother, the relentless bill collector)? Maybe that's because you really don't want to have to do it anyway.
What parts of all of that can you incorporate into a more effective system? Think carefully about this. The answer might be that you should delegate this task to someone else; if that's not realistic, it will be all the more important for you to find a system that gives you maximum accuracy for minimum effort.
After you've made these observations, it's time to boil it all down into one big reality check: What level of organization is realistic for you? Again, set aside self-criticism and judgment, be objective, and be honest. Is it likely that you (and those holding joint accounts with you) are going to be able to maintain perfect accuracy, or do you need a system that allows a margin of error?
Now is not the time for ambition! Let's have none of the "I should" and "I'll try harder" and "I'll do better". This is about finding a system that works for you, not contorting yourself to work for the system.
Doing Damage Control with "Safety Valve" Accounts
Consider how one couple's acceptance of reality led to a brilliant idea for creating a workable system for paying bills on time. Like every other couple, Beth and her husband hate bouncing checks, but when two people use a single checking account, it's easy to lose track of the available balance and spend yourselves into overdraft. This problem can occur for a number of reasons:
One of you is a spender and the other a saver.
One is good at tracking spending and the other is not.
The one who pays the household bills doesn't always communicate the balance to the other.
One or both rely on the ATM's balance statement instead of their own calculations.
When you're sharing something tangible, like cereal or shampoo, it's easy to tell when it's all gone. Not so with money. People using the old cash-under-the-mattress system never had our problems: The money was either there or it wasn'tno line of credit, no check-clearing period. Nowadays, the money we spend exists mostly as data in a computer, and transactions rarely require cash in hand. This makes it easy for both of you to spend the same dollarsometimes more than once!
Beth accepted that there was no way she and her husband could expect to never bounce another checkthey're just not able to be that precise. What she could do, though, was minimize the damage. She made a few changes and immediately saw a huge improvement.
Follow Beth's system to address this problem for yourself:
Open two new checking accounts: one for you and one for your spouse. These can be individual or joint accounts, but each must be used by only one of you. You will now have the old joint checking account (the main account) and two new ones (we'll call these the safety valves).
Do not carry checks or ATM cards for the main account in your purse or wallet. File them away at home.
Deposit all income from both of you into the main account.
Pay the big household bills (mortgage, insurance, utilities) from the main account.
Transfer a set amount from the main account into each of the safety-valve accounts, making absolutely sure you've left enough in the main account to cover the checks you sent out for bills.
Use your safety valve for your day-to-day purchases and cash withdrawals at the ATM. Never transfer money from the main account into a safety valve without thoroughly balancing the main account!
The person who pays the bills from the main account keeps that account balanced and reconciles the bank statement. Each of you is responsible for balancing your own safety valve account.
This system eases a lot of tension in couples where one or both aren't that great at managing money. As Beth notes, they still bounce checks from the safety valve accounts once in a while, but at least they know that the most important bills are always paid, and they no longer argue over whose fault it is that the account was overdrawn. This way, they can still have a joint account, something they believe in as a symbol of marital cooperation, but they can also minimize the impact of their slip-ups on each other's nerves and on their overall credit rating.