Best Strategies For Managing Your Bills

When it comes to personal finance, being able to effectively manage your bills is one of the most important skills that you can have. If you were building a house, managing your bills would be equivalent to building a strong foundation. Without a strong foundation, your house is likely to fall apart during the first storm. Similarly, without a strong budget, your personal finances are likely to deteriorate at the first road bump.

Despite its importance, budgeting is still something that many people struggle with. To help shed some light on this subject and help you build a strong foundation, we have put together some of the best strategies for effectively managing your bills.

The goal of a budget

At its simplest, the main goal of a budget is to make sure that your monthly income is higher than your monthly expenses.

Income > Expenses

If your expenses are higher than your monthly income then you either need to increase your income or decrease your spending. The bigger the difference between your income and your spending then the more room you will have to spend money on fun or save it.

Let's take a look at the first step of setting a budget.

Know your monthly income

Before even taking a look at your bills, you first need to get an understanding of how much money you have coming in each month to pay them.

For example, if you make $2,000/month then you will have a lot less wiggle room in your budget compared to someone earning $10,000/month. In this sense, your income dictates how much your expenses can be each month.

The best way to break down your income is to look at it on monthly basis. You can determine this number by taking your yearly salary and dividing it by 12 or multiplying your hourly rate by the number of hours that you expect to work that month. For more accuracy, you can also break this number down to determine your weekly income.

Now that you know your monthly income, you know the maximum amount that you are able to spend each month. For example, if your monthly income is $3,000 then your total expenses have to be lower than that.

Determine your expenses

Now that we have established the maximum that you are able to spend each month, it’s time to take a closer look at what your expenses are. Again, it is best to do this on a monthly or weekly basis. Since expenses fluctuate day-to-day, it can be confusing to try and keep tabs on your expenses every day.

Pro tip: Examine your total expenses on monthly basis to determine which categories are your biggest. These are the ones that you have the most room to cut down. Once you know your biggest expenses, focus your energy on limiting spending in that category on a daily basis.

Speaking of categories, the easiest way to keep track of your expenses is to put them into specific categories (luckily, most banking apps will do this for you).

Itemize your expenses

There are two common types of expenses that most people have: fixed, variable. Fixed expenses are your monthly expenses that are more or less the same whereas variable expenses are likely to be slightly different every month.

Of the two, variable expenses are where you have the most control.

Examples of fixed expenses:

• Rent
• Utilities
• Loan payments (student loans, mortgage, etc.)
• Insurance
• Car payment

Examples of variable expenses:

• Groceries
• Dining out
• Gas
• Subscription payment
• Gym membership
• Fun
• New clothes/shoes/etc
• Daily expenses like coffee, energy drinks, daily lunch

Below is an example budget from January to February. You can see that the fixed expenses are going to stay more or less the same. However, by limiting your spending in areas like food or fun expenses you can free up money in your budget that can be used to help cover expenses or to save.

NOTE: Most banking apps will do this for your automatically.

Let's take a look at how you can limit these expenses.

Tips for limiting expenses

Remember: the main goal of budgeting is to limit your expenses as far below your income as you can each month (without greatly reducing your comfort). The easiest way to do this is by cutting down your variable expenses.

When you're absorbed in your daily routine, lots of your variable expenses might seem necessary. However, if you constantly find yourself stressing to pay your bills at the end of the month then you might need to reevaluate what you consider a necessity. Here are a few tips to help you do that:

1. Become a "conscious swiper" - Pay very close attention each time you are swiping your card and really ask yourself if what you’re about to buy is necessary.
2. Stop using credit temporarily - Credit is a little bit like alcohol. A little can be harmless and fun but too much almost always leads to problems. Limiting the use of your credit cards will force you to pay for everything in cash (or debit) and prevent you from overspending.
3. Challenge yourself to spend as little as possible for one week - Sometimes budgeting is simply a mindset. If you try as hard as you can to limit your spending for one week, you’ll be surprised at how easy it becomes to stop spending.

For your fixed expenses, there is usually not a lot of wiggle room in terms of how much you spend. For example, you are almost always going to have to pay money for rent, and negotiating with your landlord for a lower payment can be futile. However, if necessary, you can always consider moving to a cheaper area or getting a roommate (both of these options will lower your rent bill).

Tips for growing your income

The most common advice when it comes to budgeting is to cut your expenses to make sure that they are lower than your income. However, raising your income will have the same effect. In fact, raising your income is a much preferable alternative because it doesn’t require any lifestyle changes.

Instead of changing your lifestyle to fit your income, change your income to fit your lifestyle.

Here are two easy ways that you can increase your monthly spending limit (your income):

1. Negotiate a raise - This will depend a lot on your company, industry, and where you are at in your career. However, if you are able to successfully negotiate a raise then that is the best-case scenario because you are simply getting paid more money for work that you are already doing.
2. Start a side hustle - Starting a side hustle has never been easier than it is today. You can use services like Bitlively.com to earn money teaching others your skills. Additionally, you can start freelancing on websites like Fiverr or Upwork.

Usually, even a side hustle that only brings in a couple of hundred bucks a month can have a drastic impact on your budget. This additional income could help boost the amount that you are saving each month or simply help bridge the gap between your expenses and your income.

We hope that you have found this article valuable when it comes to learning how to effectively manage your bills. If you are interested in reading more, please subscribe below to get alerted of new articles as we write them!