What can you do to organize household bills by the end of the year? Check out 5 tips to keep everything in order and avoid debt.
Organizing bills is a big challenge for many people, especially when December arrives and we have to think about end-of-year expenses. During this period, families tend to have higher expenses, existing bills and debts combine with expenses related to school holidays, end of year parties and gifts.
There is no magic formula to make these costs disappear, but it is possible to organize the bills by the end of the year to start the next one on the right foot. With that in mind, we’ve prepared some tips on the subject, with the aim of helping you improve your personal finances. Read on.
1. Know your financial reality to organize accounts
Table of Contents
There’s no way to talk about organizing household bills without starting with lists or spreadsheets. Both tools are essential for you to know how the balance between spending and earnings is. Therefore, put on paper all the entries and exits that you will have in the month. In this first step, you must include your salary, variable salaries, commissions and even your freelance projects.
Then it was time to record the expenses. Here, you can be even more detailed and separate fixed and variable expenses. The first is the one where the value doesn’t change, while the second is spending that you don’t have every month.
With everything written down, you’ll already have an idea if the expenses are extrapolating what you receive. It will also be possible to clearly visualize what needs to be cut.
2. Divide your winnings
There is a technique called 50-35-15 that you can use to organize your bills by the end of the year. The rule is as follows:
- 50% of your earnings will go towards the main household bills, such as water, telephone, electricity, medical, food, among others;
- 35% will go towards extra expenses, as well as leisure, eating out and travel;
- 15% will go to the emergency reserve, which can avoid debt at critical times.
The emergency reserve consists of a kind of savings that can be used in times of crisis. It is essential to keep these savings to get out of debt when something unforeseen arises.
There are experts who recommend an amount equivalent to more or less 6 months of personal expenses. That is, if you have $2,500.00 in monthly expenses, you would need to have $15,000.00 in reserve. This limit guarantees peace of mind for a period and you will have time to put things in place in case something happens.
3. Prioritize urgent bills
If in the first step of the organization the result showed that you have more debts than money left over, the time has come to take action and start the next year without pending issues.
Therefore, it is important to prioritize some accounts. Start paying rent, water, internet, electricity and other bills, as not paying these bills means financial snowballing and cutting services. Then, try to pay off debts with a higher interest rate, because the higher the interest, the more expensive the debt in the medium and long term.
4. Cut unnecessary expenses to organize bills
The best way to organize your bills and get out of debt is to cut habits that are harmful to your financial life, such as impulse purchases. Make a table dividing your monthly expenses into three groups:
- Essential bills: food, light bill, water, among others;
- Important expenses: car, internet, clothing;
- Superfluous expenses: restaurants, trips to the cinema and more.
By separating such accounts, you can understand what your cutting alternatives are. Of course, start with the superfluous expenses, because they are the ones that will be missed the least and that tend to get in the way. You can cut back on movie goings, cancel streaming services, and cut back on take-out orders.
5. Plan what to do with the extra income
The 13th salary can go from being a little help to a big trap for your finances, since there is the possibility of spending everything at the end of the year. Therefore, make a plan and set aside the amount needed to pay your usual bills.
Another option is to invest the money in new sources of income, for example, applying it in Treasury Direct bonds, which offers less risk. It is also possible to invest the amount for the down payment of an apartment through housing programs.
The fact is that organizing the bills at home is not a seven-headed bug. It is possible to leave everything in order until the end of the year and enjoy the next one without worries, just follow the tips for smart planning.