Payment Plans To Control Cash Flow

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Payment Plans To Control Cash Flow simple money man

 

We all get bills in the mail or in our email inbox. Some are recurring and some are totally unexpected; well maybe a little expected. But when those semi-unexpected bills do come through, it’s important to first make sure it’s accurate and then figure out an efficient way to pay it. An efficient way to pay a bill means it doesn’t break your bank account. In order to avoid breaking your bank account, proper cash flow is required.

 

Cash flow comes from budgeting and tracking how your cash is coming and where your cash is going. I used to think that budgeting is tracking, but it’s actually two separate things. I won’t get into it in a lot of detail here, except a short definition that I myself have come up with from experience.

 

Budgeting means taking an anticipated expense and estimating how much it should be the in upcoming cycle or month. A cell phone bill can be $50-$55 per month, so you can budget for $55 for your cell phone. This estimation can help you control your cash flow and see where it is needed. My free budget template may be a great way for you to get started on simple and effective budgeting.

 

Now that we have a simple understanding of budgeting, let’s move to the tracking part.

 

Tracking your expenses means to simply take expenses you have already paid and documenting them without further planning and thought. It is a fruitless exercise if you don’t use the information to anticipate, estimate, and plan.

 

With those two concepts in mind, it’s always ideal to pay your bill in full. But this isn’t always an option. Sometimes we may be strapped for cash. This is a reality for many of us. But don’t let this affect your ability to pay some because extreme consequences could include detriment of your credit score and the inability to acquire funds when you need them.

 

 

Big Hospital Bill

 

You or a family member got a medical procedure done and then a couple of months later you get a bill in the mail. It’s the coinsurance portion – maybe 10%. But 10% of several thousands of dollars is still, well several hundreds of dollars you have to pay.

 

It’s a bummer right?

 

Well to soften the blow, many hospitals will offer payment plans. This can help you control cash flow.

 

Let’s say the procedure cost $6,000 and your coinsurance is 10% which is $600. If you decide to enroll in a 1-year payment plan, that’s $50 per month. It’s still better than paying all $600 at once especially if there is no interest involved. You can still continue your savings plan(s) with a little hiccup, which is saving $50 less for a short period of time.

 

Keep in mind that even if you have an emergency fund established paying the whole hospital bill is not an emergency.

 

If a payment plan is offered, why not take it? You don’t want to be in a situation where you suddenly lose your job, which qualifies as a true emergency and are kicking yourself for paying hundreds from your emergency savings that you could have used for essentials like groceries or part of your mortgage payment.

 

 

Low or No Interest Car Loan

 

Normally, I’d recommend paying a car off in full. Specifically, I recommend buying a slightly and gently used car because it has depreciated significantly. And then pay for it with cash.

 

But very few people are actually able to pay off a car in full, myself included. So the alternative is to work on obtaining a very low interest or zero interest loans. Because guess what, a zero interest loan is free money.  Sometimes zero-interest loans are only zero interest not for the full term of a loan, but only for a short period of time. This is the foundation of an awesome payment plan for your car.

 

For example, a 60-month loan may have a zero interest introductory rate for the first 12 months. That means you are borrowing free money for the first 12 months of the loan. If you can pay if off in 12 months, that’s fantastic! In this scenario, you’ve established payment plan to help control cash flow and it didn’t cost you a dime.

 

 

Bill Pay Options And Flexibility

 

Some bills are fixed and some are variable. And some are variable that can be fixed. For example, my energy company offers budget billing. In this option, you can choose to have the same bill amount spread over 12 months based on your usage history.

 

A budget billing system may work for you if you have extremely high bills in hot summer and freezing winter months. In these high billing months, a home’s energy bill can easily double even if you make minor adjustments to the thermostat.  It may also be appropriate if you are on a fixed income situation such as the recipient of pension payments.

 

A few years back I sign-up for budget billing myself. This was when I was living with my parents and brother in a larger home and the energy bill fluctuated a lot. Since that time, I have moved into a smaller home with a more efficient energy system and the bills are not nearly as volatile.

 

Plus, it’s all about anticipation. You know when it’s sweltering or freezing outside and the fact that your home has to work harder to keep up with the temperature you’ve set. Anticipate a larger bill and you’ll be proactive in making sure you have the funds to pay for it.

 

 

Increase Incoming Cash Flow

 

It goes without saying that the best way to tackle cash flow problems is work on ways to increase your cash flow. Cutting expenses may be easier, but can only do that to a certain extent. It’s even more important to find ways to increase your incoming cash to support your lifestyle choices. This includes asking for a raise or promotion, investing in high yield funds, or starting a small business on the side.

 

And don’t forget, controlling cash flow also means to flow some into your savings and your investing accounts.  The objective is to make sure you have the cash to pay yourself first for you and your family’s future. At some point, you will want to stop working and controlling what you put into your future for matters more in the long-run.

 

 

 

Your Thoughts:

  1. Do you use payment plans to control your cash flow?
  2. Have you paid for something in full and later regretted it?
  3. Do you have a budget to control where your cash is going each month?

 

 

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I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

 


 

8 thoughts on “Payment Plans To Control Cash Flow

  1. Hey SMM,

    I’m a believer in payment plans, but only when advantageous and preferably zero interest. I think one of the best ways to do it is to get a 0% introductory interest credit card for a big purchase, and then make the purchase. Next, put the credit card in a drawer, and set an auto-pay every month such that the entire balance is paid off before it starts accruing interest. It takes discipline, but is a free loan if done right.

    Cheers,
    Miguel

    1. Yes, it’s a free loan for sure. It’s funny how you mentioned having the credit card in the drawer. I have a few collecting dust in the drawer that I haven’t used for years. My wife initially signed up for them when she was single as a credit building tool. 🙂

    1. If we have the means, paying off in full and up front is the ultimate goal. If I can’t pay off something in full, that may be a signal in terms of how badly I need or don’t need something. But it’s just one measurement.

  2. Hi SMM, I’m with Tom here. I keep enough in reserves to pay off everything immediately. In the case of a recent vehicle purchase, we did put a chunk down and then paid it off aggressively. Had the loan for less than a year.

    Take care my friend!

    1. Paying off immediately is the best solution from a psychological standpoint and especially if high-interest rates are a factor. I’ve paid off a vehicle in the past. I can do so with the one I have now, but the cost of the loan is so minimal, it makes more sense to invest the amount I would use to pay off the loan.

    1. Spreading out is great and vital because you really don’t want to disturb the consistent savings plan you have in place. Similarly, I’ll start saving for a big expense early on and it will give me time to research and find the best deal I can. 🙂

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