6 Ways to Avoid the Cost of Procrastination
Published March 10th, 2008
Although many people don’t think about it, all of those extra costs, service fees, and interest payments that come up throughout the year can add up to hundreds of dollars when all is said and done. I’ve decided to compile a list of ways to cut down on extra fees and interest on 6 things you would pay for anyway, by dealing with them in an organized and timely manner.
Some of these methods may require a bit of time for organization and advance planning, but if you can swing it, the savings will really add up week by week!
1) Pay your bills on time
Sure, maybe this sounds obvious, but every time you forget to pay something and incur a penalty fee or interest charge, it costs you your hard earned disposable income. Some people advocate the use of pre-authorized payments. I sit on the fence in this area: We are paying back a huge debt from school, so I watch my cash flow carefully, and am happy to put fixed monthly costs such as my long distance plan or ISP on automatic withdrawal, but pay the fluctuating utility bills manually at my convenience. Technology has made life easier in many ways, but I personally still use a large paper calendar with big boxes for notes to visually keep track of when income comes in and bills are due to go out. When a new bill comes in, it gets opened up, goes in the front basket, and gets put in the calendar for a couple of business days before the due date. When the bill is paid, it gets put in a separate drawer to be filed.
2) Make weekly instead of monthly mortgage payments
By taking what you would have paid at the end of the month, and dividing it into 4 or 5 weekly payments you’re paying off your mortgage faster with less interest. How does this work? There are many different formulas for accelerated mortgage payments, but we’ve chosen to pay every week (or 52 times a year). Instead of waiting until the end of the month to pay anything, and having the bank charge us the full amount of interest on the balance of the mortgage, we’re making payments on our principle week by week instead of month by month. This means we drastically cut down on the amount of compound interest the bank can charge us, make 4 extra weekly payments a year (because some months will have extra weeks), and cut several years off our mortgage by only paying a little bit more than we would have anyway! (My U.S. friends…I live in Canada…don’t know what the rules are down there…) I would imagine the best time to sign up might be when you actually set up your mortgage. Either way, your personal banker is probably a good place to start if you want further information on accelerated mortgage payments.
3) Contribute regularly to your retirement plan
Don’t let the numbers like having 1 or 2 million dollars for retirement scare you. Just look at starting now. The power of time and compound interest are your friends. Don’t let yourself feel scared or inadequate when you hear people throw around large numbers: The truth is that slow, steady, and secure is the lowest risk way to win the race. We’ve all seen the bar charts about the power of compounding interest…how Suzy invested $500 a year when she was in her early 20s, and Mary invested 5x as much in her 40s, but would still earn much less at retirement…
Spend some time doing your homework, choose a low fee but moderately paying mutual fund, and start automatic withdrawals right away. Don’t be embarrassed, even if all you can afford is $25 a week, or even $25 a month, it can still add up to something significant if you leave it in there with time on your side. As you’re able to, just keep gradually increasing this amount. Ideally you should invest 10% of your income a month–I repeat–don’t let the numbers scare you. By investing regularly, either every week or every month, you get to take advantage of the fluctuations in the price of the unit: Some months you’ll get more shares for your money, others you’ll get a bit less–either way it hedges against you having to buy all at once for a potentially higher price. The other advantage to investing regularly is that you’ll earn more by having the money in your plan for a longer period (as opposed to only buying at the end of a year and missing out on some of the growth).
You will always be further ahead by starting small and paying yourself first over doing nothing. Investing even a small amount in your future will be much more gratifying than a dinner out or a new sweater in the long term.
Plus, the investment statements, and watching your money grow over time, will spur you forward. I like automatically withdrawing the amount you choose because there are no excuses, you pay yourself just like you would the phone company every month. You’ll see that you adapt to living on a bit less money easily. Putting off saving for retirement is literally costing you thousands of dollars in potential interest–so start right now.
4) Work around the financing fees
Often your insurance company or other companies you pay bills to will charge you a set or percentage fee to finance or pay monthly. It can really vary, and the fee can be hidden, so ask up front if it’s costing you anything extra to pay by the month. Also, ask if there is a discount for paying a year’s worth of fees up front. If you’re able to do this, you may be able to save yourself some money.
The other way you can work around financing fees is to pay yourself. For example, we really needed to get rid of our 10 year old double bed ASAP (sore backs…poor sleep…dogs taking over the bed…), and would have been ready to buy 6 months from then, but got a good “don’t pay for a year” deal on a floor model. We made sure there was no service fee and no interest charges until the year was up. So, over the 12 months, I made regular deposits into a high interest savings account, paid off the full balance on time, and earned well over a hundred dollars in interest. Only ever take this plan if you know you’ll be able to pay once the year is up, because the finance charges after the grace period are usually on par with a credit card or higher!
5) Plan your grocery purchases ahead of time
You can read the detailed plan in my post about 10 Ways to Save on Groceries, but here are some of the highlights:
Try planning your meals ahead of time and make a grocery list based on what you have in your cupboards and fridge, and what is on sale that week, rather that just what you feel like.
Entertaining people in your home has a priceless value for your soul and the relationships that surround you. Plan ahead to come up with cost effective but creative ways to feed your guests. Again, you’ll save money by being prepared and buying some of the items on sale and in bulk. Go through your recipe books or online for ideas that are sure to taste good and impress, but are easy on the bank account. This is always better than the expensive last minute rush to throw things in your cart, or multiple trips to the store hours before your guests arrive!
The sales rotate. When items you need are on sale, especially expensive things like paper products, condiments, cereals, dairy, and meats, stock up for at least a few weeks. By staying a head of the game, you’ll be sure to get huge discounts on these “big ticket” grocery items. You can even set the price at which you buy, for example, I only buy cases of yogurt when they go on sale for $3.99 CDN or less for 12 or 16 cups (as opposed to the usual $5.99-7.99).
6) Do your taxes right now
Yes, not many people enjoy doing their taxes–but you can’t hide from them! If you don’t already have a good idea whether you’re getting a refund, the sooner you find out, the better. Try filing as early as possible because it can take much longer for the government to process your taxes during the huge rush after the deadline. In Canada, your personal income tax documents (T4s, T22o2s etc. ) should have all arrived by the 1st week of March.
If you have a refund coming to you, and you file early (especially if you e-file and get them to direct deposit), you could have the money as soon as 2 weeks after you file. This means you could potentially get your refund weeks to even a couple of months sooner than if you’d waited until the April 30th deadline (Canada). Just think…if you’re using the refund to pay off debt, that’s 2 months less of interest you’re paying! Or, if you’re investing your refund that could be 2 months more interest you’d be earning!
If you owe money to the government, isn’t it better to find out weeks before the deadline and be prepared? Nothing like adding insult to injury and having to pay penalty interest on tax money you owe the government, just because you couldn’t get it together soon enough.
For my fellow Canadians, if you do your own taxes, you can put your correct info into the program at www.ufile.ca, and it will give you a good idea of what will happen. You only pay before you actually file via the web, but you can see the amount of refund or owing before that. Also, if you are a student, you can file for free using the code from the Canadian Federation of Students: http://www.ufile.ca/home/cfs.asp Alternatively, you can always organize all of your documents and take them in to an accountant or tax preparation service.
Well, hope this post has given you some food for thought, and helps you save money on things that might be a regular part of your life.
Mr. Debtbeater on March 19, 2008
Our mortgage contract has no problem with pre-payments, but I think they’ll only accept a principal-only payment if the amount is greater than or equal to one full month’s payment. I don’t think all banks are like that, but as you said…definitely make sure you talk to your bank to learn of any limitations to the payment structure.