The bill squirrel: How smoothing your debts can soothe money stress

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In these tight times, the managing director of AGL, at its latest investor briefing, imparted some helpful advice (alongside an announcement of a forecast doubling in profits next year).

Damien Nicks said: “We are acutely aware of the impact on our customers in this inflationary period.” His advice to cope? Switch from quarterly to monthly billing.

By doing the “bill squirrel”, you can use your bill money to save on loan interest, rather than letting big energy companies use it to ratchet up their profits.Credit: Dionne Gain

My advice back to that? Don’t ever let any provider charge you early – and even, sometimes, extra.

Most companies will allow you to pay in more frequent instalments. Yes, as often as monthly. Often, this means you will be contributing ahead of consuming. As a saving strategy, this is poor, as you haven’t yet incurred the “debt”.

It regularly costs you more than this, though. Some companies charge you a “loading” for paying more frequently – 15 per cent is not uncommon with insurance, for instance.

And your registration, if you pay it every six months, rather than in one yearly whack, for another example, usually costs you that bit more.

The way to effectively bill smooth is to stash cash before that bill is due.

If it is not a set payment or premium but a usage-versus-expense bill equation, and you pay ahead of time in instalments, any unused credits will (probably) be deducted from your next bill. Or your monthly deductions will eventually ease down.

But, in any case, you lose the use of your money for that time. What you’re doing is keeping cash in your service provider’s account, basically for its use.

And the whole in-advance situation removes your mobility; you will be less likely to leave a provider with which you have credit.

You also put yourself at extreme risk of becoming what I call a ‘Bill D.I.L’, where D.I.L. stands for digitally induced laziness. This is where automating your bills carries dual price perils.

One, it is easy to forget to check your deals every now and again to see if they are still competitive. Remember, a contract you have held for as few as two years, depending on the industry, is probably one that is too expensive.

The second danger of direct debits is you may fail to notice if they are, in fact, edging up over time. Monthly micropayments put extra or escalating expenses on autopilot.

So what should you do instead? The way to effectively bill smooth is to stash cash before that bill is due.

But, for goodness’ sake, do it for your own bottom-line benefit. Keep in control of the money for yourself. Over time, the cash you amass can become your emergency, or what I call “holy shit”, fund (in case “shit happens”).

So, how then do you bill smooth with minimal economic pain and maximum gain?

You sit down – first grab a glass of (cheap) wine if you need to make this more appealing – and add up your every annual, bi-annual and quarterly bill. Then you divide the total by your number of pays in a year. That is the amount you need to reserve for each one.

Incidentally, Centrelink does this for benefits recipients. A service called Centrepay reserves and actually remits an amount from payments each month for a variety of bills, including phone and internet, mortgage and rent, utilities and other Centrelink-approved businesses.

For your own bill savings set-up, overestimate, don’t underestimate. In budgeting and recalling expenses (even if you think they are all digital), often you can overlook one and be left short.

If you overestimate your monthly reserving requirements, you guard against that. You can also, essentially, get into credit for the next payment cycle. Hopefully, you’ll creep ahead.

But there is a way to use this money twice. Really.

The beauty of what I call the bill “squirrel” is that you can also deploy the money to save on your loan interest … rather than your raft of providers, using it to ratchet up earnings.

If you have a mortgage, consider housing your “living money” in an offset account alongside your mortgage. You may not know you can often have as many as 10 offset accounts linked to a mortgage, and can clearly name them with their purpose.

Let’s say from your bill stash strategy and your holy shit fund (ideally, eventually equivalent to six months’ salary), and any other savings, that you were able to sit $30,000 in an offset account against a $400,000 mortgage at an average 5 per cent, attacking your debt for you day-in, day-out.

You’d save almost $66,000 in home loan interest and get mortgage-free nearly 2.5 years early. And you’d still have the money to spend at the end.

Or, you know, you could decide to pay AGL and a bunch of other companies in advance, and in excess.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me. Follow Nicole on Facebook, Twitter or Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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