Dad's Life Hacks: No. 1 - Bills

My daughter said to me the other day, "I'm not ready to get my own apartment. Like, how do you even pay bills? I've never even paid a bill." That got me thinking that I should really give my kids some lessons in everyday living, some tips to get along in our world. But, given that we are so busy, my tips will be recorded here in my blog so they can get to it when they are ready and have the time. 

So, Life Hack No. 1 - Bills:

Bills are what you pay for services or products that you use. At the coffee shop or store, you pay the cashier in cash (or debit/credit card). But for the home, you are sent a bill that you pay with checks (or debit/credit cards). In the old days, you wrote a note on a piece of paper called a "check" that tells your bank who you are paying and how much. A check looks like this:

The blue texts are what you fill in, signature in lower right

These days, banks prefer you pay online so that they don't have to process all those pieces of paper checks. For online payments, you set up a list of payees (companies or people you are paying) with the companies' account numbers and addresses. When the company sends you a bill, you go online and pay them through your bank's online Bill Pay and it's done. No more pieces of paper. Here is a typical online banking Bill Pay screen:

Fill in the boxes and click "Make Payments"

There are major categories of bills: home (rent/mortgage), utilities (water, power, garbage), insurance (health, auto, home/rental), credit (loans) and taxes (income/property). 

Home: this is usually the biggest of your monthly bills. Try to keep this amount to no more than 30% of your total monthly income. If your rent/mortgage is greater than 30%, you might consider moving to a cheaper or smaller place or buying a smaller house. 

Utilities: these are the services you use to be comfortable at home. For water (including sewage) and garbage, you really do not have much choice to keep these amounts low. You have to drink water, flush toilets, and take your garbage away. You might be able to minimize water usage by reducing your landscape watering, but generally the water bills are pretty low. For power, natural gas and electricity, you have more control in how much you pay. Make sure to turn off lights when you are not in the room, use major appliances when the power rates are low (late in the night or early in the morning), and keep your thermostat colder than is comfortable without a sweatshirt. Don't get too comfortable.

Insurance: you need insurance for those accidents in life that could bankrupt you. If you get sick, health insurance will cover your doctor's bills. If you have an auto accident, auto insurance covers damages and medical costs. If a fire burns up your house, homeowners (renters) insurance pays for the lost items. Without insurance, you can go bankrupt if you have to use your savings to return to normal.

Credit: these are bills for items you purchased with a loan, like using a credit card. If you buy a car on credit, you pay a smaller down payment (say 20%) and pay off the remainder of the car in monthly payments including interest. The remainder is called the "balance". If you use credit cards to buy daily items (dinners, coffee, clothes), make sure to keep the balance low enough so that you can pay off the balance right away. Credit card interest is very high and it will cost you much more than the original cost if you carry your balance past the first due date. Pay off the balance as soon as you get the bill.

Taxes: at the end of the year, you will have to pay taxes. Taxes are for the teachers, firemen, policemen, soldiers, and other government services to live comfortably and safely in your country. Most of your taxes are taken out of your bi-weekly paychecks and you just have to file a report to certify that you have paid the correct amount of taxes. However, there are times when you make more money than has been taken from your paycheck and you have to pay the Internal Revenue Service (IRS) more than what was taken. 

If you are comfortable keeping track of your own finances, then a tax software (TurboTax) is what you need to manage your annual taxes. The IRS also has free software on their website if your taxes are not too complicated. If your taxes are very complicated, you will need an accountant to file your taxes for you. Your accountant will still require you to bring all your receipts and financial documents so they can file correctly.

OK, let me know if you have any questions.