Here’s a question for you.
When you get your bills, what do you do? Do you:
- Pay them off immediately
- Pay a few days later
- Pay them off close to the due date
- Pay them way past the due dates
- What? Bills? Should I pay them at all? 😛
Obviously options 4 and 5 should not be contemplated at all.
As for me, I have opted for option number 3.
Why Nadlique? Shouldn’t we pay our bills ASAP?
Well, here’s my rationale.
Money for bills is as good as a loss don’t you agree? It’s a sum of money that needs to be spent either way. There’s no going around that.
So, why not at least make some money off them?
What do I mean by that? Here’s an example:
Say I received my mobile phone bill on the 1st of April and the bill is due on the 2nd of May. The amount that needs to be paid is $100.00.
Now, instead of paying them off immediately, I’d defer the payment right till the end. i.e. somewhat near the 2nd of May. Why? Well, if you think about it, that $100.00 can be used to earn you some interests.
Assume the savings account interest rate is 12% p.a. Deferring the payment by 1 month will earn you, give or take, approximately $1.00. (12% X $100 / 12 months). If I had paid the the bill early, I would be foregoing the 1 month worth of interests.
Also, effectively, you have now given yourself a discount. If you take the $1 worth of interests into consideration, you only need to cough up $99 to pay the bill.
$1 might not seem like much but it does add up as you go along. Also, imagine if you’re a company that has bills worth thousands or millions of dollars?
Based on the assumptions above, if you had a $1,000,000 bill that needs to be paid, deferring by one month would approximately give you back $10,000.
Please take note that to make this little strategy be worthwhile, you need to be:
1. Very organised. You need to remember that there are bills to be paid and need to know the due date of each. Forgetting to pay can result into the strategy backfiring. Instead of earning interest, you are now slammed with late-payment penalty fees.
2. Make sure the payment is received by them by the due date. i.e. if it is due on the 2nd of May, make sure the company receives it by 2nd of May. There’s a big difference in paying in person on the due date and posting a cheque on the due date. Remember, cheques posted may need a few days to arrive and clear. Again, this is to avoid from getting the late-payment penalty fee.
So, there you go 🙂
P.S. I’m using the term interests loosely here in this article. It may refer to both the conventional banking’s interests or Islamic banking equivalent.
Disclaimer: This article is not a specific nor general advice on managing or investing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.
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